Regulatory Impact Analysis
Biofuels as an example
By Senior Adviser Johan Nitter-Hauge
Ministry of Finance, Norway
Finansdepartementet
Rationale for intervention
•
Rationale for intervention

Markets don´t always secure efficiency

Eg. externalities, information failure, public goods.
•
Objectives defined to reflect outcomes (eg. crime
reduction) rather than just outputs or inputs (eg.
prosecutions, prison staff).
•
Cost-benefit analysis – some examples:

Transportation sector

Climate Change Programme

Supporting people programmes
Finansdepartementet
Climate Change Programme - biofuels
•
According to the Kyoto protocol of 1997, Norway has
commitments in relation to its Co2-emissions.
•
The transportation sector is responsible for about one
quarter of energy-related greenhouse gas emissions.
•
Replacement of conventional hydrocarbon based fuels
with fuels made from renewable bio-sources, e.g. rape
seed or palm oil could be one way of reducing the
emissions.
•
Appraisal looked at a scenario where 2 % of the fuels
consists of biofuels.
•
The main biofuels today are ethanol and biodiesel. In
Norway they are imported.
Finansdepartementet
Biofuels - benefits
•
Biofuels have a ”lower carbon footprint” than conventional
fuels. 100 % carbon savings assumed.
•
2 % biofuels content results in a reduction in total Co2
emitted in Norway of 160 000 tons per year.
•
The social cost of Co2 is set at 25 euros per ton.
•
Thus, the value of the annual benefit in Norway is 4 mill.
euros.
Finansdepartementet
Biofuels - costs


Biofuels have a lower energy content than
conventional fuels.
Resource costs of biofuels passed on to consumers.
Other (non-monetary) costs:

Crops that otherwise would become food might
instead become fuel.

Biofuel programmes could raise food prices.

Higher crop prices could harm the poorest people.
Finansdepartementet
Costs of a 2 % biofuel scenario
Bioethanol
Price at the
pump
(eurocents
per litre)
Additional
cost
(eurocents
per litre)
Total
additional cost
(mill. euros)
Conventional
fuel
42,31
Bioethanol
2 % (E02)
42,38
0,06353
1,398
E02 energycorrected
42,69
0,38
8,13
Total
volume sold
2004
2139 mill.
litres
Biodiesel
Conventional
diesel
49,30
1782 mill.
litres
Biodiesel
2 % (E02)
49,68
0,38
6,86
E02 energycorrected
49,81
0,508
9,02
Finansdepartementet
Benefits and costs in summary
•
Reduced Co2 emitted:
•
Total additional cost
(8,13+9,02)mill. euros:
•
Net benefit:
4 mill. euros
17,15 mill. euros
- 13,15 mill. euros
Cost-efficiency:
•
Reduced Co2-emissions:
•
Cost per ton of Co2 abated:
•
Social cost of Co2 per ton:
160 000 tons
107 euros
25 euros
Finansdepartementet
Sensitivity analysis
•
A cost decrease of 30 % means that the cost per ton of
Co2 abated could be 64 euros.
•
According to the Stern report, the social cost of Co2
should be about 60 euros.
•
An oil-price of 80 dollars per barrel makes biofuels
competetive with conventional fuels.
Finansdepartementet
Conclusion - biofuels
•
The measure does not pass a cost-benefit test with
today´s prices of Co2.
•
However, a measure should be included in a climate
change programme even though it does not pass a cost benefit test if it is anticipated that it will help to secure
access to less costly carbon savings in the future.
•
Thus, the greatest potential for reducing costs lies in the
development of next generation technologies to utilize the
cellulosic content of the plants.
Finansdepartementet
Biofuels – what did the government decide?
•
There will be a biofuel obligation where the fuel sellers
have to ensure that at least 2 % of the fuel they sell for
road transport is biofuel by 2008.
•
By 2009 at least 5 % of the fuel sold for road transport
shall be biofuel.
•
New regulations circulated for comments.
In addition:
•
Tax reliefs for biofuels and so-called flexi-fuel cars are
already in place.
Finansdepartementet
The Preservation of Climate