Biofuel from Jatropha curcas: Environmental sustainability and option value
This paper considers the use of a non-edible plant, Jatropha curcas (J. curcas), for the production of biofuel as a substitute for traditional fossil fuel. It is shown that the net energy balance and greenhouse gases (GHGs) balance are positive. The investment value in biofuel from J. curcas is also studied, and both its intrinsic and option values are calculated. A reference case is evaluated, namely, the cultivation of J. curcas as a substitute for conventional fuel in a specific less-developed country, Kenya, that lies in the tropical region where J. curcas grows. The investment is modeled as a perpetual investment call option. It is shown that the Net Present Value is positive for a vast range of discount factors and investment costs, while the option value depends crucially on the parameters of the model. A positive option value points out those cases in which it is optimal to defer the investment even if it entails a positive and possibly high Net Present Value.
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- Ariza-Montobbio, Pere & Lele, Sharachchandra, 2010. "Jatropha plantations for biodiesel in Tamil Nadu, India: Viability, livelihood trade-offs, and latent conflict," Ecological Economics, Elsevier, vol. 70(2), pages 189-195, December.
- Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, 01-2013.
- Noureddine Krichene, 2006. "Recent Dynamics of Crude Oil Prices," IMF Working Papers 06/299, International Monetary Fund.
- Bjerksund, Petter & Stensland, Gunnar, 1993. "Closed-form approximation of American options," Scandinavian Journal of Management, Elsevier, vol. 9(Supplemen), pages S87-S99.
- Searchinger, Timothy & Heimlich, Ralph & Houghton, R. A. & Dong, Fengxia & Elobeid, Amani & Fabiosa, Jacinto F. & Tokgoz, Simla & Hayes, Dermot J. & Yu, Hun-Hsiang, 2008. "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change," Staff General Research Papers Archive 12881, Iowa State University, Department of Economics.
- James L. Paddock & Daniel R. Siegel & James L. Smith, 1988. "Option Valuation of Claims on Real Assets: The Case of Offshore Petroleum Leases," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 479-508.
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