Stimulating learning-by-doing in advanced biofuels: Effectiveness of alternative policies

This letter examines the effectiveness of various biofuel and climate policies in reducing future processing costs of cellulosic biofuels due to learning-by-doing. These policies include a biofuel production mandate alone and supplementing the biofuel mandate with other policies, namely a national low carbon fuel standard, a cellulosic biofuel production tax credit or a carbon price policy. We find that the binding biofuel targets considered here can reduce the unit processing cost of cellulosic ethanol by about 30% to 70% between 2015 and 2035 depending on the assumptions about learning rates and initial costs of biofuel production. The cost in 2035 is more sensitive to the speed with which learning occurs and less sensitive to uncertainty in the initial production cost. With learning rates of 5-10%, cellulosic biofuels will still be at least 40% more expensive than liquid fossil fuels in 2035. The addition of supplementary low carbon/tax credit policies to the mandate that enhance incentives for cellulosic biofuels can achieve similar reductions in these costs several years earlier than the mandate alone; the extent of these incentives differs across policies and different kinds of cellulosic biofuels.