Environmental efficiency among corn ethanol plants

Economic viability of the US corn ethanol industry depends on prices, technical and economic efficiency of plants and the extent of policy support. Public policy support is tied to the environmental efficiency of plants measured as their impact on emissions of greenhouse gases. This study evaluates the environmental efficiency of seven recently constructed ethanol plants in the North Central region of the US, using nonparametric data envelopment analysis (DEA). The minimum feasible level of GHG emissions per unit of ethanol is calculated for each plant and this level is decomposed into its technical and allocative sources. Results show that, on average, plants in our sample may be able to reduce GHG emissions by a maximum of 6% or by 2.94 Gg per quarter. Input and output allocations that maximize returns over operating costs (ROOC) are also found based on observed prices. The environmentally efficient allocation, the ROOC-maximizing allocation, and the observed allocation for each plant are combined to calculate economic (shadow) cost of reducing greenhouse gas emissions. These shadow costs gauge the extent to which there is a trade off or a complementarity between environmental and economic targets. Results reveal that, at current activity levels, plants may have room for simultaneous improvement of environmental efficiency and economic profitability.