Energy Policy 59 (2013) 329–340

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Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Lignocellulosic ethanol production from woody biomass: The impact

of facility siting on competitiveness
James D. Stephen a,b,n, Warren E. Mabee b,1, Jack N. Saddler a,2
a
Department of Wood Science, University of British Columbia, 2424 Main Mall, Vancouver, British Columbia, Canada V6T 1Z4
b
School of Policy Studies, Queen's University, 138 Union Street, Kingston, Ontario, Canada K7L 3N6

H I G H L I G H T S

Lignocellulosic ethanol production costs vary notably by region.

Feedstock cost is the primary site-specific production cost variable.

Woody feedstocks in North America have a higher cost than those in Brazil.

Use of Brazilian eucalyptus resulted in the lowest MESP for considered feedstocks.

MESP ranged from o$0.75 L−1 to 4$1.00 L−1.

art ic l e i nf o a b s t r a c t

Article history: Just as temperate region pulp and paper companies need to compete with Brazilian eucalyptus pulp
Received 11 May 2012 producers, lignocellulosic biofuel producers in North America and Europe, in the absence of protectionist
Accepted 22 March 2013 trade policies, will need to be competitive with tropical and sub-tropical biofuel producers. This work
Available online 23 April 2013
sought to determine the impact of lignocellulosic ethanol biorefinery siting on economic performance
Keywords: and minimum ethanol selling price (MESP) for both east and west coast North American fuel markets.
Biorefinery Facility sites included the pine-dominated Pacific Northwest Interior, the mixed deciduous forest of
Lignocellulose Ontario and New York, and the Brazilian state of Espírito Santo. Feedstock scenarios included both
Ethanol plantation (poplar, willow, and eucalyptus, respectively) and managed forest harvest. Site specific
variables in the techno-economic model included delivered feedstock cost, ethanol delivery cost, cost of
capital, construction cost, labour cost, electricity revenues (and co-product credits), and taxes, insurance,
and permits. Despite the long shipping distance from Brazil to North American east and west coast
markets, the MESP for Brazilian-produced eucalyptus lignocellulosic ethanol, modelled at $0.74 L−1, was
notably lower than that of all North American-produced cases at $0.83–1.02 L−1.
& 2013 Elsevier Ltd. All rights reserved.

1. Introduction liquid fuels such as ethanol. These facilities promise large numbers
of jobs in feedstock production/management, feedstock and pro-
Many jurisdictions around the world are competing to attract duct transportation and handling, and plant operations. Unlike
renewable energy and clean technology companies, with an solar or wind electricity industries, a large proportion of the jobs
emphasis on creating ‘green-collar’ jobs (Renner et al., 2008). Of created in the biofuels industry are ongoing operation and main-
particular interest for regions historically dependent upon forestry tenance jobs that last the lifetime of the facility (Wei et al., 2010).
and agriculture industries are biomass biorefineries, which can Ethanol produced from lignocellulosic biomass is often referred
potentially produce energy, chemicals, and materials in addition to to as advanced or ‘second generation’ biofuel, while corn- or
sugarcane-based ethanol is referred to as conventional or ‘first
generation’. The second generation fuels are promoted as envir-
onmentally, economically (for the operating company), and
n
Corresponding author at: School of Policy Studies, Queen's University, 138 morally superior to conventional biofuels (Tilman et al., 2009;
Union Street, Kingston, Ontario, Canada K7L 3N6 Williams et al., 2009). Whereas conventional corn ethanol is
Tel.: +1 613 532 7079; fax: +1 613 249 7487. estimated to have a net greenhouse gas reduction of approxi-
E-mail addresses: [email protected] (J.D. Stephen),
[email protected] (W.E. Mabee), [email protected] (J.N. Saddler).
mately 12–13% relative to baseline gasoline (Farrell et al., 2006;
1
Tel.: +1 613 533 6000x77092; fax: +1 613 533 2135. Hill et al., 2006), dependent upon feedstock and processing
2
Tel.: +1 604 822 9741; fax: +1 604 822 8157. conditions, lignocellulosic ethanol is expected to have greenhouse

0301-4215/$ - see front matter & 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.enpol.2013.03.043
330 J.D. Stephen et al. / Energy Policy 59 (2013) 329–340

gas reductions exceeding 80% (Fleming et al., 2006; Sheehan et al., hemisphere countries. Although labour savings contribute to the
2004). This is in the same range as commercial sugarcane ethanol, lower cost of production in countries such as Brazil and Chile, the
which has estimated reductions of 75–85% (Luo et al., 2008; Wang greatest factor by far is cost of feedstock (Greenbaum, 2008).
et al., 2008). It is also anticipated that lignocellulosic ethanol will Eucalyptus can be grown in 7-year rotations in Brazil (Walter et al.,
require reduced water withdrawals and consumption compared to 2006), while hardwood and softwood forest rotations in Canada
corn ethanol, particularly relative to fuel produced from irrigated range from 50 to 90 years. Brazil is already the world's largest
crops (King and Webber, 2008). Lignocellulose may also have a short-fibre pulp producer, having risen to the third largest produ-
lower market price on a per tonne basis than corn or sugarcane, cer overall, and is expanding rapidly (Chadwick, 2007; Food and
although recent work has shown that feedstock cost is not Agriculture Organization, 2009). The ability to utilize short rota-
significantly lower for woody biomass than for corn as a con- tion eucalyptus as a feedstock has enabled Brazilian pulp and
tributor to minimum ethanol selling price (MESP) (Stephen et al., paper mills to achieve much greater economies-of-scale than their
2012). Finally, moral concerns with conventional biofuels, in northern hemisphere counterparts (Faleiros, 2010; Stephen et al.,
particular corn ethanol, have focused on direct competition for 2010b). While the largest Brazilian pulping complex exceeds
feedstock between fuel and food markets (Food and Agriculture 2.3 million tonnes (Mt) pulp per year and the largest individual
Organization, 2008; Piesse and Thirle, 2009). mill is 1.5 Mt, the average mill capacity in Canada is 200,000 t
The authors have previously shown that it will be difficult for (t) pulp (Faleiros, 2010; Fibria, 2012; Kirby, 2006; Yakabuski,
woody feedstock lignocellulosic ethanol to compete economically 2007).
on a cost-of-production basis with conventional ethanol produced Pulp companies in Brazil and other tropical nations benefit
from corn and sugarcane in the short term without substantial from being vertically integrated; owning their own land, growing
support subsidies (Stephen et al., 2012). Even when considering and harvesting their own fibre, and then processing that fibre at
higher-value emerging fuels such as biobutanol and hydrocarbon their mills. Comparatively, companies with operations in tempe-
biofuels, the primary comparative metric of monomer sugar cost rate and subtropical climates have little or a negative financial
still puts lignocellulosic feedstocks at a disadvantage (Stephen benefit from land ownership and vertical integration due to low
et al., 2012). However, given the push towards lignocellulosic productivity (Cubbage et al., 2007). Even in the relatively rapid-
ethanol and the desire for job creation, it is important to identify growth U.S. south-east, land expectation values do not support
the conditions that would make production most economical and investment in land purchases (Cubbage et al., 2007). In other
which jurisdictions have an opportunity for long-term, sustainable words, it is lower cost for pulp companies to purchase fibre from
job creation. Substantial government investments, such as the CA landowners than to grow the trees themselves. Not controlling
$500 million Sustainable Development Technology Canada Next- feedstock directly poses a substantial operating risk for a large
Gen Biofuels Fund (Sustainable Development Technology Canada, biorefinery requiring potentially millions of tonnes of biomass per
2011) and hundreds of millions of dollars allocated for commercial year. Nevertheless, this multi-million tonne per year capacity,
biorefineries by the United States Department of Energy (United which enables large economies-of-scale and lower production
States Department of Energy, 2007, 2009), have been made with costs, is the competition faced by Canadian pulp mills and
the goal of reducing production costs and increasing commercial biorefineries.
feasibility. Difficulty competing in challenging traditional markets has
For businesses comparing jurisdictions for manufacturing or forced Canadian pulp and forestry companies to investigate alter-
chemical processing operations, labour is typically the most signifi- natives or co-products such as lignocellulosic ethanol (Browne
cant contributor to location-specific costs (KPMG LLC, 2010). How- et al., 2011). However, the question of forest sector competitive-
ever, biomass, due to its low energy density, is not traditionally ness must apply to both pulp and new products such as ethanol.
transported long distances without preprocessing and therefore Given the push towards advanced lignocellulosic biofuels in
feedstock (raw material) is a location-specific cost component critical countries such as Canada and the United States, it must be
to the biofuel production industry (Uslu et al., 2008). Since feedstock determined whether domestic production is economically compe-
is typically the largest variable and operating cost for a biorefinery titive in a world with global trade. As a renewable resource, it is
(Boerrigter, 2006; Humbird et al., 2011; Sims et al., 2008), regardless possible to dramatically increase production of biofuels worldwide
of the technology platform used, it is also the largest contributor to if justified by market prices and demand. Therefore, the purpose of
location-specific costs (Huang et al., 2009; Stephen et al., 2010a). this work was to determine the ability of domestic lignocellulosic
Other major location-specific biofuel production cost components ethanol producers to compete economically with tropical produ-
include raw material transportation cost (including associated labour cers in North American markets.
cost), cost of capital, cost of construction, income and other taxes,
utilities (energy and water), and government and insurance fees
(KPMG LLC, 2010). When determining the ability to compete in a 2. Study design and assumptions
target market, physical proximity to that market is an essential
consideration for large-volume commodity producers, and hence This study sought to compare the cost of production and
transportation cost of product(s) is an additional factor that must be delivery of lignocellulosic ethanol for North American and Brazi-
taken into account (Uslu et al., 2008; Zhang et al., 2010). Finally, the lian producers. The metric for comparison was the cost including
exchange rate must be considered if inter-country trade is involved, freight (CIF) minimum ethanol selling price (MESP) of ethanol
which affects all cost components and can greatly impact competi- delivered to two Canadian markets, Montréal and Vancouver–the
tiveness of production (Chen et al., 2010). second and third largest cities in Canada respectively. Both cities
Previously, we have determined that advanced lignocellulosic have year-round port access for accepting Panamax-sized ships, a
biofuel facilities are likely to resemble pulp mills in terms of scale, key criterion for selection. The study involved the creation of
feedstock supply, and logistical structures (Stephen et al., 2010b). six lignocellulosic ethanol production scenarios—two at each of
Therefore, it is worthwhile considering trends in the pulp industry three potential production sites—which are presented in Table 1.
for implications and lessons for lignocellulosic biofuels, particu- A lignocellulosic ethanol production techno-economic spreadsheet
larly those utilizing woody feedstocks. Of particular importance is model was created to determine the MESP. Steam explosion,
the general pulp industry trend of increasing southern hemisphere followed by enzymatic hydrolysis and fermentation by Sacchar-
production and stable or declining production in northern omyces cerevisiae (brewer's yeast), was chosen to be the preferred
 J.D. Stephen et al. / Energy Policy 59 (2013) 329–340 331

technology pathway due to low operating and capital costs relative maximization of economies-of-scale on capital expenditures and
to other pretreatment technologies (Mabee et al., 2006). The scale is mid-range compared to the optimal scale of a cellulosic ethanol
chosen for modelling was 800 ML (800,000 m3) ethanol per year, facility identified in previous studies (e.g., Aden et al., 2002;
based upon the results on maximum scale using feedstock truck Hamelinck et al., 2005; Huang et al., 2009; Stephen et al., 2010b;
delivery presented by Stephen et al. (2010b). This permits Wooley et al., 1999; Wright and Brown, 2007; Wyman, 2003).

Table 1
Overview of study scenarios.

Scenario Plant site Delivered fuel site Feedstock

BC-Forest Williams Lake, British Columbia Vancouver Mixed Softwoods

BC-Poplar Williams Lake, British Columbia Vancouver Poplar
ON-Forest Prescott, Ontario Montréal Mixed Hardwoods
ON-Willow Prescott, Ontario Montréal Willow
BC-Imports Barra do Riacho, Brazil Vancouver Eucalyptus
QC-Imports Barra do Riacho, Brazil Montreal Eucalyptus

Table 2
Base case techno-economic facility and delivery model assumptions.

Facility overview

Plant capacity 800 ML yr−1 (Stephen et al., 2010b)

Plant operating factor (uptime) 0.90
Plant capacity factor 0.95
Unit installed cost $1.48 L−1 yearly capacity (Stephen et al., 2012)a
Total capital cost US$1185 M

Financing
Risk free cost of capital 2.8%
Amortization period 20 years
Capital cost allowance/depreciation 4% (Canada Revenue Agency, 2011)

Non-feedstock operating costs

Labour (workers per shift) 24b
Maintenance 3% (calculated from Humbird et al. (2011)
Stores/supplies 2% (Sassner et al., 2008; Humbird et al., 2011) c
Electricity/process heat 0.9 kWh L−1/18 MJ L−1 (Sassner et al., 2008)
Enzymes $2.40 kg−1 protein (calculated from Acher, 2010; Stephen et al., 2012); 600 FPU g−1 protein (Himmel
et al., 1999; Shoemaker, 2004; Wooley et al., 1999); 20 FPU g−1 cellulose (Ewanick et al., 2007; Kumar
et al., 2010; Pan et al., 2008)

Feedstock delivery
Fuel cost $1.30 L−1
Fuel consumption 2.0 km L−1 (Natural Resources Canada, 2009)d
Net truck load 42.5 te
Average trucking speed 60 km h−1
Days active; time in day active 90%; 80%
Truck capital cost $120,000 (Ray Barton and Associates, 2011)
Trailer capital cost $50,000
Equipment useful life 1,500,000 km
Interest rate 8%
Amortization period 4 years (assuming 380,000 km yr−1)
Driver wages Same as facility worker (see Labour below)
Other operating costs (repairs, maintenance, insurance, $0.593 km−1 (Ray Barton and Associates, 2011)
licensing, permits, overhead) and maintenance

Co-located co-generation facility

Gross electrical capacity Feedstock dependent (base case 112 MWe)f
Electrical efficiency 20%g
Thermal efficiency 75%
Net: gross electrical capacity 0.90
Plant operating factor 0.90
Plant capacity factor 0.95
Unit installed cost $2450 kWe−1 h (@112 MWe)
Total capital cost $274 M (@112 MWe)
Operating costs 4% of capital cost

a
A listing of projects was compiled by Bacovsky et al. (2010). Calculated using $2.50 L−1 yearly installed capacity for 58.5 ML facility (Stephen et al., 2012) and scaling
factor of 0.8.
b
Based upon 6 workers for a 50 ML yr−1 facility (Humbird et al., 2011; Stephen et al., 2012) and a labour scaling factor of 0.5.
c
Stores and supplies includes process chemicals such as sulphuric acid and/or sulphur dioxide (pretreatment catalyst); sodium hydroxide (pH balance and
lignin-cellulose separation); diammonium phosphate (yeast nutrient); sorbitol (yeast culturing) (Humbird et al., 2011; Sassner et al., 2008).
d
Based upon Canadian heavy truck average of 2.9 km L−1 and reduced by 30% to account of added weight of b-train (Natural Resources Canada, 2009).
e
Based upon gross vehicle weight (GVW) of 62.5 t and curb (unloaded) weight of 20 t for b-train chip truck.
f
Assumes 25% lignin, 42% cellulose feedstock, and 2.05 M bdt feedstock.
g
Relatively conservative electrical efficiency is due to prioritization of process heat.
h
Based upon a survey of announced bioelectricity facilities.
332 J.D. Stephen et al. / Energy Policy 59 (2013) 329–340

Based upon the results presented by Stephen et al. (2012), grown on marginal agricultural land, while in Williams Lake, they
a combined heat and power (CHP) plant operating on lignin and would be grown in areas where the Mountain Pine Beetle
the unhydrolyzed solid cellulose fraction from the ethanol produc- epidemic has wiped out Lodgepole pine stocks. The two imported
tion process is co-located with the ethanol facility. The facility ethanol scenarios, BC-Imports and QC-Imports, utilize eucalyptus
meets all heat and electricity requirements for ethanol production as a feedstock, grown in 7-year rotations intended to maximize
and excess electricity is sold to the grid. This is used to reduce net productivity.
electricity cost (purchased from the grid) and provide zero-cost With a common facility design and operation across all three
process heat to the facility. Assumptions for the techno-economic sites, the focus of the comparative study was the site-specific
model, which is similar to the model utilized by Stephen et al. variables impacting the CIF MESP. These included delivered feed-
(2012), are presented in Table 2. stock characteristics and cost; net electricity cost (as dictated by
The sites chosen for comparison were Prescott, Ontario; Wil- feedstock and local pricing); ethanol delivery to market; labour;
liams Lake, British Columbia; and the Barra do Riacho port, Brazil. cost of capital; construction; utilities (energy, water); permits and
Prescott, Ontario is a town of 4200 people located on the St. insurance; income, property, and other taxes; and exchange rate.
Lawrence Seaway 350 km northeast of Toronto and 190 km south- Spreadsheet models were created to determine the delivered
west of Montréal. It is home to the only deepwater port between cost of feedstock for each scenario. Assumptions are presented in
these two cities and is on both the major trucking and rail routes Table 4 (harvest) and 5 (delivery) and are based upon data from
between Canada's two largest cities. The newly established Ontario the literature. All financial inputs were adjusted to 2010 Canadian
East Wood Centre, which is intended to become a bioenergy/ dollars using the U.S. Consumer Price Index (CPI) and an exchange
bioproduct industrial park, is located at the Port of Prescott. rate of 1:1 for U.S. dollars to Canadian dollars, 1.6 for Brazilian
Feedstock is assumed to be sourced from both Canada and the Reals to Canadian dollars, and of 1.4:1 for Euros to Canadian
United States (upper New York State). Although the Prescott site is dollars unless otherwise specified.
located at a port, it is in close proximity to the Prescott- Ethanol yield is assumed to be 70% of theoretical yield from all
Ogdensburg International Bridge and therefore no additional cost sugars. Theoretical and assumed yield for all feedstocks are
for water transportation is included. However, in some cases, it presented in Table 3. Douglas fir is assumed to be a representative
may be economically competitive to import feedstocks by barge. species for scenario BC-Forest and Red maple is assumed to be a
Williams Lake is located in the central interior of British Columbia representative species for scenario ON-Forest. Lignin and unhy-
(Cariboo region), 550 km northeast of Vancouver, and has a drolyzed cellulose are assumed to be the co-generation facility
population of 10,750. The region includes both Interior-Douglas fuel, with lignin recovery at 95% and unhydrolyzed cellulose at 25%
fir and Sub-Boreal Pine-Spruce biogeoclimatic zones (British (following steam explosion of softwood, the fraction of feedstock
Columbia Ministry of Forests and Range, 2008). Its primary components recovered in the solid fraction is typically 70%,
industry is forestry and is home to one of North America's largest including 95–100% of initial lignin and 70–90% of initial glucan)
biomass electricity plants, at 66 MWe. The University of British (Kumar et al., 2010).
Columbia's Alex Fraser Research Forest, a 9802 ha (ha) parcel, is
located not far from Williams Lake. Barra do Riacho is the world's
largest pulp production complex, with a total capacity of 2.3 Mt of 3. Results
air-dried pulp per year (Fibria, 2012). Co-located with the Portocel
shipping facility, Barra do Riacho is on the Brazilian coast 90 km The site-specific variables are presented by subsection.
northeast of Vitória and 600 km northeast of Rio de Janeiro. The A summary of non-feedstock site specific variables is presented
port-based location (and hence reduction in surrounding land area in Table 6.
by approximately 50%) was taken into account in the analysis.
Feedstock trucking assumptions are presented in Table 2. 3.1. Feedstock characteristics and delivered cost
Two of the six scenarios, BC-Forest and ON-Forest, utilize
existing domestic biomass resources as feedstock for ethanol and Delivered feedstock costs were compared on a bone dry tonne
CHP production, servicing local markets—Williams Lake for (bdt) basis, with the assumption that wood is delivered in green
Vancouver and Prescott for Montréal. The other two domestic (wet) form. It was assumed that all firms are vertically integrated
scenarios, BC-Poplar and ON-Willow, focus on purpose-grown and feedstock is supplied to the biorefinery at cost, regardless of
short-rotation woody crops. In Prescott, these would largely be harvest scheme. Therefore, costs presented here do not necessarily

Table 3
Feedstock content and theoretical and assumed ethanol yields.

Feedstock Glucan Mannan Galactan Xylan Arabinan Lignin Theoretical yield Theoretical yield Assumed yield (L/ Facility biomass
(kg/bdt) (kg/bdt) (kg/bdt) (kg/ (kg/bdt) (kg/ (L/bdt; all sugars) (L/bdt; C6 only) bdt; 70% of all consumption (bdt
bdt) bdt) sugars) yr−1)

Douglas fir (Robinson 430 128 26 39 13 285 458 421 321 2,130,841

et al., 2002)a
Poplar (United States 403 31 7 176 6 259 452 318 316 2,164,557
Biomass Program,
2010)
Red Maple (Brooks 466 35 6 173 5 240 497 365 348 1,965,517
et al., 1978) b
Willow (Sassner et al., 430 32 20 149 12 266 466 348 326 2,098,159
2006)
Eucalyptus (Rencoret 461 4 15 171 8 245 478 346 335 2,041,791
et al., 2011)b

a
10% Bark.
b
Debarked.
 J.D. Stephen et al. / Energy Policy 59 (2013) 329–340 333

reflect market prices. Land rental, establishment, silviculture, for a typical rail car is 91 t (Wilson and Burton, 2004). With an
stumpage, harvest, chipping, and associated costs (e.g., road ethanol density of 0.789 t m−3, the maximum load is 115 m3 or
building) were sourced from the literature. The harvesting and 115,000 L. For the Brazilian (Barra do Riacho) scenarios, a liquid
transportation regime selected for each scenario was based upon bulk Panamax (maximum size that can traverse the Panama Canal)
heuristics and the most likely real-world approach given existing vessel was assumed for transportation. This vessel has a net
methods. It was assumed that harvest residues would be insuffi- tonnage of 23,665 t, or 66,500 m3 (net tonnage is volumetric
cient in volume to supply the facility for scenarios BC-Forest and measurement, where 1 t ¼2.83 m3) (Panama Canal Authority,
ON-Forest and that whole-tree logging would be required. It was 2009), with a 53,500–55,000 t cargo weight capacity [72,000
assumed that all feedstocks are chipped on-site and transported to deadweight tonne capacity (dwt)] (Mulligan, 2008). In the case
the biorefinery in chip form. Scenario ON-Willow was based upon of ethanol, the vessel will max out on volume before maxing out
a direct-chip harvesting regime, in which a specially-designed on weight, which is consistent with bulk shipping heuristics of
willow header was used to harvest and chip the willow in a single rates based upon weight when the bulk density of cargo is greater
pass, as reported by Tharakan et al. (2005). Both eucalyptus than 800 kg m−3 and on measure (volume) when the bulk density
scenarios replicated the existing harvesting standard of a cut-to- of cargo is less than 800 kg m−3 (Institute of Shipping Economics
length harvester with debarking and bucking head and a forwar- and Logistics, 2009). Delivery is assumed to be cost, insurance, and
der for transportation to roadside (Soares et al., 2010). A $15 bdt−1 freight (CIF), which includes delivery to a port location but not
chipping cost was assumed for all Canada scenarios with the handling beyond the transportation vessel/car boundaries. Ethanol
exception of ON-Willow, and a $10 bdt−1 chipping cost is assumed blending and storage costs are not included.
for Brazil scenarios (Kumar et al., 2003, 2005). Harvest and The rail transportation cost for a carload of ethanol from
preprocessing costs can vary significantly from site-to-site within Williams Lake to Vancouver is assumed to be $2226 per car or
the same region. Reasonable assumptions, based upon published $0.019 L−1, while from Prescott to Montréal is assumed to be $1715
literature, industry organization trials, and interviews with experts per car or $0.015 L−1. Both cost estimates were calculated using
in the field, used for this analysis are presented in Table 4 Canadian National Railway's Carload Price eBusiness tool
Average transportation distance was calculated using the (Canadian National Railway Company, 2011a).
following equations (Jenkins, 1997; Stephen et al., 2010a). To determine shipping rates from Brazil, it was assumed that
The average transportation distance from every point of a circle shipping cost is composed of two components: vessel charter cost
to the centre is given by and bunker fuel cost. Shipping cost can be given by the equation
2 C s ¼ ðC ch  tÞ þ ðC f  n  dÞ ð3:4Þ
d¼ r ð3:1Þ
3
where Cs is the total cost of shipping, Cch is the charter cost per
where, d is the average transportation distance for a circle and r is day, t is the charter time in days, Cf is the cost of bunker fuel per
the radius of that circle. However, real-world transportation tonne, n is the tonnes per nautical mile, and d is the distance in
distance is not straight line and is dictated by the tortuosity (τ), nautical miles.
or bendiness, of a road network. Therefore, average transportation Charter cost, a good indicator of overall economic activity, is
distance can be given by highly volatile and driven by an inelastic supply but elastic
2 demand. From 1990 to 2005, the mean daily rate for Panamax
d¼τ r ð3:2Þ bulk ships was US$11,552 with a standard deviation of US$7485
3
(Stopford, 2009). In the past five years, this volatility has been
Or when using a Cartesian coordinate system and two (x,y)
increased, peaking in 2008, dropping by over 60% in 2009, and
points
rebounding in 2010 (Phillips, 2010). However, a longer-term
d ¼ τ½ðxi −xj Þ2 þ ðyi −yj Þ2 1=2 ð3:3Þ sustainable rate may be partially determined by futures on the
Baltic shipping indexes. Based upon these futures, it was assumed
For this study, an assumed tortuosity factor of 1.4 was used to that the daily charter rate for a Panamax ship is CA$20,000 per
calculate the average transportation distance for Ontario and day. The Panamax ship averages 13.6 knots (25.2 km h−1;
Brazil scenarios. A tortuosity factor of 1.5 was used for the British 15.65 mile h−1) and consumes 30 t of bunker fuel per day –
Columbia scenarios to account for the rugged terrain and undulat- equivalent to 20 km t−1 (12.5 mile t−1) (Stopford, 2009). The dis-
ing road network. These figures are consistent with previous tance from Vitória, BR to Montréal, Canada is 5224 nautical miles
studies (Jenkins, 1997; Stephen et al., 2010a; Yu et al., 2009). and from Vitória, Brazil to Vancouver, Canada is 8047 nautical
The harvest area and delivery requirements, including average miles, making trip times 13.9 days and 21.4 days respectively.
transportation distance, are presented in Table 5. The cost of Assuming 1.5 days for loading and 1.5 days for unloading, the total
delivery is based upon the transportation model inputs presented charter times are 16.9 days for Vitória-Montréal and 24.4 days for
in Table 2 and the average transportation distance. Truck power Vitória-Vancouver. Cost of fuel is based upon the Bloomberg 380
unit is assumed to be 9.5 t, b-train trailers 10.5 t, and the Gross Bunker Index and was assumed to be CA$675 t−1 (Bloomberg,
Vehicle Weight (GVW) 62.5 t (Council of Ministers Responsible for 2011). Based upon these figures, the cost for transportation of a
Transportation and Highway Safety, 2005; Nagl, 2007; Ray Barton Panamax load of ethanol from Vitória to Montréal is CA$620,096
and Associates, 2011). The maximum truck payload for both chips or $0.009 L−1. The cost from Vitória to Vancouver, with a $93,110
and logs was therefore 42.5 t and with 50% moisture content wood toll for the Panama Canal (Panama Canal Authority, 2011), is CA
chips, trucks legally max out on weight before volume in all cases $975,648 or $0.015 L−1.
(Stephen et al., 2010b).
3.3. Labour
3.2. Cost of ethanol delivery
The cost of labour was calculated on an hourly basis based
For the Williams Lake and Prescott scenarios, ethanol is upon data from the Division of International Labor Comparisons of
transported by rail to the ports of Vancouver and Montréal the U.S. Department of Labor. Hourly manufacturing labour costs
respectively. It was also assumed that the ethanol plants have a were determined for direct pay, directly paid benefits, and social
dedicated siding for ethanol export. The maximum cargo payload insurance in the local currency for 2009, with conversion from
 334
Table 4
Feedstock harvest assumptions.

Scenario Site Feedstock Land ownership Average Rotation Yield at Harvest regime Equipment Harvest and Source
yield harvest chipping
(bdt ha yr−1) (bdt ha−1) cost to
roadside
($ bdt−1)

BC-Forest Williams Lake, Mixed softwoods Public 3 70 210 Whole tree Feller-buncher; 85 MacKinnon et al.
British dominated by harvest and grapple skidder; (1991), Peter and
Columbia lodgepole pine chipping whole-tree Nelson (2005),
chipper Macdonald (2006),
Kumar (2009), Philips

J.D. Stephen et al. / Energy Policy 59 (2013) 329–340

(2010)
BC-Poplar Williams Lake, Poplar Public 6.3 20 126 Whole tree Harvester; cut-to- 75 Samson et al. (1999),
British harvest and length and Yemshanov and
Columbia chipping debarking head; McKenney (2008)
forwarder; whole-
tree chipper
ON-Forest Prescott, Mixed Hardwoods Public and private; 3.2a 60 192 Whole tree Feller-buncher; 65 Samson et al. (1999),
Ontario separate land harvest and grapple skidder; Place (2002), Heigh
owner and chipping whole-tree et al. (2003), Cormier
operator chipper and Tremblay (2010),
Wetzel et al. (2011)
ON-Willow Prescott, Willow Public and private; 11.25 3 34 Direct chip Direct-chip 55 Samson et al. (1999),
Ontario separate land harvesting harvester with Tharakan et al.
owner and willow header (2005), Castellano
operator et al. (2009)
BC-Imports Barra do Eucalyptus Private; vertically 15.6 7 109 Cut-to-length and Harvester; cut-to- 35 Cubbage et al. (2007),
Riacho, Brazil integrated debarking; whole length and Soares et al. (2010)
tree chipping debarking head;
forwarder;
chipper
QC-Imports Barra do Eucalyptus Private; vertically 15.6 7 109 Cut-to-length and Harvester; cut-to- 35 Cubbage et al. (2007),
Riacho, Brazil integrated debarking; whole length and Soares et al. (2010)
tree chipping debarking head;
forwarder;
chipper

a
Based on stem MAI of 5.3 m3 ha yr−1, with a 20% allowance for branches and tops (Wetzel et al., 2011).
 J.D. Stephen et al. / Energy Policy 59 (2013) 329–340 335

Table 5
Feedstock delivery parameters.

Scenario Required Yield at Yearly Rotation Land in Percen- Total draw Radius Tortuosity Average Average
yearly harvest harvest (years) produc- tage of cut area (ha) (km) transpor- delivery
input (bdt ha−1) area (ha) tion (%) allocated tation costa ($
(bdt) (%) distance bdt−1)
(km, one
way)

BC-Forest 2,130,841 210 10,147 70 30.0b 20g 11,838,006 194 1.5 194 40.38
BC-Poplar 2,164,557 126 17,179 20 6.0c 100 5,726,341 135 1.5 135 29.62
ON-Forest 1,965,517 192 10,237 60 17.0d 60h 6,021,805 138 1.4 129 28.52
ON-Willow 2,098,159 34 61,711 3 4.5e 100 4,114,037 114 1.4 107 24.51
BC-Imports 2,041,791 109 18,732 7 12.0f 100 1,092,702 83i 1.4 78 16.36
QC-Imports 2,041,791 109 18,732 7 12.0f 100 1,092,702 83i 1.4 78 16.36

a
Includes $5 bdt−1 for loading/unloading.
b
Based upon 60% of land in productive forest (British Columbia Ministry of Forests, Lands and Natural Resource Operations, 2012) and 50% of forest providing
feedstock.
c
Based upon allocation of 10% of forested land to poplar plantations.
d
Based upon 34% forested area (Holmes et al., 2002) and 50% of forest providing feedstock.
e
Based upon 10% of agriculture land (Dingle Robertson and King, 2011).
f
Based upon 80% of land available for agricultural purposes (including plantations), and 17% allocated for crops and forage, 3% for unproductive lands, 11% for protected
forest, 30% for pasture (Instituto Brasileiro de Geografia e Estatística, 2006), and a ratio of 1.7:1 eucalyptus plantation to native forest management plan (Aracruz Celulose,
2008).
g
Based upon 50% of fuel wood component of saw log/fuelwood/non-harvestable rate of decay over 20 years for mountain pine beetle infected stands (Timberline Natural
Resource Group Ltd., 2008).
h
Based upon pulp log mix of 50% (Levin et al., 2011) and 80:20 saw log: residue ratio for remaining 50%.
i
Takes into consideration port location (50% of surrounding area considered water).

Table 6
Non-feedstock site-specific variables impacting minimum ethanol sales price (CA$1 ¼R$1.6).

Williams Lake, BC Prescott, ON Barra do Riacho, BR

−3
Cost of ethanol delivery ($ m ) $19.36 $14.91 $14.67 (Vancouver); $9.32
(Montréal)
Labour ($ h−1) $33.78 $33.78 $10.40
Cost of capitala 8.5% 8.5% 11.5%
Cost of construction (from 100 baseline) 102.7 102.7 88.56
Industry Electricity Cost ($ MWh−1)b 53.20 (Hydro Québec, 2010) 96.50 (Hydro Québec, 2010) 155.00 (Ellsworth, 2010)
Bioelectricity Revenues ($ MWh−1) 99 (BC Hydro, 2011) 130 (Ontario Power Authority, 103c
2011)
Insuranced 1% 1% 1%
Permits 1% 1% 1%
Corporate income taxe 25.5% (Tax Rates cc, 2011b) 27% (Tax Rates cc, 2011b) 34% (Tax Rates cc, 2011a)
Property taxf 8.4% (Union of British Columbia 6.8% (Town of Prescott, 2008) 6.5%g
Municipalities, 2009)
Management and Administration 0.55% 0.55% 0.55%
Exchange rate 1 1 1.6

a
Financing is assumed to be 100% debt.
b
Based upon representative cities of Vancouver, Toronto, and Rio de Janeiro respectively.
c
Based upon 2008 auction rate of US$80 MWh−1 (Maurer and Barroso, 2011) for sugarcane bagasse and adjusted for Brazilian inflation.
d
Rate based upon discussions with anonymous industrial insurance broker.
e
As of January 1, 2012.
f
On assessed value.
g
Based upon 5% ISS (Municipal Service Tax) and 1.5% IPTU (Municipal Property Tax) (Ernst and Young, 2010).

Brazilian reals to Canadian dollars at an exchange rate of 1.6 (XE, premiums for investment, and hence, cost of capital. Typically,
2011). Total average cost of labour in the manufacturing sector in investments in developing nations pose a higher country risk than
Canada for 2009 was estimated at $33.78 h−1, with direct pay developed nations due to differences in financial, social, and
accounting for 80% of the cost. The Brazilian cost of labour was R political stability and other factors which may adversely affect
$16.64 h−1, or CA$10.40 h−1, with direct pay accounting for 68% of the operating profits or asset value but which are largely out of the
the cost (United States Department of Labor, 2011). control of the business operators (Damodaran, 2008). Euromoney
publishes a country risk index, with a rating out of 100. The
3.4. Cost of capital highest ranked is Norway at 93.44, while Canada ranks in the top
10 at 86.35. Brazil has a rating of 63.53 (Euromoney Institutional
Systematic risk, defined as risk that is not diversifiable, can vary Investor PLC, 2011).
significantly by country (Damodaran, 2008). This can be termed Debt rating agencies seek to define the likelihood of default,
the ‘country risk premium’ and the expected returns of investors and hence risk. Canada has a Moody's Aaa rating, the highest
are commensurate with the amount of risk posed by investment in possible, while Brazil had a rating of Baa3 as of March, 2011
any particular country. A higher level of risk requires greater (Brandimarte, 2011). The capital asset pricing model, which is used
336 J.D. Stephen et al. / Energy Policy 59 (2013) 329–340

to determine the appropriate rate of return of an asset, takes into facility that is a net producer of electricity. All jurisdictions
account both systematic (undiversifiable risk) and unsystematic considered in this study have implemented targeted policies for
risk (diversifiable risk), the expected rate of return of the market, the purchase of renewable biomass-based electricity. In Canada,
and the theoretical return on a risk free asset. The CAPM fuel for this electricity generation has been dominated by residues
systematic risk-adjusted return is given by: from the forestry industry, while in Brazil, residues from the
Ri ¼ Rf þ βðRm −Rf þ Rc ð3:5Þ sugarcane industry have been the leading feedstock. Feed-in-
Tariff rate (Ontario) (Ontario Power Authority, 2011), Standing
where Ri is the expected (required) return of the investment, Rf is Offer Program rate (British Columbia) (BC Hydro, 2011) and
the rate of return of a theoretically risk-free investment, β is the renewable energy auctions (Brazil) (Maurer and Barroso, 2011)
risk of the investment compared to the overall market (the were used to project electricity revenues, which have been applied
market ¼1), Rm is the expected return of the market, and Rc is to the model to reduce the net electricity cost (it is assumed the
the country risk (Damodaran, 2008). For the purposes of this facilities are separate and the ethanol facility purchases electricity
analysis, it is assumed that Rf is equivalent to the average return of at the industrial rate).
1-year Government of Canada Treasury Bills over the past 10 years There is a notable difference in the capacity of the co-located
of 2.8%. During the same period, the annual return of the S&P/TSX CHP facilities, as this capacity is dictated by the quantity of lignin
index was 4.52%, resulting in an equity risk premium (Rm–Rf) of produced by the ethanol facility. Since all ethanol facilities are
1.72%. However, historically this is low and therefore the long- producing the same amount of ethanol, facilities using a feedstock
term Canadian equity risk premium of 5.7% was used for the with a high lignin content (and associated lower sugar content)
analysis (Dimson et al., 2003). This is slightly higher than the will produce more lignin and therefore have a higher capacity co-
average global equity risk premium of 5% (Dimson et al., 2003). located CHP facility. Based upon the assumptions presented in
It was assumed that β is equal to 1 (i.e., the company developing Table 2, an 800 ML yr−1 ethanol facility would consume
the project has the same risk as the market as a whole). When 615,600 MWh yr−1, with a peak load of 82.2 MWe. Net electrical
comparing two identical facilities built by the same (Canadian) capacity of the CHP facilities ranged from 102.0 MWe to
company but in two different countries, any difference in risk 124.4 MWe for the six scenarios, indicating a net complex
premium will largely be systematic, undiversifiable, country risk. (including the ethanol facility) capacity of 19.8–42.2 MWe. The
Based upon analyses by Damodaran (2011), it is assumed Brazil softwood-based facility (scenario BC-Forest) was at the top end of
has a country risk premium of 3%. Therefore, the cost of capital for this range.
this analysis for the facilities in Williams Lake and Prescott is 8.5%
and for Barra do Riacho is 11.5%. 3.7. Taxes, insurance, and permits

3.5. Cost of construction For projects as large and unique as a lignocellulosic ethanol
facility, insurance, permits, and property taxes are difficult to
Several companies provide international cost of construction predict. They would likely be negotiated on a case-by-case basis.
indexes that compare major cities around the world. The U.S. However, general heavy industry rates have been used here to
dollar and a U.S. city are typically used as the basis for the index, represent the base case situation for each biorefinery site. Income
making the indexes susceptible to changes in exchange rates and taxes are notably higher in Brazil than Canada, although property
the health of the U.S. economy. The closest indexed cities taxes are relatively similar. It is worthwhile to note that within a
(Vancouver, Toronto, and São Paulo) were used as a comparative single province such as British Columbia, property taxes for large
metric to determine relative cost of construction at the plant sites. industry range by municipality from zero to 8.4% of assessed value
While construction costs at the actual site may be somewhat (Union of British Columbia Municipalities, 2009).
different than the indexed city, since all sites are outside of major The minimum ethanol selling price (MESP), the price at which
cities, the relative comparison was consistent. the producer breaks even, is presented in Fig. 1 for all six scenarios.
Based upon the Faithful+Gould International Construction The Brazilian scenarios BC-Imports and QC-Imports were the
Index, which uses a Chicago, U.S. baseline of 100, Toronto's lowest cost with an MESP below $0.75 L−1, while the BC softwood
construction cost index was estimated at 85.6 and São Paulo's scenario (BC-Forest), at $1.02 L−1, is higher than all hardwood
cost index at 67.6 (Faithful+Gould, 2009). A Vancouver cost index scenarios. Delivered feedstock cost, including harvest and delivery,
was unavailable. The exchange rate, which greatly affects the index is the primary contributor to MESP differences between scenarios.
results, was assumed to be 1.25 for $CA to $US and 2.32 for R$ to Property taxes are also a major contributor to MESP.
$US for this Faithful+Gould index. More current exchange rates
place the Canadian dollar on par or higher with the U.S. dollar, and 3.8. Sensitivity to energy rates
the assumed exchange rate for the Real in this analysis, based
upon recent trading, is 1.6. When these changes in exchange rate Since all the process heat required for the production of ethanol
are taken into account, Toronto's index becomes 102.7 and São is assumed to be produced by on-site process residues and there
Paulo's index becomes 88.56. Based upon the KPMG Guide to are no heat export revenues, the two forms of energy considered
International Business Location, Vancouver is on par with Toronto for the sensitivity analysis are the electricity rate, which impacts
for the chemicals sector cost index and therefore 102.7 is assumed the net cost of electricity to the facility, and petroleum cost –
for Vancouver as well (KPMG LLP, 2010). namely diesel and bunker fuel – which impacts the delivered cost
of feedstock and cost of product delivery to market. The impact of
3.6. Electricity production and revenues a 50% increase in the revenue per kWh sold to the electrical grid
and a 50% increase in petroleum-input cost was calculated for the
Electricity rates are significantly lower in British Columbia than sensitivity analysis. The base rate for electricity revenue is site
both Ontario and Brazil. The high cost of electricity in Brazil, which specific (Table 6) and the base case cost for diesel is $1.30 L−1 and
is almost 300% that in British Columbia, has been attributed to for bunker fuel is $675 t−1, as stated above. Consumption is
taxes on consumption (Ellsworth, 2010; Hydro Québec, 2010). assumed to be completely inelastic in regards to cost and con-
While this is a major challenge for facilities that must purchase sistent with base case assumptions. Rail diesel consumption is
electricity from the grid operator, it presents an opportunity for a assumed to be 168 t km L−1 (Canadian National Railway Company,
 J.D. Stephen et al. / Energy Policy 59 (2013) 329–340 337

Fig. 1. Minimum ethanol selling price (MESP) for all scenarios.

Fig. 2. Sensitivity analysis on petroleum used in feedstock and ethanol transportation and electricity rates.

2011b). The impact of an increase in energy rates on the MESP is costs, it has a small contribution to MESP and therefore provides
presented in Fig. 2. only a limited advantage to Brazilian facilities. This is consistent
with the pulp industry (Greenbaum, 2008). The sensitivity analysis
showed diesel and bunker fuel prices impact BC and Ontario-
4. Discussion based facilities to a greater extent than Brazil-based facilities. This
is due to the higher proportion of fuel used in feedstock transpor-
Despite the long distance to market, Brazilian-produced euca- tation compared to ethanol transportation and the relatively
lyptus ethanol has a notably lower MESP than Canadian-produced longer feedstock transportation distances for Canadian biomass.
lignocellulosic ethanol. Large-volume seaborne deliveries from Despite the lower construction cost of a facility in Brazil, driven
Brazil to Vancouver and Montréal markets have a low cost on a by construction labour cost, than Canada, the annualized capital
per litre-km basis and result in product shipping contributing a cost (and hence contribution to MESP) of a Brazilian facility is
small percentage (o2%) to the total MESP. actually greater than one located in Canada. This is due to the
As in the pulp sector, the largest difference in cost of produc- higher investment risk and therefore higher cost of capital. This
tion of lignocellulosic ethanol between Brazil (tropical) and dichotomy of total capital cost could be modified in the future as
Canada (temperate) is the cost of feedstock (Greenbaum, 2008). Brazilian wages rise, driving up the cost of construction index, or
The delivered cost of feedstock, which includes harvest and Brazil's debt rating could be upgraded, reducing the financing
transportation, is approximately 2.5 times greater for BC softwood interest rate. Capital is the largest single cost contributor to the
than Brazilian eucalyptus. Scenario ON-Willow is the only non- MESP for Brazilian scenarios and the second largest, following
Brazilian scenario with a feedstock contribution to MESP under delivered feedstock cost, for all Canadian scenarios.
$0.25 L−1. While labour cost is substantially lower in Brazil than Enzyme cost contributed approximately $0.10 L−1 to all scenarios,
Canada, impacting both delivery (driver) and facility operating with an enzyme loading of 20 FPU g−1 cellulose assumed for all. In
338 J.D. Stephen et al. / Energy Policy 59 (2013) 329–340

real-world practice, enzyme loading is likely to be lower for hard- chosen sites already offer lower property tax rates. For example,
wood than softwood feedstocks on a tonne of raw material basis, property tax rates in British Columbia range from 0.0 to 8.4% of
regardless of absolute cellulose content. Although a 70% theoretical assessed value, giving Williams Lake the second highest property
yield was assumed for all feedstocks, softwood is known to be tax rate (8.4%) of all jurisdictions in British Columbia (Union of
significantly more recalcitrant and difficult to hydrolyze than hard- British Columbia Municipalities, 2009). Previous assessments have
wood, which could reduce the actual hydrolyzed sugar, and hence assumed a rate of 0.75%, which would reduce the property tax
ethanol, yield for softwoods relative to hardwoods (Alvira et al., 2010; burden and contribution to MESP to $0.0133 L−1 for Canadian
Mabee et al., 2006). This would increase the MESP for scenario BC- scenarios and $0.0115 L−1 for Brazilian scenarios. Clearly, given the
Forest beyond the already high $1.02 L−1. The MESP reported here is large capital investment, a low property tax jurisdiction is critical
higher than those previously reported for softwood due to the higher to long-term economic competitiveness and a low MESP.
feedstock costs – a result of utilizing whole logs from dedicated If property taxes were eliminated for the Brazilian scenarios,
harvest instead of harvest and mill residues – in addition to higher ethanol could be delivered to Montréal for less than $0.64 L−1. This
property taxes (Stephen et al., 2012). is less than 200% of the MESP of both sugarcane and corn ethanol
The co-location of a CHP facility is an important means of (Hettinga et al., 2009; Van den Wall Bake et al., 2009), indicating a
attaining a competitive MESP. Should the facilities purchase elec- more competitive position than has been estimated in previous
tricity at local industrial rates without offsetting revenue, MESP assessments (e.g., Hamelinck et al., 2005; Stephen et al., 2012).
would be to $0.014–0.098 L−1 greater, with the greatest difference However, this does not address the fundamental question of why a
being for Brazilian scenarios. As noted by the mining industry, high Brazilian company would pursue technically risky and challenging
electricity prices in Brazil could limit the development of electricity advanced lignocellulosic ethanol production from eucalyptus
consumption-intensive projects (Ellsworth, 2010). The relatively when conventional production from sugarcane is technically and
high feed-in tariff rates in Ontario make a significant contribution economically preferred. This is despite the fact eucalyptus ethanol
to reducing the MESP for Ontario scenarios by providing revenue to has been shown here to be the lowest cost woody biomass ethanol
the complex. A high rate for bioelectricity supplied to the grid could option.
be used by governments to attract lignocellulosic ethanol facilities. The work described here was largely focused on the design,
The sensitivity analysis showed that increasing electricity rates paid use, and results of techno-economic spreadsheet models. Since a
by the grid by 50% can reduce the cost of ethanol production by model's results are only as good as the data that populate the
greater than $0.02 L−1. model, great care was taken to ensure a high level of data accuracy
The electricity efficiency as modelled was low compared to and reliability. However, when using models of ‘evolving’ technol-
most large-scale ( 450 MWe) bioelectricity facilities operating on ogies, there will inherently be some variations in inputs and
raw biomass, which typically operate at 25–30% efficiency. How- assumptions. This is particularly true when taking modelling
ever, the large process heat demand for ethanol production, at results and applying them to specific commercial production
18 MJ L−1, meant that a large proportion of the combustion energy situations. In addition, the lack of lignocellulosic ethanol facilities
was required for heat. This also showed that cellulose hydrolysis operating at commercial scale means verification of model results
rates beyond 75% would result in heat demand exceeding available is difficult. However, despite these reservations, the model identi-
heat from process lignin and unhydrolyzed cellulose (assuming fied some of the challenges that a woody biomass-to-ethanol
the same electrical output). Additional heat inputs, in the form of process will have to address before becoming fully commercial.
supplementary biomass, natural gas, or coal, would be required. Although a proxy for real-world verification, the core lignocellu-
The scenarios presented here do not include the sale of co- losic ethanol model was modified to become a corn ethanol model
products, other than electricity, which could potentially generate and the outputs compared to corn ethanol production surveys.
co-product credits (Stephen et al., 2012). Lignin-derived com- This comparison showed the techno-economic models to be
pounds have been promoted as a potential source of revenue that fundamentally sound.
could contribute to a reduction in the MESP (Turner, 2008),
although a large market for lignin-derived products, beyond
sulphite pulping lignosulfonates, has not yet been proven. Produc-
tion of lignin co-products would reduce the amount of lignin
available for process heat, and would result in a requirement for 5. Conclusions
supplementary fuel and added operating cost. In addition, the sale
of lignin co-products is dependent upon purification of lignin and Advanced lignocellulosic biofuel facilities in Canada and else-
utilization of pretreatment technology such as organosolv. Steam where will face the same challenge posed by the pulp and paper
explosion, as assumed here, is projected to be lower in capital and industry – competing with lower cost imports from tropical
operating costs than organosolv, but does not produce lignin of countries. In addition, there is less product differentiation for
sufficient purity for sale as a co-product (Abbott et al., 2009; ethanol than pulp (e.g., Northern Bleached Softwood Kraft Pulp
Eggeman and Elander, 2005; Mabee et al., 2006). Both business versus Eucalyptus Hardwood Pulp). Since shipping constitutes
models, built around competing pretreatments, are being pursued only a small fraction of the MESP for major Canadian markets of
for woody feedstocks but neither has thus far resulted in com- Vancouver and Montréal, operating costs, particularly feedstock
mercial production. costs, and taxes will be the driving factors behind decisions on
Given the substantial capital cost of the modelled facility, and siting biorefineries for lignocellulosic ethanol production. Federal
the fact that property taxes are typically calculated on an ‘assessed and provincial governments in North America and Europe wishing
value’ basis, the yearly tax liability is significant for an 800 ML to incentivize biofuels are faced with the dilemma of supporting
facility – ranging from $68 to 102 M per year (not including lignocellulosic ethanol production or use. Supporting domestic
assessed value depreciation). The assumed rates are based upon production could result in the consumer receiving a higher priced
stated large-scale industrial rates for the local municipalities. fuel than could be achieved through imports, thus hindering
However, it is likely that in order to attract the investment and fuel acceptance and competitiveness relative to gasoline, while
jobs associated with a large scale biorefinery, some communities supporting domestic lignocellulosic ethanol consumption could
would be willing to offer lower, ‘custom’ property tax rates. result in ethanol imports and limited domestic production and job
In addition, many communities within the same region as the creation.
 J.D. Stephen et al. / Energy Policy 59 (2013) 329–340 339

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