Environmental externalities and social optimality in biomass markets: waste-to-energy in The Netherlands and biofuels in France

Abstract

This paper explores two existing markets for energy produced from biomass: waste-to-energy electricity production in the Netherlands and the blending of biofuels with oil-based fossil fuels in cars in France. Both cases provide excellent material to analyse social optimality of current biomass markets vis-à-vis their fossil fuel substitute. The paper applies social cost-benefit analysis to estimate both private and environmental cost of these supplies and uses the results to evaluate actual government behaviour in both countries. The main findings for the waste-to-energy case in the Netherlands are, perhaps somewhat surprizingly, that waste-to-energy is optimal only if the alternative of landfilling is excluded as an opportunity for waste management. The case for biofuels in France shows that the take-off of this market is only due to considerable government subsidization. These subsidies cannot be defended by the difference they make in externality reduction even if the opportunity cost and benefits of set-aside land are included as well as the potential productivity improvements.