ECONOMICS OF BIODIESEL PRODUCTION FROM MICROALGAE

The study examines the economic potential of an algal biodiesel industry in the US using a simulation-based partial equilibrium modeling approach. Different scenarios are constructed under various assumptions, and the price, cost, and demand and supply structure of the algal biodiesel industry are analyzed. The results show that production of algal biodiesel would not be sufficient to meet the transport sector diesel demand in the US until 2029/30 without a very rapid rate of technical change (30 percent annually). Even with a 30 percent annual rate of technical change, meeting the entire transport sector diesel demand by algal biodiesel would be a formidable task without a continuation of government subsidies for biodiesel. Model results indicate that the current subsidy of about $42 per barrel of oil equivalent increases the production of algal biodiesel up to 80 percent relative to a scenario in which the subsidy is eliminated. Model results also indicate that the competitiveness of algal biodiesel with petro-diesel is hampered by the current high marginal cost of algal biodiesel. The average total cost of algal biodiesel was found by 2030 to range between $41 and $50 per barrel for price taker model and $31 to $70 per barrel for price maker model given an annual rate of Hicks-Neutral technical change of 30 percent.