Iowa State University Capstones, Theses and Graduate Theses and Dissertations Dissertations 2012 Essays concerning the cellulosic biofuel industry Alicia Sue Rosburg Iowa State University Follow this and additional works at: https://lib.dr.iastate.edu/etd Part of the Agricultural and Resource Economics Commons, Agricultural Economics Commons, Economics Commons, and the Natural Resource Economics Commons Recommended Citation Rosburg, Alicia Sue, "Essays concerning the cellulosic biofuel industry" (2012). Graduate Theses and Dissertations. 12725. https://lib.dr.iastate.edu/etd/12725 This Dissertation is brought to you for free and open access by the Iowa State University Capstones, Theses and Dissertations at Iowa State University Digital Repository. It has been accepted for inclusion in Graduate Theses and Dissertations by an authorized administrator of Iowa State University Digital Repository. For more information, please contact [email protected]. Essays concerning the cellulosic biofuel industry by Alicia Sue Rosburg A dissertation submitted to the graduate faculty in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Major: Economics Program of Study Committee: John Miranowski, Major Professor James Bushnell Keri Jacobs Brent Kreider Quinn Weninger Iowa State University Ames, Iowa 2012 Copyright © Alicia Sue Rosburg, 2012. All rights reserved. ii DEDICATION I would like to dedicate this thesis to my husband Eric. Your unconditional love and support, even in my crazy moments, made this journey attainable. Never will I be able to thank you enough. iii TABLE OF CONTENTS LIST OF FIGURES ............................................................................................................................... vi LIST OF TABLES .............................................................................................................................. viii LIST OF ACRONYMS .......................................................................................................................... x ACKNOWLEDGEMENTS .................................................................................................................. xi CHAPTER 1. GENERAL INTRODUCTION ....................................................................................... 1 1.1 Overview ...................................................................................................................................... 1 1.2 Dissertation organization .............................................................................................................. 2 CHAPTER 2. CELLULOSIC BIOFUEL: AN OVERVIEW OF THE POLICIES, POTENTIAL, AND CHALLENGES ............................................................................................................................ 5 2.1 Introduction .................................................................................................................................. 5 2.2 Historical background .................................................................................................................. 5 2.3 Biofuel policy drivers ................................................................................................................. 16 2.3.1 Energy independence and security ...................................................................................... 17 2.3.2 Agricultural and rural economy support .............................................................................. 20 2.3.3 Climate change and environmental concerns ...................................................................... 21 2.4 First-generation biofuels and transition to second-generation biofuels ...................................... 22 2.5 Alternative biomass sources ....................................................................................................... 24 2.6 State of industry and market uncertainty .................................................................................... 31 2.7 Other challenges of cellulosic biofuel expansion ....................................................................... 36 2.8 Conclusions ................................................................................................................................ 38 CHAPTER 3. AN ECONOMIC EVALUATION OF U.S. BIOFUEL EXPANSION USING THE BIOFUEL BREAKEVEN PROGRAM WITH GHG ACCOUNTING ............................................... 39 3.1 Introduction ................................................................................................................................ 39 3.2 Economic framework for the BioBreak program ....................................................................... 41 3.2.1 Biofuel processor ................................................................................................................. 42 3.2.2 Biomass supply .................................................................................................................... 44 3.2.3 Biofuel market feasibility .................................................................................................... 46 3.2.4 Mandated biofuel production and waiver credits ................................................................ 47 3.3 Simplifying assumptions ............................................................................................................ 48 3.4 Application of the BioBreak program ........................................................................................ 49 iv 3.4.1 Baseline results .................................................................................................................... 52 3.4.2 Sensitivity analysis .............................................................................................................. 54 3.4.3 Comparison with previous literature ................................................................................... 59 3.5 Implicit carbon price................................................................................................................... 62 3.5.1 Economic model of cellulosic biofuel blend mandate ......................................................... 63 3.5.2 Carbon price for mandate equivalent production ................................................................ 67 3.5.3 Mandate equivalent implicit carbon tax/credit from BioBreak program results ................. 69 3.5.4 Comparison of carbon price estimates with previous literature .......................................... 71 3.6 Conclusions ................................................................................................................................ 73 CHAPTER 4. CELLULOSIC BIOFUEL SUPPLY WITH HETEROGENOUS BIOMASS SUPPLIERS: AN APPLICATION TO SWITCHGRASS-BASED ETHANOL ................................. 75 4.1 Introduction ................................................................................................................................ 75 4.2 Cost structure for cellulosic biofuel production ......................................................................... 78 4.3 Theoretical framework: long-run cellulosic biofuel production cost ......................................... 81 4.3.1 Feedstock procurement cost ................................................................................................ 81 4.3.2 Biofuel processing cost ........................................................................................................ 83 4.3.3 Biorefinery objective function ............................................................................................. 84 4.3.4 Fixed biomass density approach: use and limitations .......................................................... 85 4.4 Estimation and data .................................................................................................................... 87 4.4.1 Estimating local participation rate functions ....................................................................... 87 4.4.2 Data and parameter assumptions ......................................................................................... 93 4.4.3 CRD acreage constraint ....................................................................................................... 96 4.4.4 Empirical specification and estimation procedure ............................................................... 96 4.5 Results ........................................................................................................................................ 97 4.5.1 Baseline model results ......................................................................................................... 97 4.5.2 Impact of fixed versus endogenous participation rates...................................................... 104 4.5.3 Sensitivity analysis ............................................................................................................ 110 4.6 Conclusions .............................................................................................................................. 119 CHAPTER 5. GENERAL CONCLUSIONS ..................................................................................... 121 APPENDIX A. ADDITIONAL MATERIAL FOR CHAPTER 2 ..................................................... 125 Appendix A.1 – Timeline of federal ethanol policies and major events ........................................ 125 Appendix A.2 – Biomass-to-ethanol production processes for lignocellulosic feedstocks ............ 127 v APPENDIX