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Opportunity for Profitable Investments in Cellulosic Biofuels


  • Babcock, Bruce A.
  • Marette, Stephan
  • Treguer, David


Research efforts to allow large-scale conversion of cellulose into biofuels are being undertaken in the US and EU. These efforts are designed to increase logistic and conversion efficiencies, enhancing the economic competitiveness of cellulosic biofuels. However, not enough attention has been paid to the future market conditions for cellulosic biofuels, which will determine whether the necessary private investment will be available to allow a cellulosic biofuels industry to emerge. We examine the future market for cellulosic biofuels, differentiating between cellulosic ethanol and ‘drop-in' cellulosic biofuels that can be transported with petroleum fuels and have equivalent energy values. We show that emergence of a cellulosic ethanol industry is unlikely without costly government subsidies, in part because of strong competition from conventional ethanol and limits on ethanol blending. If production costs of drop-in cellulosic biofuels fall enough to become competitive, then their expansion will not necessarily cause feedstock prices to rise. As long as local supplies of feedstocks that have no or low-valued alternative uses exist, then expansion will not cause prices to rise significantly. If cellulosic feedstocks come from dedicated biomass crops, then the supply curves will have a steeper slope because of competition for land.

Suggested Citation

  • Babcock, Bruce A. & Marette, Stephan & Treguer, David, 2012. "Opportunity for Profitable Investments in Cellulosic Biofuels," Staff General Research Papers Archive 34900, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:34900

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    References listed on IDEAS

    1. Amani Elobeid & Simla Tokgoz & Dermot J. Hayes & Bruce A. Babcock & Chad E. Hart, 2006. "Long-Run Impact of Corn-Based Ethanol on the Grain, Oilseed, and Livestock Sectors: A Preliminary Assessment, The," Center for Agricultural and Rural Development (CARD) Publications 06-bp49, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    2. Uwe Schneider & Bruce McCarl, 2003. "Economic Potential of Biomass Based Fuels for Greenhouse Gas Emission Mitigation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 24(4), pages 291-312, April.
    3. Petrolia, Daniel R., 2006. "The Economics of Harvesting and Transporting Corn Stover for Conversion to Fuel Ethanol: A Case Study for Minnesota," Staff Papers 14213, University of Minnesota, Department of Applied Economics.
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    Cited by:

    1. Hermann Lotze-Campen & Martin Lampe & Page Kyle & Shinichiro Fujimori & Petr Havlik & Hans Meijl & Tomoko Hasegawa & Alexander Popp & Christoph Schmitz & Andrzej Tabeau & Hugo Valin & Dirk Willenbocke, 2014. "Impacts of increased bioenergy demand on global food markets: an AgMIP economic model intercomparison," Agricultural Economics, International Association of Agricultural Economists, vol. 45(1), pages 103-116, January.
    2. Rosburg, Alicia & Miranowski, John & Jacobs, Keri, 2013. "Cellulosic Biofuel Supply with Heterogeneous Biomass Suppliers: An Application to Switchgrass-based Ethanol," Staff General Research Papers Archive 36359, Iowa State University, Department of Economics.
    3. Dumortier, Jerome & Kauffman, Nathan & Hayes, Dermot J., 2015. "Uncertainty and Time-to-Build in Bioenergy Crop Production," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205574, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    4. Bamiére, Laure & Martinet, Vincent & Gouel, Christophe & Le Cadre, Elodie, 2011. "Stochastic Viability of Second Generation Biofuel Chains: Micro-economic Spatial Modeling in France," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114238, European Association of Agricultural Economists.
    5. Rosburg, Alicia & Miranowski, John & Jacobs, Keri, 2016. "Modeling biomass procurement tradeoffs within a cellulosic biofuel cost model," Energy Economics, Elsevier, vol. 58(C), pages 77-83.
    6. Dumortier, Jerome & Kauffman, Nathan & Hayes, Dermot J., 2017. "Production and spatial distribution of switchgrass and miscanthus in the United States under uncertainty and sunk cost," Energy Economics, Elsevier, vol. 67(C), pages 300-314.
    7. Rosburg, Alicia Sue, 2012. "Essays concerning the cellulosic biofuel industry," ISU General Staff Papers 201201010800003732, Iowa State University, Department of Economics.
    8. Wamisho, Kassu & De Laporte, Aaron & Ripplinger, David, 2015. "Biomass Contracts for Ethanol Production: The Role of Farmer’s Risk Preferences," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205703, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    9. Pierre-André Jouvet & Frédéric Lantz & Elodie Le Cadre, 2011. "The bioenergies development: the role of biofuels and the CO2 price," Working Papers 2011/02, INRA, Economie Publique.
    10. Dumortier, Jerome, 2013. "Co-firing in coal power plants and its impact on biomass feedstock availability," Energy Policy, Elsevier, vol. 60(C), pages 396-405.
    11. Dumortier, Jerome, 2015. "Impact of agronomic uncertainty in biomass production and endogenous commodity prices on cellulosic biofuel feedstock composition," IU SPEA AgEcon Papers 198707, Indiana University, IU School of Public and Environmental Affairs.
    12. Dumortier, Jerome, 2014. "Impact of different bioenergy crop yield estimates on the cellulosic ethanol feedstock mix," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 171168, Agricultural and Applied Economics Association.


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