A cost benefit analysis of bioethanol production from cereals in Sweden : a case study approach

Abstract: This study makes an attempt to evaluate the Net Present Value of production of bioethanol. The study is predominately focusing on the production of bioethanol with cereals as feed stock. The study is a case study of the Swedish farmers cooperative (SvL) and is carried through with aim to get an aggregated social value for bioethanol production for the case study company with Sweden as a reference group. The method used in the study is a Cost Benefit Analysis (CBA) approach where an excel model has been developed and used to derive results. The CBA approach considers the difference between with and without the project approach and the opportunity cost is essential. It is assumed that without this investment the land would be used for cultivation of cereals for human food consumption. It is found that bioethanol production from cereals at SvL's production plant can lead to environmental net benefits in form of reduced overall CO2 emissions. It is also found that there is net energy saving as well a reduction of the overall oil dependency by this production process. The social net benefit is however dependent on how expensive it is assumed to be to emit CO2 to the atmosphere. This figure also varies with the level of discount rate that is used for the calculation. It is here argued that it is reasonable to put a high cost on CO2 emissions due to the insecurities regarding climate change. It is also argued that the importance of investments in environmentally friendly technologies decreases when a high discount rate is used. The net benefits are distributed both within and outside the Swedish society. The environment, the maintenance suppliers and the bank are large net gainers. There is however a considerable negative distribution for the government due to the total tax exemption on bioethanol. The results can however change with changes in the assumptions. If it is assumed that the land used for cultivation of wheat for bioethanol not would be cultivated at all without the project, the results changes. In that case also the CO2 emissions and energy input during the cultivation and transportation of the wheat should burden the social NPV. This results in a lower social net benefits and a lower total reduction of CO2 emissions and oil dependency.