Abstract. To explore the effect of CO₂ price on the effective cost of ethanol production we have developed a model that integrates financial and emissions accounting for dry-mill corn ethanol plants. Three policy options are modeled: (1) a charge per unit of life cycle CO₂ emissions, (2) a charge per unit of direct biorefinery emissions only, and (3) a low carbon fuel standard (LCFS). A CO₂ charge on life cycle emissions increases production costs by between $0.005 and $0.008 l⁻¹ per $10 Mg⁻¹ CO₂ price increment, across all modeled plant energy systems, with increases under direct emissions somewhat lower in all cases. In contrast, a LCFS increases the cost of production for selected plant energy systems only: a LCFS requiring reductions in average fuel global warming intensity (GWI) with a target of 10% below the 2005 baseline increases the production costs for coal-fired plants only. For all other plant types, the LCFS operates as a subsidy. The findings depend strongly on the magnitude of a land use change adder. Some land use change adders currently discussed in the literature will push the GWI of all modeled production systems above the LCFS target, flipping the CO₂ price from a subsidy to a tax.

Received 7 January 2008, accepted for publication 30 April 2008
Published 15 May 2008