Three Essays on Biofuel Feedstock Supply and Processing Plant Investment

The most important economy entities in the world have set ambitious goals of using biofuels, however, the feedstock supply, especially in the local level, has not been researched. At the same time, the factors affecting processing plant investment behavior including interactions have rarely been considered in a dynamic framework.;This dissertation includes three essays related to fuel ethanol feedstock supply and processing plant investment. Chapter 2 provides a method of calibrating observed agricultural production, and chapter 3 estimates the feasibility of producing enough feedstocks for fuel ethanol in order to satisfy California demand and suggests the optimal locations of processing plants based on the availability of feedstocks. Chapter 4 empirically shows the existence of interactions among fuel ethanol plants in Europe. Chapter 1 is an introductory chapter.;In chapter 2, I provide the methodological foundation for exactly calibrating constrained generalized CES models of agricultural supply against a reference allocation and a set of exogenous supply elasticities. Using the methodology introduced by Merel and Bucaram (2010), we derived a closed-form expression for the supply elasticity equation. We then showed that a generalized CES model can be calibrated for systems with as little as two activities, and we provided the exact calibration conditions.;Chapter 3 assesses the potential of California agriculture to supply biofuel feedstock in the form of switchgrass. We construct a fully calibrated, multi-region, multi-input and multi-output model of agricultural supply for California's Central Valley based on the principles of positive mathematical programming. We exploit agronomic information obtained from a biophysical model to estimate regional production functions for switchgrass. The model predicts the extent and location of potential feedstock production in the Central Valley. Our results suggest that adoption rates differ widely among agricultural regions, and that switchgrass adoption is not likely to displace specialty crops by much. From a purely methodological standpoint, this study illustrates the complementarities of agronomic and economic information for the calibration of economic optimization models designed to capture farmer behavior at the regional scale.;Chapter 4 is an empirical essay that investigates the interaction effects between European fuel ethanol plants. Most fuel ethanol plants in Europe were built in the recent decade and use barley, corn, sugarbeet, or wheat as the feedstock. When potential entrants make decisions to invest in plants to produce ethanol from a particular feedstock, competition effects and agglomeration effects may lead them to interact strategically with incumbents and other potential entrants. If these interactions occur, they would affect the profits of all the plants, as well as their entry decisions. This chapter examines the factors that may affect decisions about when and where to invest in building new ethanol plants and which feedstock is chosen by estimating a dynamic game. The results show that competition between plants deters local investments and ethanol support policies encourage investments.