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A game theory analysis of market incentives for US switchgrass ethanol

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  • Luo, Yi
  • Miller, Shelie

Abstract

The Renewable Fuel Standard (2007) set aggressive cellulosic biofuel goals that have not been realized. Corn ethanol dominates the market and penetration of cellulosic ethanol is unlikely in the near term due to economic and technical barriers. This paper uses game theory to model biomass and ethanol production decisions and calculate the incentives that would be necessary to drive the industry to obtain the cellulosic ethanol goals. After identifying the desired performance of a cellulosic ethanol supply chain, a nonlinear optimization model is developed to analyze two major scenarios that estimate conservative and optimistic technological improvements in cellulosic biomass and ethanol production. A potential carbon market is explored to determine its efficacy as an incentive mechanism. Results indicate that a carbon market would only be sufficient to incentivize a cellulosic ethanol industry under the optimistic improvement scenario with the highest switchgrass price. For all other scenarios, the carbon price needed to incentivize the industry would exceed the reasonable range and additional incentives would be needed to achieve the production goals of the Renewable Fuel Standard.

Suggested Citation

  • Luo, Yi & Miller, Shelie, 2013. "A game theory analysis of market incentives for US switchgrass ethanol," Ecological Economics, Elsevier, vol. 93(C), pages 42-56.
    • Handle: RePEc:eee:ecolec:v:93:y:2013:i:c:p:42-56
    DOI: 10.1016/j.ecolecon.2013.04.015
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    References listed on IDEAS

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    1. Klaus Conrad, 2005. "Price Competition and Product Differentiation When Consumers Care for the Environment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(1), pages 1-19, May.
    2. Richard J. Plevin, 2009. "Modeling Corn Ethanol and Climate," Journal of Industrial Ecology, Yale University, vol. 13(4), pages 495-507, August.
    3. Adam J. Liska & Kenneth G. Cassman, 2009. "Response to Plevin," Journal of Industrial Ecology, Yale University, vol. 13(4), pages 508-513, August.
    4. Pehnt, Martin, 2006. "Dynamic life cycle assessment (LCA) of renewable energy technologies," Renewable Energy, Elsevier, vol. 31(1), pages 55-71.
    5. Scheffran, Jürgen, 2000. "The dynamic interaction between economy and ecology," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 53(4), pages 371-380.
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    Citations

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    Cited by:

    1. Moncada, J.A. & Junginger, M. & Lukszo, Z. & Faaij, A. & Weijnen, M., 2017. "Exploring path dependence, policy interactions, and actor behavior in the German biodiesel supply chain," Applied Energy, Elsevier, vol. 195(C), pages 370-381.
    2. Huynh Truong Gia Nguyen & Erik Lyttek & Pankaj Lal & Taylor Wieczerak & Pralhad Burli, 2020. "Assessment of Switchgrass-Based Bioenergy Supply Using GIS-Based Fuzzy Logic and Network Optimization in Missouri (U.S.A.)," Energies, MDPI, vol. 13(17), pages 1-18, September.
    3. Haji Esmaeili, Seyed Ali & Szmerekovsky, Joseph & Sobhani, Ahmad & Dybing, Alan & Peterson, Tim O., 2020. "Sustainable biomass supply chain network design with biomass switching incentives for first-generation bioethanol producers," Energy Policy, Elsevier, vol. 138(C).
    4. Waldemar Izdebski & Michał Izdebski & Katarzyna Kosiorek, 2023. "Evaluation of Economic Possibilities of Production of Second-Generation Spirit Fuels for Internal Combustion Engines in Poland," Energies, MDPI, vol. 16(2), pages 1-21, January.
    5. Elaheh Jafarnejad & Ahmad Makui & Ashkan Hafezalkotob & Amir Aghsami, 2024. "Governance intervention policies in the production competition of biofuels and fossil fuels: a pathway to sustainable development," Operations Management Research, Springer, vol. 17(2), pages 660-682, June.
    6. Haji Esmaeili, Seyed Ali & Sobhani, Ahmad & Szmerekovsky, Joseph & Dybing, Alan & Pourhashem, Ghasideh, 2020. "First-generation vs. second-generation: A market incentives analysis for bioethanol supply chains with carbon policies," Applied Energy, Elsevier, vol. 277(C).
    7. Bai, Yun & Ouyang, Yanfeng & Pang, Jong-Shi, 2016. "Enhanced models and improved solution for competitive biofuel supply chain design under land use constraints," European Journal of Operational Research, Elsevier, vol. 249(1), pages 281-297.
    8. De Laporte, Aaron V. & Weersink, Alfons J. & McKenney, Daniel W., 2016. "Effects of supply chain structure and biomass prices on bioenergy feedstock supply," Applied Energy, Elsevier, vol. 183(C), pages 1053-1064.
    9. Luo, Yi & Miller, Shelie A., 2017. "Using Game Theory to Resolve the “Chicken and Egg” Situation in Promoting Cellulosic Bioenergy Development," Ecological Economics, Elsevier, vol. 135(C), pages 29-41.

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