Market, Welfare and Land-use Implications of Lignocellulosic Bioethanol in Hawaii

Abstract

This article examines land-use, market and welfare implications of lignocellulosic bioethanol production in Hawaii 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 CO2e. 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