Towards a Genuine Sustainability Standard for Biofuel Production
de Gorter, Harry; Tsur, Yacov
Sustainability standards for biofuel production calculated via life cycle accounting (LCA) require a certain reduction in greenhouse gas (GHG) emissions relative to gasoline. Recently it has been shown that LCA gives biased results and should be extended to incorporate indirect land use change (iLUC). We show that even including iLUCs, LCA is still biased and distorted because it is based on GHG emission and uptake calculations, which assume economic values only if (i) the environmental price of carbon is constant over time and (ii) the social discount rate (SDR) equals zero. We offer a sustainability standard free of these restrictions, expressed in terms of a range of SDRs and a maximal GHG payback period. Applying our methodology to Brazilian and U.S. data, we find that in Brazil conversion to biofuel production of two land types is genuinely sustainable, i.e., satisfies our sustainability standard, whereas in the United States no land type satisfies our criterion. Furthermore, the social value of CO2e savings by having the ethanol production from 12.8 million hectares of U.S. corn be produced in Brazil instead may be as high as $817.7 bil.
WP 2009-12 March 2009
Charles H. Dyson School of Applied Economics and Management, Cornell University