An Economic Breakeven Model of Cellulosic Feedstock Production and Ethanol Conversion with Implied Carbon Pricing

Miranowski, John; Rosburg, Alicia

WP #10002, February 2010

 The objectives of this paper include: 1) developing an economic framework to estimate long run equilibrium breakeven prices that cellulosic ethanol processors can pay for the marginal or last unit of biomass feedstock they purchase and still breakeven and that cellulosic feedstock producers need to receive for supplying the last unit of feedstock delivered to a commercial-scale plant; 2) estimating the gap or difference between the biorefinery’s willingness to pay (WTP) or derived demand for the last unit of cellulosic feedstock and the suppliers’ willingness to accept (WTA) or marginal cost (MC) of supplying the last unit of feedstock; 3) completing a life-cycle analysis (LCA) of each feedstock alternative or a “well-to-wheels” accounting of the potential greenhouse gas (GHG) savings associated with feedstock-specific ethanol relative to gasoline; and 4) calculating the carbon price or credit necessary for a biofuel market to exist in the long run. The model is designed to address various policy issues related to cellulosic biofuel production, including cellulosic biofuel production costs, the cost of cellulosic feedstock production when accounting for all costs incurred, government intervention costs either through tax credits and other incentives needed to sustain biofuel markets or through mandates to achieve the revised Renewable Fuels Standard (RFS.2), and finally, the implicit price or credit for CO2e embodied in cellulosic biofuel.