Subsidies per Unit Greenhouse Gas Displaced

A common claim by biofuels supporters is that ethanol will play an important role in facilitating the transition to a society with a low carbon footprint. To test how efficient existing policies are in getting us there, we examine the subsidy cost per metric ton of CO2-equivalent displaced, and then compare this cost with the value of carbon offsets on the world's two major climate exchanges in Chicago (CCX) and Europe (ECX). The results are shown in Table 4.3.

The GHG displacement factors show a large variation across data sources. This is likely due to the complexity of the systems being modeled, but the variation forms a critical policy issue. As Kammen et al. (2007: 4) note:

the indirect impacts of biofuel production, and in particular the destruction of natural habitats (e.g. rainforests, savannah, or in some cases the exploitation of 'marginal' lands which are in active use, even at reduced productivity, by a range of communities, often poorer households and individuals) to expand agricultural land, may have larger environmental impacts than the direct effects. The indirect GHG emissions of biofuels produced from productive land that could otherwise support food production may be larger than the emissions from an equal amount of fossil fuels.

For corn ethanol, researchers cannot even agree on the direction of impact. Thus, at one end of the displacement factors, GHG emissions rise rather than fall from its production. This would imply very large subsidies per metric ton of extra CO2-equivalent emitted ($600 per metric ton in the case of corn ethanol).

The best possible case for corn-based ethanol uses the lower bound subsidy estimate and divides it by the most favorable studies showing GHG reductions over the ethanol fuel cycle. Even here, subsidies per metric ton displaced are around $300.25 Based on historical prices for carbon offsets, this same investment could

25 This value is lower than in our October 2006 study due to the use of a more favorable upper-end displacement value (a scenario with natural gas-fired plant capacity and avoided drying costs by direct use of wet distillers grain byproducts) based on new work by Wang et al. (2007). This scenario performs well above the average corn-ethanol plant of the future, also modeled in that same paper.

Table 4.3 Subsidy cost per unit of CO2 equivalent displaced
Guide to Alternative Fuels

Guide to Alternative Fuels

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