The stimulating effects of international emission price fluctuations on bioenergy development of an energy-importing economy

Abstract

An increase in emission price creates economic incentives because bioenergy producers could sell bioenergy and realize values attached to emission offset. Recently, the termination of the short-term goal of carbon neutrality in some European countries has skyrocketed, and demand for fossil energy has increased, as has the emission price. This situation brings challenges and opportunities to an energy-importing economy like Taiwan, which relies on fossil imports and is vulnerable to price distortions but also gets a chance to develop low-carbon energy domestically. This study proposes a mathematical programming model to investigate how such variations in emission price would affect bioenergy development from energy crops and how bioenergy producers with different production possibilities would behave in uncertain market conditions. Some insightful results are explored. First, bioenergy producers would change their production strategies from energy-focused technologies to emission-oriented ones because the gain from co-products would make emission offset more profitable. At a high emission price, biopower production declines from 11,492 GWh to about 3315 GWh. Still, more than 8.73 million tons of biochar is produced, and the total offset from bioenergy and biochar sequestration expands to 33.7 million tons of CO2. Second, the production pattern of energy crops varies substantially under market conditions. Energy crop plantation at low energy prices is 227,000–263,000 ha but expands to 638,000–798,000 ha when energy and emission prices increase. Third, reducing bioenergy production does not necessarily minimize social welfare because the gain from carbon sequestration may outweigh the loss from reduced bioenergy production at high emission prices. Potential policies that can be applied to adjust production strategies are also discussed in detail.