Pareto-efficient legal regulation of the (bio)fuel market using a bi-objective optimization model

Laura Elisabeth Hombach and Grit Walther

European Journal of Operational Research, 2015, vol. 245, issue 1, 286-295

Abstract: Blending biofuels into fossil fuels allows for emission reductions in the transportation sector. However, biofuels are not yet competitive due to high production costs and investments and thus, legal requirements like blending quotas or emission thresholds must be issued if biofuels are to contribute to European CO2-reduction goals. Thereby, the aim is to establish Pareto-efficient long-term legal requirements. Against this background, we develop an optimization model for simultaneously minimizing life cycle greenhouse gas emissions and maximizing discounted net present value in order to analyze the overall system of biomass cultivation, (bio)fuel production and blending. The applied ε-constraint approach allows to calculate Pareto-efficient solutions. The model is applied to the German (bio)diesel market. We show that current and past European Union directives are not Pareto-efficient and cause unintended side effects. As results, information about trade-offs between the two objectives (minimizing life cycle greenhouse gas emissions and maximizing discounted net present value) as well as recommendations on the design of the regulation is derived.

Keywords: (P) Decision support systems; (B) Multiple objective programming; MILP; Biomass-to-biofuel; Sustainability (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:245:y:2015:i:1:p:286-295

DOI: 10.1016/j.ejor.2015.02.039

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