Feasibility Study Based on Concrete Institutional Economics

The main problem of the preceding cost-benefit analysis is that it does not provide sufficient information relevant to the specific decision-making process. When the authorities formed the committee, it was asked to

14Translated from Danish: Beregningerne viser, at energi produceret pa et biogasftllesanltg er cirka dobbelt sa bekosteligt som energi produceret pa et reference energianltg, selv nar visse landbrugs og milj0mtssige forhold er inddraget i beregningerne (Ris0 1991).

provide the basis for deciding whether or not to expand the energy system by implement ing large scale biogas stations in Denmark.15

However, the preceding study did not systematically adapt its analysis to the specific situation. This adaptation could have been performed by systematically asking and answering the questions what should be analyzed, for whom is the analysis being done, and why is the analysis being done?

The feasibility study conducted in the AAU report (Lund 1992a) involves a thorough analysis of those issues and comes to the following conclusions:

Question: What should be studied? Answer: The socioeconomic feasibility of the biogas scenarios. This means that the study should have a long-term perspective that also integrates the study of technological changes. Question: For whom and why? Answer: The study is essentially done for the Danish Parliament, which demands that information be used for deciding the future biogas strategy.

This means that the parameters applied to measure whether biogas is economically good or bad should be relevant to official energy policy objectives as well as to the overall economic objectives of the Danish Parliament. Consequently, a thorough description of such objectives was included in the feasibility study, leading to the results that, with regard to the Parliamentary energy policy, the analysis showed that both the official energy plan of that time, Energy Plan 81 (Danish Ministry of Energy 1981), and Danish law on heat supply declared that their main purpose was to secure and promote socio-economically best solutions. When defining the term socioeconomics, the official energy plan emphasized balance of payment and job creation as important considerations to include.

With regard to the overall Parliamentary economic objectives, the analysis showed that the financial statement of the authority (Danish Ministry of Finance 1991) emphasized the problem of unemployment. Good results had, in the previous years, been achieved with regard to other economic factors, but the unemployment rate had risen. The authorities targeted unemployment as the important problem to address in the coming period.

All in all, the analysis revealed that energy solutions that would increase employment, improve the balance of payment, decrease pollution, and increase GDP were important measures to fulfill the aims of Parliament. The analysis also showed that labor was a rather abundant resource, as unemployment mounted to 350,000 in 1990, equal to more than 10 percent of the workforce.

When returning to the applied neoclassical cost-benefit analysis, it is important to note that the study presumes full employment and does not consider foreign debt a problem. In all calculations, positive effects on

15Translated from Danish: ... at frembringe et grundlag for en stillingtagen til, om der er basis for en bredere udbygning med biogasf(llesanl(g i Danmark (Danish Energy Authorities 1991).

technological development, balance of payment, state finance, and employment were given no value, although such effects were given high priority in the aims of the Danish Parliament.

As a consequence, the AAU study included the preceding effects in its socioeconomic analyses. Calculations were made of a biogas scenario, assuming that 50 percent of all manure in Denmark from cattle, pigs, and poultry was used for biogas production. The outcome of this analysis is shown in Table 7.3.

The analysis revealed that if consumers were to pay the same price for heat and electricity as in the reference, the government had to provide a subsidy equal to 300 million DKK/year. However, Denmark would decrease its net imports (the decrease in import of fuel minus the increase in import of goods to construct the biogas stations) by 450 million DKK/year and increase its GDP by 750 million DKK/year. Such a situation is a token of a positive change. In the study, it is emphasized that the Danish government can choose to benefit from such a positive situation either by seeking to decrease foreign debts or by seeking to raise employment.

In Table 7.3, three examples are presented in which the biogas investment program is supplemented with different degrees of increases in income taxes (or other taxes). The three examples differ from one another. Thus, example 2 includes 1500 million DKK/year in extra tax used to maintain total buying power and production at a constant level. Example 3 has exactly the same

TABLE 7.3 AAU Study: Three Examples of the Biogas Scenario

of the Conseq


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