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We need stable, long-term policy support! — Evaluating the economic rationale behind the prevalent investor lament for forest-based biofuel production
RISE Research Institutes of Sweden, Built Environment, System Transition and Service Innovation. Luleå University of Technology,Sweden.ORCID iD: 0000-0002-5662-570X
RISE Research Institutes of Sweden, Bioeconomy and Health, Biorefinery and Energy.ORCID iD: 0000-0003-1820-0505
Luleå University of Technology,Sweden.
Luleå University of Technology,Sweden; International Institute for Applied Systems Analysis, Austria.
2022 (English)In: Applied Energy, ISSN 0306-2619, E-ISSN 1872-9118, Vol. 318, article id 119044Article in journal (Refereed) Published
Abstract [en]

Uncertain and unstable policy support has often been claimed to be a major cause of the slower than expected deployment of technologies for production of advanced biofuels. We investigate the economic rationale of this claim by applying a real options framework incorporating uncertainties regarding energy prices, investment costs, and prevalence of policy support, in terms of an economic support per produced unit of biofuel depending on the greenhouse gas (GHG) mitigation potential. Six industrially relevant forest-based technologies for production of drop-in biofuels were evaluated. The technologies were integrated with a pulp mill and an oil refinery and are at different stages of their technical development. The results show that there is a limited economic rationale behind the claim that policy uncertainties are a major source for the stalled deployment of forest-based biorefinery technologies. Only technologies that require very high policy support to become economically viable, with associated low likeliness of investment, showed any significant sensitivity to the policy uncertainty. The results show that the stalled deployment is mainly related to the uncertainties regarding investment costs and future energy prices — and not related to the specific policy uncertainty. The results show that the stalled deployment is mainly related to the uncertainties regarding investment costs and future energy prices. This results in technologies with lower sensitivity with respect to these uncertainties have a larger chance of becoming commercially relevant investment options. The findings show that reduced policy uncertainty will neither lead to earlier investments nor improve the commercial viability of emerging biorefinery technologies. Literature citing policy uncertainty as the main hindrance for commercial deployment cannot do so from an economic perspective without simultaneously investigating the impacts from investment cost and market price uncertainties. Additionally we find that if policy support is intended to promote investment in technologies with high GHG performance, it must be directed specifically to these technologies, otherwise, it is more beneficial to invest in technologies with more favourable conditions for investment and operational costs, but lower GHG performance. © 2022 The Authors

Place, publisher, year, edition, pages
Elsevier Ltd , 2022. Vol. 318, article id 119044
Keywords [en]
Drop-in biofuels, Integration, Pulp mill, Real options, Uncertainty
National Category
Energy Engineering
Identifiers
URN: urn:nbn:se:ri:diva-59211DOI: 10.1016/j.apenergy.2022.119044Scopus ID: 2-s2.0-85129765573OAI: oai:DiVA.org:ri-59211DiVA, id: diva2:1667511
Note

Funding details: Energimyndigheten, 39740-1; Funding text 1: This work was carried out under the auspices of Forskarskolan Energisystem, financed by the Swedish Energy Agency, Sweden (project No. 39740-1 ). Additional support from Bio4Energy, Sweden is also gratefully acknowledged.

Available from: 2022-06-10 Created: 2022-06-10 Last updated: 2023-05-22Bibliographically approved

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Zetterholm, JonasMossberg, Johanna

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