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Estimating the Cost-effectiveness of Biofuels

Economics Group, Defra
April 2008

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Estimating the Cost-effectiveness of Biofuels
Mario Deconti 1 April 2008

Summary • A range of carbon saving estimates for biofuels (from increased GHG emissions to savings of over 100%) exist in the literature and vary by feedstock, production process and assumptions about end use of co-products. Sugar-cane bioethanol is currently the most cost-effective biofuel produced. DfT, using Intergovernmental Analysis Group (IAG) methodology, estimate that currently biofuels have a higher cost for mitigating carbon relative to other measures. A review of the literature also found biofuels to be high cost, other than sugar-cane ethanol which is estimated to be cost-effective. As crude oil prices rise biofuels should become more cost-effective. A review of the literature found that the crude price at which biofuels become competitive varies by biofuel feedstock. Forward looking analysis suggests that sugar-cane and cellulosic...