86
Integrating Sector-Wide Reforms for Mitigation
Biofuel Market The biofuel market is growing steadily. Many countries, among them Argentina, Australia, Brazil, Canada, China, Colombia, the European Union (EU), India, Indonesia, Malaysia, Mexico, Peru, the Philippines, South Africa, and the United States, have set biofuel targets (Kojima, Bacon and Bhattacharya 2010). However, the commercial viability of biofuels is questionable. On one hand, with increasing awareness of climate change, the public is more interested in biofuels. A recent survey shows that nearly half the respondents would pay at least 20 cents more per gallon (5.3 cents per liter) for ethanol fuel (figure 3.9); however, another study found that their willingness would depend on the greenness of the biofuel. While the premium for E10 (90 percent gasoline, 10 percent ethanol) is estimated at 12 cents per gallon, for E85 (15 percent gasoline, 85 percent ethanol) it would be 15 cents—30 percent more. In any case, the amounts people are willing to pay are far below the incremental cost of biofuel production, so that the government would have to give substantial support, both direct and indirect, for biofuels to become competitive with gasoline. Biofuel Production Costs Brazil and the United States are the world’s two largest biofuel producers, but currently only Brazil has achieved commercially viable production (figure 3.10). While Brazil produces ethanol mainly from sugarcane and accounts for 42 percent of world ethanol fuel, the United States mainly uses maize to produce Figure 3.9 Willingness to Pay for Ethanol, United States 100 90 80 70
Percent
60 50 40 30 20 10 0
0
0.2
0.4 0.6 0.8 Additional dollars/gallon Fair share Willingness to pay
1.0
Source: Solomon and Johnson 2009.
Turning the Right Corner • http://dx.doi.org/10.1596/978-0-8213-9835-7