sectoral economic costs and benefits of ghg mitigation - IPCC

Renewable Energy
B) Accounting Externalities from Ethanol Use.
C) Social Costs of Ethanol Production in Brazil.
D) Impacts on Brazilian External Debt and Ethanol Production.
E) Health Damage Costs and Energy Use.
F) Guidelines for IPCC - Third Assessment Report.
3 Case A – USA Indirect Profit from Ethanol Production
A report published in 1997 by Michael Evans (Evans, 1997), a professor of economy at
Northwestern University, Illinois, claims that ethanol production from corn in USA has yielded
several external benefits not accounted for in conventional economic analysis. According to the
author net farm income has increased by 4.5 billion annually due to ethanol production.
The basic argument is that ethanol production demands 7% of the total corn production stimulating
agricultural activity since it is possible to correlate demand and price through an elasticity factor.
With more production, more jobs were created (192,000), the balance of trade has improved in
favor of United States due the reduction in oil importation (US$ 2 billion), state tax receipt have
increased (US$ 450 million) and a net federal budget savings of US$ 3.5 billion was obtained.
His study tries to go over the boundary of the corn sector and he tries to demonstrate that demand
for corn may boost corn acreage at the expense of soybean acreage but in the longer run, through,
as shown in historical evidence - especially for the 1970s – such a development would boost
soybean prices, leading to an increase in acreage for that crop as well.
4 Case B – Accounting Externalities from Ethanol Use
In a paper by Lugar and Woolsey (Lugar and Woolsey, 1999) externalities are presented and
accounted in favor of ethanol production in USA and in other countries.
The first aspect is that as recession and devaluation overseas move the American balance – of –
payments deficit from the 1998 level – US$ 1 billion every two days – toward nearly US$ 1 billion
every day, there will be increased calls for protectionism. The best way to avoid the mistakes of
the 1930s is to have a solid economic reason for increasing US production of commodities now
bought abroad. The nearly US$ 70 billion spent annually for imported oil represents about 40
percent of the current US trade deficit, and every US$ 1 billion of oil imports that is replaced by
domestically produced ethanol creates 10,000 – 20,000 American jobs.
The next deals with the immediate possibility of using ethanol blend without any investment in
new distribution infrastructure and the consequently immediate accruing of C abatement which is
valid for the period 2000 – 2008, since the authors are assuming that ethanol will soon be produced
from ligno-cellulosic materials which means a very favorable energy balance and extremely low C
emission (1% of the gasoline emission).
A third call for externality deals with energy security. According to the authors an average
automobile gets approximately 17 miles per gallon and is driven approximately 14,000 miles per
year, thus using 825 gallons of gasoline annually. Suppose that some of the automobiles were Fuel
Flexible Vehicle using a mixed fuel containing 85 percent cellulosic ethanol. Because of ethanol's
lower energy content, it would use about 1,105 gallons of fuel, but only 165 would be gasoline.
Such a vehicle could be said to be getting, in a sense, over 80 miles per gallon of national-securityrisk-increasing,
carbon dioxide producing gasoline.
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