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Economics of Ethanol Production, a Brief Introduction

Listed author(s):
  • Jonathan R.Evers


    (PhD Student, Griffith University, Australia)

  • Tor Hundloe


    (Environmental Management, Griffith University, Australia)

  • Peter Daniels

    (Griffith University, Australia)

Registered author(s):

    This research has been carried out to establish; the importance of valuing externalities in relating decision making to the triple bottom line of ethanol production. By treating organic wastes as a resource and applying a different method of waste management, organic wastes could contribute significantly to global energy needs. The ethanol distillation process has a waste product - stillage; a soup like waste stream that contains substantial organic content. By digesting this material to optimum efficiency there are three resources recovered – biogas (80% methane), biosolids (high in nutrients equivalent to high grade fertiliser) and recyclable water. Current waste treatment in the ethanol production industry focuses on drying the stillage waste and using the resultant material as mulch to be spread over crops; energy intensive, has little benefit and increases the cost of production. Therefore if a waste treatment process could convert the waste into recoverable resources; such as methane; then the subsequent methane utilised back in the distillation / production process as a source of energy, this would essentially reduce the cost of producing ethanol in accordance with the true costs being considered – in other words making sure all externalities are valued. Unless an economic advantage can be established, the true benefit of valuing this type of waste treatment is redundant. This relates to the current way in which the economy works. Ultimately all decisions of business and industry relate to the bottom line, the profitability of a project, will the project make money. By putting a value on externalities associated with a project or process it can be shown whether a project will be profitable, even when considering the impact on the environment and society, not just the economy. Ultimately, when all externalities can be quantified and valued and shown to be positive - the project is inherently sustainable Values for the externalities can be derived from various references such as: current market value. Carbon now has a value per tonne of emissions established in several markets around the world – these values can be attributed directly to energy use. The value of water has been established through research and can also be attributed to water use. The total economic value (TEV) of water, can be broken down into three components: the direct use-value (used or potentially useable by humans); the ecological support value (value to the environment), and the option value (value to society from having the resource available at some time in the future to be used). Ecosystem support value is associated with the assumed contributions of the resource cycles in their naturally-occurring states, or in some similar state, to provide flows to the ecosphere of the area – such as carbon, water and nitrogen. To the degree that the water is removed from the area, as with the industrial uses, for instance, this value is lost. Use value is triggered explicitly by the removal of the water from the aquifer, and its delivery to a specified user, or its storage in a location where it is available for use, in some way, by humans. Therefore, this research aims to show that within ethanol distillation, by utilising waste treatment to recover resources, using those resources directly in the operation / process / production, valuing all externalities associated both foregone and utilised; the cost of production should decrease when scrutinised from an environmental economic perspective.

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    Paper provided by Environmental Economics Research Hub, Crawford School of Public Policy, The Australian National University in its series Environmental Economics Research Hub Research Reports with number 0931.

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    Date of creation: Jun 2009
    Handle: RePEc:een:eenhrr:0931
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    1. Baker, Allen & Zahniser, Steven, 2007. "Ethanol Reshapes the Corn Market," Amber Waves, United States Department of Agriculture, Economic Research Service, May.
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