Pricing of Renewable Gasoline and Its Impact on Greenhouse Gas Emission Reduction Planning for Automakers and Electricity Generators

With increasing evidence for climate change in response to greenhouse gasses (GHG) emitted by human activities, pressure is growing to reduce fuel consumption via increased vehicle efficiency and to replace fossil fuels with renewable fuels. While real-world experience with bio-ethanol and a growing body of research on many other renewable fuel pathways provide some guidance as to the cost of renewable transportation fuel, there has been little work comparing that cost to alternative means for achieving equivalent GHG reductions. In earlier work, we developed an optimization model that allowed the transportation and electricity generation sectors to work separately or jointly to achieve GHG reduction targets, and showed that cooperation can significantly reduce the society cost of GHG reductions. In this paper, we expand that model to include a hypothetical renewable gasoline (RG) in the transportation sector to illustrate its potential effects on light duty vehicle (LDV) and electricity generator deployment strategies. We explore the price point needed for RG to emerge as a preferred fuel option to meet the GHG reduction goal. Results show that in both separate and joint cases, even though RG enters the market with a relatively high price, suggesting that RG can cost considerably more than fossil gasoline, it remains viable as a transportation fuel in terms of both minimizing total societal cost and satisfying GHG emissions.