Effectiveness of government subsidies for biomass-based industries: Incorporating the feedstock acquisition process

Governments are providing an increasing number of subsidy policies for biomass-based industries. Although one of the main barriers to the development of the biomass industry is the high cost of feedstock, it remains unclear how effective different subsidies are in addressing that barrier. In this paper, we categorize biomass subsidies and explore their effectiveness by developing a biomass feedstock supply model. First, we examined biomass subsidies in China and the United States and found that all biomass subsidies can be grouped into four categories based on the types of costs they seek to mitigate: production and transport subsidies for biomass utilization improvement and product and operating subsidies for specific biomass industry development. Then, we developed a game-theoretic model of the interactions between the government and biorefineries and compared the effectiveness of the subsidies. The results indicate that transport subsidies are more cost-effective at increasing biomass utilization. However, the production subsidy allows for more even use of biomass across different biorefineries. A combination of operating and product subsidies is more cost-effective in enhancing the profitability of specific biomass industries if the industry to be supported is quite unprofitable; otherwise, the product subsidy is better.