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An economic analysis of fossil-fuel substitution for climate change mitigation Graham, Peter John

Abstract

In 1997, the Kyoto Protocol was adopted to limit greenhouse gas emissions in an attempt to mitigate climate change. The impetus for this thesis is Canada's commitment under this international agreement to reduce national greenhouse gas emissions to 6% below its 1990 levels by 2008-2012 as well as reducing our dependency on fossil fuels. The question posed here is: can using biomass from afforested lands and industrial wood waste as a fuel for energy production be an economically viable tool to reduce greenhouse gas levels in the atmosphere? To answer this, I first examine the two stages of afforestation's role in reducing greenhouse gas levels: its initial use as a carbon sink, and then its use as a renewable energy source that substitutes for fossil fuels. Next I examine the potential supply of biomass from afforested lands as well as from industrial wood waste. The production of ethanol from wood-biomass is then considered. Ethanol offers an excellent opportunity for greenhouse gas mitigation due to market potential, an ability to offset significant emissions from the transportation sector, and reduce emissions from CO₂-intensive waste-management systems. I follow with a case study of the economics of a hypothetical ethanol production facility using mathematical modeling. The results indicate that a facility capable of producing 122 million litres of ethanol annually would have a net present value of $245 million over a planning horizon of 36 years. This facility would require a supply of up to 960 oven-dry tonnes of wood-biomass per day and would result in net annual reductions of greenhouse gas emissions of approximately 349,000 tonnes of CO₂ equivalent (non-discounted). This includes the carbon sequestered through the afforestation of 66,000 hectares over 24 years as well as avoided emissions from fossil fuel substitution. In conclusion, then, I am able to answer the question with which I began: using biomass from afforested lands and industrial wood waste as a fuel for energy production can be an economically viable tool for reducing greenhouse gas levels in the atmosphere. By doing so, Canada can take a step towards meeting its Kyoto Protocol commitment, and would be taking a leading role in the vital move toward mitigating climate change. This will also reduce reliance on fossil fuels and reduce the sensitivity of transportation fuel prices to changes in gasoline prices.

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