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The Shadow Price of GHG Reduction in Corn Ethanol Plants

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  • Wamisho, Kassu

Abstract

This article examines the cost of reducing CO2 emissions in a sample of recently built dry-grind corn ethanol plants. The analysis estimates a translog minimum value function that represents both the minimum cost and the minimum CO2 emissions for given levels of ethanol production. The results indicate that the average plant is able to reduce GHG emissions by 36 percent relative to the level under cost minimization, but production costs are 22 percent higher. The reallocations by which these emissions reductions are achieved are primarily the substitution of wet for dry distillers grains, with the corresponding reduction in the use of natural gas and electricity. To move from least cost to least emissions allocations, ethanol plants would on average produce 25 % more of wet byproduct and 47% less of dry byproduct. Comparing results across observations, the estimated shadow cost of emission abatement ranges from $86 to $190 per ton of CO2, with average value of $124 per ton. This implied shadow cost of abatement can be used as a bench mark for pollution trading and serves to assess the potential response to biofeul regulations.

Suggested Citation

  • Wamisho, Kassu, 2012. "The Shadow Price of GHG Reduction in Corn Ethanol Plants," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126862, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae12:126862
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    File URL: http://purl.umn.edu/126862
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    6. Ball, V. Eldon & Lovell, C.A. Knox & Luu, H. & Nehring, Richard F., 2004. "Incorporating Environmental Impacts in the Measurement of Agricultural Productivity Growth," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(03), December.
    7. Sesmero, Juan P. & Perrin, Richard K. & Fulginiti, Lilyan E., 2010. "Environmental Efficiency Among Corn Ethanol Plants," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61650, Agricultural and Applied Economics Association.
    8. Pittman, Russell W, 1983. "Multilateral Productivity Comparisons with Undesirable Outputs," Economic Journal, Royal Economic Society, vol. 93(372), pages 883-891, December.
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    Keywords

    GHG abatement; shadow price of abatement; corn ethanol; Environmental Economics and Policy; Resource /Energy Economics and Policy;

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