Investigating Investment Priorities for Biofuel Production and the Influence of

Regulations, Policies, and Emergent Conditions

Prepared for

SEDC 2014April 3-5, 2014Chantilly, VA

Elizabeth B. Connelly1, Lisa C. Peterson2, Andres F. Clarens2, and James H. Lambert1

1Systems and Information Engineering, University of Virginia2Civil and Environmental Engineering, University of Virginia

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Agenda• Background & Motivation• Methods• Application• Results• Conclusions

BACKGROUND & MOTIVATION

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BackgroundCommercial Aviation Alternative FuelsInitiative (CAAFI)

– Formed in 2006 to promote the development of alternative jet fuel

– Coalition of airlines, aircraft and engine manufacturers, energy producers, researchers, international participants and U.S. government agencies

5

Background (cont.)Major concerns regarding aviation fuel:

1. Supply security2. Affordability and price stability3. Environmental impacts

• Reduce GHG emissions• Avoid carbon tax

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Background (cont.)Meets “do no harm” ground rules (Hendricks et al., 2011):

1. Does not compete with arable land food or feed production

2. Does not require freshwater resources3. Does not cause deforestation or adverse social or

environmental harm4. Can be scaled to assure secure sustainable sufficient

supply5. Can be competitive with JP-8 or JetA-16. Life cycle carbon reduction, >50% fossil CO2 reduction

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Motivation

“Biofuels lifecycle and sustainability research will provide better information to decision makers on the trade-offs and opportunities associated

with increased biofuels production.” -- Lisa Jackson

EPA Administrator (2009)

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Motivation (cont.)“The fundamental challenge facing the renewable jet

fuel industry today is that there are simply no commercial quantities of renewable jet fuel available anywhere in the world…Because there is insufficient

feedstock combined with an inadequate supply chain infrastructure”

-- Dr. Christoph WeberCEO of JATRO

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Biojet Fuel Supply Chain

Feedstock Productio

n, Harvest, and/or

Collection

Transport to Bio-

refinery

Biofuel Productio

n

Blending of Biojet

Fuel

Transport to Airport

Storage and

Delivery to Aircraft

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Feedstocks

Agricultural Residues

Forest Residues

Energy Crops

Algae

Municipal Solid Waste

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Conversion Pathways

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Investment Considerations• Feedstock availability and

productivity• Biorefinery location• Processing technology

tradeoffs• Overall economic feasibility

Feedstock Total Cost ($/gallon)

Camelina $2.98

Corn stover $2.89

Switchgrass $4.57

Algae $16.12

SRWC $4.40

Petroleum $3.30

METHODS

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Methodology Background

Montibeller and Franco (2010) on MCDA aiding strategic decisions‑ Addresses cognitive

burden associated with evaluating a large set of interconnected strategic decisions

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Methodology Background (cont.)Goodwin & Wright (2001) on scenario analysis

– Addresses uncertainty yet avoids estimating subjective probabilities

– Story telling via scenario planning is attractive to managers

– Incorporates a variety of viewpoints about the future

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Methodology Background (cont.)Belton and Stewart (2002) suggest integrating scenario analysis and MCDA

– Biases from the heuristics employed by unaided decision makers are likely to be avoided

– Transparency and flexibility can maximize the participation of decision makers from diverse backgrounds and encourage new perspectives

– Formal decision process creates documented and defensible rationale for choosing a particular strategy

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Risk has been defined as…

The measure of the probability and severity of adverse effects. W.W. Lowrance, On Acceptable Risk (1976)

The effect of uncertainty on objectives. ISO 31000 (2009)

The influence of scenarios on priorities. Lambert et al. (2013, 2012, 2011)

Methodology Background (cont.)

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Methodology Background (cont.)Applications of integrated scenario analysis and multicriteria analysis:

– Coastal infrastructure in Alaska (Karvetski et al., 2011a)– Electricity capacity expansion (Martinez et al., 2011)– Energy security in military installations (Karvetski et al.,

2011b)– Transportation infrastructure assets (Thekdi and Lambert,

2013; Lambert et al., 2012; Schroeder & Lambert, 2011)– Facility energy investments (Karvetski & Lambert, 2012)– Radiological disaster preparedness (Parlak et al., 2012)– Business processes for a risk organization (Teng et al., 2012)

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Methods• Decision aiding techniques

– Multi-criteria decision analysis– Scenario planning

• Objectives:– Develop criteria, initiatives, and scenarios of

importance for developing a biojet fuel industry– Determine weights for importance– Use value function to rank the initiatives for each

scenario– Determine which scenarios influence the

prioritization of initiatives

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Methods (cont.)

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Identify criteria for decision-

making

Assign relative influence of

criteria

Identify investment initiatives

Assess how well initiatives

address criteria

Define scenarios as combination

of conditions

Reassess relative influence of

criteria

Determine rank order of

initiatives

Determine influential scenarios

Identify emergent conditions

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Methods (cont.)

• Sc = {c1,…, cm} represents the m criteria used for decision making

• Sx = {x1,…, xn} represents the n investment alternatives being considered

• Sec= {ec1,…,ecp} represents the p emergent conditions that are used for scenario building

• Ss = {s1,…,sq} represents the q scenarios that address future uncertainties

Identify criteria for decision-making

Assign relative influence of criteria

Identify investment initiatives

Assess how well initiatives address

criteria

Define scenarios as combination of

conditions

Reassess relative influence of criteria

Determine rank order of initiatives

Determine influential scenarios

Identify emergent conditions

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Methods (cont.)

Weight each criterion in terms of influence for the as-planned scenario

Normalize the weights: wi0’=wi

0 /Σwi0

Identify criteria for decision-making

Assign relative influence of criteria

Identify investment initiatives

Assess how well initiatives address

criteria

Define scenarios as combination of

conditions

Reassess relative influence of criteria

Determine rank order of initiatives

Determine influential scenarios

Identify emergent conditions

Influence Non-normalized weight wi0

High 4

Medium 2

Low 1

None 0

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Methods (cont.)

Define matrix A that contains scores xij indicating how well each initiative xi addresses each criterion cj

Identify criteria for decision-making

Assign relative influence of criteria

Identify investment initiatives

Assess how well initiatives address

criteria

Define scenarios as combination of

conditions

Reassess relative influence of criteria

Determine rank order of initiatives

Determine influential scenarios

Identify emergent conditions

xij = 0 if initiative i does not address criterion j0.33 if initiative i somewhat addresses criterion j0.67 if initiative i addresses criterion j1 if initiative i strongly addresses criterion j

A =x1,1 ⋯ x1,n

⋮ ⋱⋮ xm,1 ⋯xm,n

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Methods (cont.)

Reassess the relative influence of criteria under each scenario

Identify criteria for decision-making

Assign relative importance of

criteria

Identify investment initiatives

Assess how well initiatives address

criteria

Define scenarios as combination of

conditions

Reassess relative importance of

criteria

Determine rank order of initiatives

Determine influential scenarios

Identify emergent conditions

wik =

9 × wi0’ if the influence of criterion i increases with scenario k

3 × wi0’ if the influence of criterion i increases somewhat with scenario k

1 × wi0’ if the influence of criterion i stays the same with scenario k

1/3 × wi0’ if the influence of criterion i decreases somewhat with scenario k

1/9 × wi0’ if the influence of criterion i decreases with scenario k

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Methods (cont.)

Determine the rank order of initiatives using the value function v(xi) defined for each scenario sk where v(xi)k [0,100]:∈

v(xi)k = 100 x Σi=1,m wik xij = 100 x w1

k ⋯ wmk

Identify criteria for decision-making

Assign relative importance of

criteria

Identify investment initiatives

Assess how well initiatives address

criteria

Define scenarios as combination of

conditions

Reassess relative importance of

criteria

Determine rank order of initiatives

Determine influential scenarios

Identify emergent conditions

x1,i ⋮

xm,i

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Methods (cont.)

• For each initiative, calculate the absolute value of the change in rank for each scenario compared to the baseline

• Influential scenarios are characterized by: 1) Comparatively high average changes in rank2) Most extreme changes in rank (positive or

negative)

Identify criteria for decision-making

Assign relative importance of

criteria

Identify investment initiatives

Assess how well initiatives address

criteria

Define scenarios as combination of

conditions

Reassess relative importance of

criteria

Determine rank order of initiatives

Determine influential scenarios

Identify emergent conditions

APPLICATION

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CriteriaCriterion Description

c1 Production quantity

c2 Production quality

c3 Environmental quality

c4 Economic development

c5 Life-cycle costs

c6 Regulatory compliance and global collaboration

c7 Safety and security

⋮ Others

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Initiatives Initiativex1 Invest in R&D of more productive feedstocks x2 Cultivate lignocellulosic feedstocks x3 Cultivate oilseed crops as feedstock x4 Cultivate halophyte feedstocks •

•

•

x34 Convert petroleum pipeline to biofuel pipeline for biofuel distribution x35 Establish trucking infrastructure for fuel distribution x36 Increase number of storage tanks on airport grounds x37 Establish coalitions encompassing all parts of the supply chain

Initiatives span biojet fuel supply chain

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Emergent ConditionsEmergent conditions Description

EC01 Competition between airportsEC02 Shift in customer preferences to favor biofuel-powered flightsEC03 Change in air traffic mixEC04 Entry or expansion of a low-cost carrier

EC15Implementation of carbon taxes and/or emissions cap and trade system

EC16 Introduction of biofuel-related legislationEC17 Political factors impede commercial-scale biojet fuel refiningEC18 Increase in the strictness of emission standards EC21 Change in supply or availability of feedstockEC22 Advances in conversion technology

⋮

Identify emergent conditions addressing:

(1) markets, (2) policies, (3) technologies

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ScenariosScenario Description Emergent Conditions

s1: Expected regulations

U.S. regulations or policies offer tax credits or other incentives that effectively make biojet fuel more cost competitive with conventional jet fuel

EC16: Introduction of biofuel-related legislation

s2: EU ETS EU ETS is expanded to include U.S.-originating flights to Europe.

EC15: Implementation of carbon taxes and/or emissions cap and trade system

s3: Technological competition

Technological advances give a competitive edge to some airports, resulting in airlines favoring certain airports as international hubs

EC01: Competition from other airportsEC05: Relocation of airline hubEC15: Implementation of carbon taxes

and/or emissions cap and trade system

s4: Green preferences

Environmental awareness causes a change in consumer preferences, favoring domestic flights flown on biojet fuel.

EC02: Shift in customer preferences to favor biofuel-powered flights

EC13: Change in air traffic mix

s5: Insufficient supply

Supply of biojet fuel cannot meet demand due to lack of commercial scale bio-refineries and/or availability of feedstock

EC17: Political factors impede commercial-scale biojet fuel refining

EC23: Change in supply or availability of feedstock

Define scenarios as combinations of conditions

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Initiative

c1 Production quantity

c2 Production quality

c3 Environmental quality

c4 Economic development

c5 Life-cycle costs

c6 Regulatory compliance and global collaboration

c7 Safety and security

x1

x2

x3

Qualitative rating Symbol Quantitative rating

does not address 0

somewhat addresses 0.33

addresses 0.67

strongly addresses 1

Assessment of initiatives

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Weighting criteria under scenarios

Reassess relative influence of criteria

wi’= α x wi

Relative influence of criteria equal in

baseline scenario

RESULTS

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x01

x02

x03

x04

x05

x06

x07

x08

x09

x10

x11

x12

x13

x14

x15

x16

x17

x18

x19

x20

x21

x22

x23

x24

x25

x26

x27

x28

x29

x30

x31

x32

x33

x34

x35

x36

x37

159

13172125293337

Initiatives

Rank

Ord

er

• x01: Invest in R&D of more productive feedstocks• x04: Cultivate halophyte feedstocks• x08: Develop collection infrastructure for municipal solid waste (MSW) as

feedstock

Highest ranked initiatives

• x24: Commit to biojet fuel purchase agreements• x26: Encourage user-friendly biofuel accounting methods• x27: Co-locate bio-refinery with petroleum refinery• x35: Establish trucking infrastructure for fuel distribution

Lowest ranked initiatives

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x01

x02

x03

x04

x05

x06

x07

x08

x09

x10

x11

x12

x13

x14

x15

x16

x17

x18

x19

x20

x21

x22

x23

x24

x25

x26

x27

x28

x29

x30

x31

x32

x33

x34

x35

x36

x37

159

13172125293337

Initiatives

Rank

Ord

er

• x24: Commit to biojet fuel purchase agreements (under s5 Insufficient supply)

Greatest increase in rank relative to as-planned scenario

• x20: Develop market for co-products (under s4 Green preferences)

Greatest decrease in rank relative to

as-planned scenario

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Influential Scenarios  x1 x2 x3 x4 x5 x6 x7 x8 x9 x10 x11 x12 x13 x14 x15 x16 x17 x18 x19 x20 x21 x22 x23 x24 x25 x26 x27 x28 x29 x30 x31 x32 x33 x34 x35 x36 x37 Avg.

s1 1 1 1 2 2 6 11 4 9 6 2 2 5 12 12 6 1 1 1 17 3 0 6 10 0 5 7 4 2 2 4 4 4 15 7 2 16 5.2s2 1 1 1 1 1 1 4 2 14 7 5 5 6 2 2 5 0 0 0 13 4 4 18 14 4 9 4 17 5 5 4 4 4 3 4 1 3 4.8s3 1 4 4 1 2 0 2 1 7 1 5 5 1 4 4 5 1 1 1 12 10 4 7 9 4 9 7 6 5 5 4 4 4 7 7 11 2 4.5s4 3 4 4 4 0 4 8 4 1 4 1 1 6 1 1 4 5 5 5 20 5 4 14 6 4 1 7 1 1 1 8 8 8 15 7 9 13 5.3s5 3 2 2 3 3 2 1 4 7 2 2 2 14 8 8 2 1 1 1 12 4 1 17 15 1 1 1 12 2 2 1 1 1 8 1 2 2 4.1

Avg. 1.8 2.4 2.4 2.2 1.6 2.6 5.2 3 7.6 4 3 3 6.4 5.4 5.4 4.4 1.6 1.6 1.6 14 5.2 2.6 12 10 2.6 5 5.2 8 3 3 4.2 4.2 4.2 9.6 5.2 5 7.2  

• x05: Cultivate algae as feedstockMost robust

initiative

• s5: Insufficient supplyLeast disruptive

scenario

• s4: Green preferencesMost disruptive scenario

CONCLUSIONS

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Accomplishments• Identified criteria by which stakeholders in the

Commonwealth of Virginia can evaluate actions, decisions, and other initiatives to develop a regional biojet fuel industry

• Identified thirty-seven initiatives for building a biojet fuel industry, considering six stages of the supply chain

• Identified twenty-five emergent conditions of importance to farmers, fuel producers, airlines, airports, and travelers, among others

• Constructed five future scenarios of concern to these stakeholders

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Accomplishments (cont.)• Tested the priorities for the biofuel initiatives with

scenario-based preferences for the five scenarios that are combinations of the emergent conditions

• Identified of impactful scenarios for establishing a biofuel industry

• Provided decision support for the DOAV and other stakeholders to preserve aviation operations in response to scenarios of emergent future conditions

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AcknowledgmentsThis material is based upon work supported by the National Science Foundation under Grant No. CBET – 1067563.

This material is also based upon a project supported jointly by the Virginia Department of Aviation and the Virginia Center for Transportation Innovation and Research.

Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the National Science Foundation, the Virginia Department of Aviation, or the Virginia Center for Transportation Innovation & Research.

QUESTIONS?

Contact information:Elizabeth Connelly

ec5vc@virginia.eduhttps://www.linkedin.com/in/elizabethconnelly