Approaches to Reducing the Social Cost of Biofuel Production, Distribution, and Consumption

Biofuels, and specifically next‐generation biofuels such as cellulosic ethanol, have the potential to create economic, environmental, and energy security benefits relative to the fossil fuels that currently power the transportation sector in the United States. However, issues involving ethanol production cost, emissions resulting from land use change, and infrastructure requirements may incur significant social costs. This dissertation examines social costs from different aspects of biofuel production, distribution, and consumption in an effort to inform policies that could reduce these costs.

This dissertation contains seven research chapters that examine social costs of ethanol at different points along the supply chain. This work begins by examining some impacts of cellulosic feedstock production. Land use change, especially indirect land use change, has been the most controversial topic within the biofuel research community in recent years, with some findings indicating that biofuels could be more carbon‐intensive than gasoline. However, cost reductions from cellulosic ethanol could be used to more than offset the increased emissions if policies are in place to balance the impacts. Ethanol production from forest thinnings, on the other hand, could result in a positive externality by reducing wildfire damage while also providing funds for additional fuel treatments.

Decisions regarding cellulosic ethanol facility size and location can have significant impacts on production cost. Cellulosic ethanol refinery investments over the next 12 years are expected to be on the order of $100 billion, so these decisions could be costly if made suboptimally.

The rest of the thesis examines costs and impacts of ethanol distribution, promoting a regional fuel strategy that would have ethanol consumed in high‐level blends (such as E85) in regions where it can be produced (mainly the Midwest and Southeast) rather than in low‐level blends throughout the country. Regional distribution would save billions of dollars per year in shipping costs and reduce shipping loads and congestion costs along the rail freight network. Imports of sugarcane ethanol produced in Brazil could be part of this regional fuel strategy, but costs for shipping the fuel from plants to ports within Brazil could be substantial. A key component of this regional fuel strategy is the penetration of both flex‐fuel vehicles and E85 infrastructure throughout ethanol producing regions, but these costs are generally less than the savings from reduced shipping costs.

Next‐generation biofuels such as cellulosic ethanol will play an increasing role in meeting transportation energy demand in the near future. This research will hopefully help shape policies that will allow cellulosic ethanol to meet demand while limiting social cost.