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CC BY-NC-ND V4.0, Open Access
Journal article
Impact of government subsidies on a cellulosic biofuel sector with diverse risk preferences toward feedstock uncertainty
Energy policy, Vol.146(C), p.111737
11/2020
Handle:
https://hdl.handle.net/2376/117853
Appears in Aviation Sustainability Center (ASCENT)
Abstract
Investment risk and uncertainty about the availability of biomass feedstock hinders the development of a mature cellulosic biofuel sector. The Biomass Crop Assistance Program (BCAP) is a federal program designed to subsidize farmers to establish, produce and deliver biomass feedstock to biorefineries. This study evaluated the impacts of BCAP on the optimal biofuel supply chain decisions considering feedstock yield uncertainty and associated investment risk given diverse risk preferences of the biofuel sector. The expected cost for a risk-neutral biofuel sector was minimized using a two-stage stochastic mixed integer linear program, whereas the Conditional Value-at-Risk of the supply chain was optimized for a risk-averse sector. Ex-ante analysis of a switchgrass-based biofuel sector in west Tennessee indicates BCAP payments could lower expected cost and investment risk for both risk-averse and risk-neutral biofuel sectors. However, the cost saving and risk reduction resulting from BCAP incentives for the risk-averse biofuel sector were higher than the risk-neutral biofuel sector. In addition, BCAP payments may drive more cropland to be converted for switchgrass, which potentially mitigates water-induced soil erosion and reduces greenhouse gas emissions associated with net carbon sequestration, but may also create unintended consequence of competition for land between food and fuel use.
•The impacts of BCAP on the optimal decisions of a cellulosic biofuel sector are analyzed.•Diverse risk preferences of the biofuel sector toward feedstock uncertainty is modeled.•We show BCAP subsidies lowered expected cost and investment risk for a biofuel industry.•A risk-averse biofuel industry gained more from BCAP subsidies than a risk-neutral one.•BCAP may create the unintended consequence of land competition for food versus fuel use.
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Details
- Title
- Impact of government subsidies on a cellulosic biofuel sector with diverse risk preferences toward feedstock uncertainty
- Creators
- Bijay P SharmaT. Edward YuBurton C EnglishChristopher N BoyerJames A Larson
- Publication Details
- Energy policy, Vol.146(C), p.111737
- Academic Unit
- Aviation Sustainability Center (ASCENT); Alternative Jet Fuel
- Publisher
- Elsevier Ltd
- Grants
- 13-C-AJFE-UTENN-Amd 5, Federal Aviation Administration (United States, Washington) - FAA
- Identifiers
- 99900581262301842
- Language
- English
- Resource Type
- Journal article