Purdue researchers release new biofuels economic model; ethanol to cost $1.05 per gallon extra if oil falls back to $40

In Indiana, researchers at Purdue University have developed an oil price-based model that predicts ethanol production and prices base don current oil prices and government ethanol mandates. Wally Tyner, Purdue professor of agricultural economics, said that the he hidden cost of the Renewable Fuel Standard is an extra $1.05 per gallon when oil is $40, and that the Standard will only be successful if oil prices stay high.

The U.N.’s Food and Agriculture Organization (FAO) also has been active in improving the quality of biofuels economic modeling.  FAO released a decision-support tool to assist countries in planning their entry into biofuels production. The analytical framework allows government to assess biomass potential; biomass production costs; the economic bioenergy potential; macro-economic consequences; national and household-level impact and consequences on food security. The tool will be tested in Peru, Thailand and Tanzania – before it is is made available to the international community at large.
New economic models for biofuels have received attention in recent days because of land-use models used in a Science magazine article on greenhouse gas emissions which has rocked the biofuels industry.

Some models being developed assume that increased demand for corn in the U.S. is causing previously uncultivated land in developing nations to be cleared for agricultural production. It then calculates the greenhouse gas emissions resulting from land clearing in Brazil and assigns those estimated emissions to the lifecycle emissions analysis of corn-based ethanol in the U.S.

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