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No. 62: Socio-economic evaluation of selected biogas technologies

Møller, F. & Martinsen; L. 2013. Socio-economic evaluation of selected biogas technologies. Aarhus University, DCE – Danish Centre for Environment and Energy, 231 pp. Scientific Report from DCE – Danish Centre for Environment and Energy No. 62 http://www.dmu.dk/Pub/SR62.pdf

Summary

The report contains welfare and financial economic analyses of 15 different scenarios for biogas production. The scenarios are defined with reference to three different plant sizes (two joint biogas plant with a daily input capacity of 500 and 800 tonnes respectively, and one farm biogas plant with a daily input capacity of 50 tonnes) and five different input combinations: 1) 100 % pig slurry, 2) 75 % pig slurry and 25 % maize, 3) 100 % cattle slurry, 4) 50 % cattle slurry and 50 % grass clover, and 5) 100 % grass clover. For input combinations 1 and 2 the biomass is assumed to come from conventional agriculture, while it for input combinations 3, 4 and 5 are assumed to come from organic agriculture.

The results of the welfare economic analyses reveals that biogas production in all the cases considered give rise to welfare economic losses. The financial economic analyses show that while biogas production according to the described scenarios is likely to be economically profitable for the agricultural sector and local CHP plants (Combined Heat and Power Generation Plants)  it is likely to result in net- losses for the biogas plant as well as the state. Hence, seen from a financial economic point of view, the economic desirability of biogas production varies significantly across different actors. In relation to the interpretation of the results it is important to emphasise that the results are inextricably linked to the underlying assumptions, and if these are changed the results will also change. Consequently the results cannot be used as the base for drawing more general level conclusions regarding the welfare economic desirability of biogas production. Seen from a policy point of view, however, the results serve to illustrate the potential inefficiencies introduced by implementing general tax and subsidy structures favouring biogas production. Hence, the results of the analyses shows how tax exemptions and subsidies contributes to making welfare economically undesirable production approaches financially attractive for private actors. Seen from this perspective, the analysis highlights the importance of targeting policies and designing regulatory instruments in a way that ensures that private actors are provided with incentives to engage in welfare economically desirable biogas production activities and discouraged from engaging in welfare economically undesirable activities.

Biogas production is often mentioned as an important instrument in relation to GHG emissions reductions. In this context, an important parameter not only in relation to determining the welfare economic desirability of different biogas production scenarios, but also the relative desirability of different biogas production scenarios, is the cost of GHG reductions associated with a given scenario, i.e. the cost-effectiveness. The GHG reduction costs for the scenarios considered in the analyses vary from around 500 to around 3,300 DKK per tonne CO2 equivalent. This indicates that there is great variability in the profitability and GHG reduction potential of biogas production across different plant types and different input combinations. Generally GHG reduction costs appear to be higher for the scenarios involving plant material as an input than for the scenarios solely based on slurry as an input. Hence, it appears that the value of the increased gas production from plant material compared to slurry is insufficient to compensate for the increased investment costs, the costs associated with producing the plant material and the lower level of GHG reductions. In relation to differences between plant sizes results indicate that costs are lower for farm level plants than for joint biogas plants.

The sensitivity of the results to changes in the assumptions underlying the calculations of changes in GHG emissions is investigated by recalculating the scenarios based on different GHG emissions coefficients. The results of these sensitivity analyses show that the results appear particularly sensitive to changes in the emissions coefficients for N2O, and especially so for the scenarios involving plant material as an input. Based on the applied minimum and maximum values for the GHG emissions coefficients the consequences of changing the emissions coefficients for CH4 and the soil Carbon content are significantly less pronounced.

Sensitivity analyses have also been accomplished for the large farm plant scenarios with regard to the assumed transport distances between suppliers of organic material and the biogas plant. However, even with a 50 % reduction in transport distances the analysed biogas technologies are still welfare economically unprofitable.