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Biofuel from Jatropha curcas: Environmental sustainability and option value

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  • Basili, Marcello
  • Fontini, Fulvio

Abstract

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.

Suggested Citation

  • Basili, Marcello & Fontini, Fulvio, 2012. "Biofuel from Jatropha curcas: Environmental sustainability and option value," Ecological Economics, Elsevier, vol. 78(C), pages 1-8.
  • Handle: RePEc:eee:ecolec:v:78:y:2012:i:c:p:1-8
    DOI: 10.1016/j.ecolecon.2012.03.010
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    References listed on IDEAS

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    1. Bjerksund, Petter & Stensland, Gunnar, 1993. "Closed-form approximation of American options," Scandinavian Journal of Management, Elsevier, vol. 9(Supplemen), pages 87-99.
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    3. 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.
    4. 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.
    5. Noureddine Krichene, 2006. "Recent Dynamics of Crude Oil Prices," IMF Working Papers 06/299, International Monetary Fund.
    6. 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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    Citations

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    Cited by:

    1. van Eijck, Janske & Romijn, Henny & Balkema, Annelies & Faaij, André, 2014. "Global experience with jatropha cultivation for bioenergy: An assessment of socio-economic and environmental aspects," Renewable and Sustainable Energy Reviews, Elsevier, vol. 32(C), pages 869-889.
    2. repec:eee:renene:v:121:y:2018:i:c:p:623-631 is not listed on IDEAS
    3. Portugal-Pereira, Joana & Nakatani, Jun & Kurisu, Kiyo & Hanaki, Keisuke, 2016. "Life cycle assessment of conventional and optimised Jatropha biodiesel fuels," Renewable Energy, Elsevier, vol. 86(C), pages 585-593.
    4. Pu Peng & Wenguang Zhou, 2014. "The Next Generation Feedstock of Biofuel: Jatropha or Chlorella as Assessed by Their Life-Cycle Inventories," Agriculture, MDPI, Open Access Journal, vol. 4(3), pages 1-14, July.
    5. Portugal-Pereira, Joana & Nakatani, Jun & Kurisu, Kiyo H. & Hanaki, Keisuke, 2015. "Comparative energy and environmental analysis of Jatropha bioelectricity versus biodiesel production in remote areas," Energy, Elsevier, vol. 83(C), pages 284-293.
    6. Lim, Bo Yuan & Shamsudin, Rosnah & Baharudin, B.T. Hang Tuah & Yunus, Robiah, 2015. "A review of processing and machinery for Jatropha curcas L. fruits and seeds in biodiesel production: Harvesting, shelling, pretreatment and storage," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 991-1002.
    7. Litvine, Dorian & Gazull, Laurent & Dabat, Marie-Hélène, 2014. "Assessing the potential demand for biofuel by combining Economics and Psychology: A focus on proximity applied to Jatropha oil in Africa," Ecological Economics, Elsevier, vol. 100(C), pages 85-95.

    More about this item

    Keywords

    Biofuel; Jatropha curcas; Real option value;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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