Life cycle costing and externalities of palm oil biodiesel in Thailand

One of the issues related to the increased use of biofuel (ethanol and biodiesel) in the transport sector concerns their higher production costs, either in pure or blended form, as compared to conventional fuels (gasoline and diesel). Based on the average cost of biodiesel, the former is not able to compete with diesel if no subsidies are provided by the government to boost its cost competitiveness. However, such a cost comparison is not a true reflection of the various potential benefits of biofuels. This study aims to evaluate the influence of externalities on the cost performance of various palm oil biodiesel blends (B5, B10 and B100) when internalized into their respective production cost for the case of Thailand. A case study of palm oil biodiesel has been assessed and compared to conventional diesel. An income elasticity of willingness to pay (WTP) was used as multiplier factor to transfer the values of selected environmental damage costs obtained from the Environmental Priority Strategies (EPS) methodology into Thai context. The three key environmental burdens considered in this work include land use, fossil energy resources depletion and air pollutants emissions i.e. CO2, CH4, N2O, CO, NOx, SO2, VOC and PM10. The results obtained indicate that environmental costs contribute to 34% of the total costs of conventional diesel. In comparison to diesel and for the same performance, the total environmental cost of biodiesel based palm methyl ester (PME) is about 3-76% lower depending on the blending levels. This is mainly due to two major advantages that biofuels present which are a reduction in the depletion of fossil energy resources and mitigation of carbon dioxide emissions. In terms of net social benefits, the promotion of biodiesel to replace diesel is economically feasible contributing a gain in welfare of about 0.01 and 0.76 THB L-1 diesel equivalent for 135 and B10 respectively. (C) 2011 Elsevier Ltd. All rights reserved.