Market, Welfare And Land-Use Implications of Lignocellulosic Bioethanol In Hawaii

UHERO November 13, 2013

This article examines land-use, market and welfare implications of lignocellulosic bioethanol production in Hawaiʻi to satisfy 10% and 20% of the State’s gasoline demand in line with the State’s ethanol blending mandate and Alternative Fuels Standard (AFS).

A static computable general equilibrium (CGE) model is used to evaluate four alternative support mechanisms for bioethanol. Namely:

• i) a federal blending tax credit,
• ii) a long-term purchase contract,
• iii) a state production subsidy financed by a lump-sum tax and
• iv) a state production subsidy financed by an ad valorem gasoline tax.

We find that because Hawaii-produced bioethanol is relatively costly, all scenarios are welfare reducing for Hawaii residents: estimated between -0.14% and -0.32%.

Unsurprisingly, Hawaii’s economy and its residents fair best under the federal blending tax credit scenario, with a positive impact to gross state product of $49 million. Otherwise, impacts to gross state product are negative (up to -$63 million).

We additionally find that Hawaii based bioethanol is not likely to offer substantial greenhouse gas emissions savings in comparison to imported biofuel, and as such the policy cost per tonne of emissions displaced ranges between $130 to $2,100/tonne of CO2.

The policies serve to increase the value of agricultural lands, where we estimate that the value of pasture land could increase as much as 150% in the 20% AFS scenario.

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