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Il Dipartimento di Politica Economica, Finanza e Sviluppo  (DEPFID) termina la sua attività il 31 ottobre 2012

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10/2009

 DEPFID Working Paper 10 / 2009 - Abstract

Biofuel from Jatrofa Curcas: environmental sustainability and option value

Marcello Basili* and Fulvio Fontini**

 

The paper considers the use of a non-edible plant, Jatropha Curcas (JC), for the production of biofuel as a substitute for traditional fossil fuel. The whole production chain is analyzed; energy and environmental balances are reported. The investment value in biofuel from JC is also studied, and both its intrinsic and option values are calculated. A reference case is evaluated, namely, the cultivation of JC as substitution for conventional fuel in a specific less developed country, Kenya, that lies in the tropical region where JC grows. The investment is modelled as a perpetual investment call option. It is shown that the Net Present Value is positive for a vast range of discount factors and investment costs, while the option value depends crucially on the parameters of the model. Finally, the case of a relinquishment requirement for the specific land-use is also evaluated by modeling the corresponding American call option value; it is shown that a land-use release requirement does not change the optimal investment strategy.

Keywords: Biofuel, Jatropha Curcas, Real Option, Alternative Energy Sources

JEL Classification: C61, Q42, Q56

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* DEPFID, University of Siena

** Department of Economics, University of Padova

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