Opportunity for Profitable Investments in CellulosicBiofuels

Author

Bruce Babcock, Stéphan Marette(stephan.marette@agroparistech.fr) and David Tréguer(dtreguer@worldbank.org)

Staff General Research Papers Archive from  Iowa State University, Department of Economics

Abstract: 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.

Keywords: Cellulosic biofuels; Market conditions; Investments (search for similar items in EconPapers)
Date: 2012-02-08
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Published in Energy Policy, February 2011, vol. 39 no. 2, pp. 714-719

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Journal Article: Opportunity for profitable investments in cellulosic biofuels (2011) 
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