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Biofuel Economics: Future of Renewable Energy is Secure

Cole Gustafson, NDSU Biofuels Economist Cole Gustafson, NDSU Biofuels Economist
The California Air Resources Board passes legislation that secures the future of renewable energy.

By Cole Gustafson, Biofuels Economist

NDSU Extension Service

On Dec. 11, the California Air Resources Board passed sweeping new legislation that secures the future of renewable energy. As part of the scoping plan that implements the goals established in their 2006 Global Warming Solutions Act, new key provisions include:

  • 33 percent of all energy must come from renewable sources by 2020.
  • New homes built after 2020 must be energy self-sufficent.
  • Greenhouse gas emissions must be reduced to 1990 levels.

What is especially noteworthy is the economic climate in which this legislation was passed. Generally, California is regarded as being the epicenter of housing problems. Moreover, the state’s slowing economy has resulted in a $48 billion budget deficit. One would think the state would delay implementation of these standards until financial prosperity is restored.

However, financial analysis of the proposal shows net economic gains. Savings from reduced spending on energy will translate into increased spending on other consumer goods and services and lead to economic expansion. Implicit in this assumption is that higher energy prices will lead to energy efficiency and the creation of renewable energy sources at lower cost. It is estimated that energy savings of $20 billion annually will be realized. Of this, gasoline consumption is expected to fall by 25 percent, or 4.6 billion gallons. The state still will consume 13.66 billion gallons. If one-third of this will be supplied from renewable sources, this represents a demand of 4.55 billion gallons, or about half of what the U.S. is presently producing.

A key driver underlying this plan is the reduction in greenhouse gas emissions. The study assumes that carbon sequestration is worth $10 a ton. This aligns with key legislation passed last December that seeks to reduce the carbon footprint of all transportation fuels by 10 percent in 2012.

As one of the more western ethanol-producing states, North Dakota has a competitive advantage in supplying renewable energy to California. Any renewable energy provided must demonstrate carbon reduction. This can be a challenge with coal-fired ethanol plants because ethanol produced in these facilities has only a slightly smaller carbon footprint when compared with gasoline. Using reclaimed heat from a coal-fired electrical power plant provides greater reduction, but that depends on how the carbon credit is shared between the power and ethanol plants. A number of ethanol plants are exploring the merits of supplementing their coal with biomass.

Going in a New Direction – Wind

For the past six months, this column has focused on biofuels. With all of the public attention on wind energy development in the region, I am going to focus on wind topics for the next several months. Don’t worry; if something important happens in the biofuels area, I will return to my roots and get the information to you.

NDSU Agriculture Communication

Source:Cole Gustafson, (701) 231-7096,
Editor:Rich Mattern, (701) 231-6136,
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