Production costs

Alexandre Proy realized a very interesting comparative study on the price of biofuel:

 »Costing of biofuels in France: taking externalities into account and comparing the cost price of diesel and unleaded petrol 95« 

Summary of the report

The depletion of fossil resources has highlighted the development of the biofuel sector ahead of that of electricity and fuel cells. Although the latter two offer significant potential for long-term penetration, biofuels stand out for their short-term access to the transport sector, which is dependent on 98% of oil.

Indeed, their incorporation can be done without even modifying the engines. While Europe decides to implement incentives to develop the biofuels sector, in order to respect the share of 12% renewable energy in 2010, it appears that differences exist between countries. Indeed, differences in tax exemption do not put all countries on the same footing, causing competitive distortions in the image of Germany, which has chosen to fully tax the biodiesel sector.

In order to know the development potential of this sector, this research paper attempted to estimate the cost prices of renewable and fossil fuels and to compare them between respective homologues (gasoline and ethanol, diesel and biodiesel). Given the challenges that biofuel production brings to our territory, it has been tempted to integrate external costs into the cost price of fuels.

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Indeed, the use of fuel generates externalities that affect the entire population, hence the interest of calculating the social cost of fuels. Several types of externality have been taken into account.

Firstly, externalities of an environmental nature that take into account the emission of greenhouse gases and related pollution such as human toxicity or damage to buildings. These revealed a clear advantage for biofuels, which in part owe it to lower greenhouse gas emissions.

Then, the externalities related to energy independence were integrated into the field of investigation. The risk incurred by our dependence on oil is reinforced by the increase in its price; this is why we can valorize the incorporation of biofuel which allows the reduction of this risk.

Finally, economic externalities need to be taken into account, as the production of biofuels on our territory would allow job creation, higher tax revenues and independence in animal feed.

However, this last issue is not included in the calculation because it does not concern the entire population. The condition for the integration of these externalities is a production on the national territory, without which these gains would be transferred to the producing country.

All of these externalities lead to a valuation of 0,20 € per liter of biodiesel and 0,09 € per liter of ethanol.

Calculation of the areas required for energy cultivation have shown that the objective of 2010 is to be quite feasible but would nevertheless represent more than 2 million hectares, ie 11,5% of all arable land.

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The interest for the farmers is to produce energy crops on fallow, thanks to which they can hope to release more added value than before or out of fallow where they will appreciate the premium of 45 € per hectare. The influence of the agricultural sector on the price of agricultural resources is not significant since prices are set by the market that follows the law of supply and demand.

After determining the factors influencing the cost price of each fuel, it has been estimated and compared, in the case of biofuels, with that of the United States. Off-Atlantic production shows a lower cost price for ethanol, unlike biodiesel.

In France, the cost price of biofuels is higher than that of their respective fossil counterparts, while oil prices are on record highs. Indeed, a liter of oil equivalent of biodiesel would cost 0,67 € against 0,34 € for diesel, while one liter of ethanol equivalent oil would cost 0,61 € against 0,29 € for unleaded petrol 95 (data calculated from table 3.3.1 ).

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This economic predominance of fossil fuels does not favor the emancipation of the biofuel sector, blocked by the monopoly and the lobby of the oil companies.

This advantage disappears when the externalities specific to each fuel are included, even on an energy value basis. Per liter, the cost price of biofuels is even lower than those of petroleum products. Thus, it will be of the order of € 0,37 per liter of biodiesel against € 0,40 for diesel, and € 0,32 for ethanol against € 0,42 for gasoline.

However, at present, revenues from the Internal Consumption Tax (formerly TIPP) are relatively substantial. And if we compare the "costs" of externalities between fuels, considering that ICT is an external cost, the advantage reappears for fossil fuels.

But, with variations in brent accompanied by the risk of the euro falling against the dollar, the cost price of fossil fuels could well undergo further increases, which would revive the desire to develop a parallel sector. The development of biofuels must, however, be structured and not leave aside the sector of pure vegetable oils, which, unlike the industrial sectors, allows a greater distribution of added value to the agricultural sector, as well as an effective fight against rural desertification.

This study is available for full download on this page: study on the price of biofuels

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