The Korean Economic Review
Supply Portfolio of Bioethanol in the Republic of Korea
Jeong Hwan Bae (Chonnam National University)Year 2014Vol. 30No. 1
Despite the co-benefits of bioethanol, such as energy security, environmentalimprovement, CO2 emission reduction and development of associated industry, bioethanolblendedgasoline without subsidy is more expensive than pure gasoline in Korea. Therenewable fuel standard (RFS) can contribute to the development of a bioethanol market.However, without controlling the portions of domestic bioethanol, it is highly plausible thata new bioethanol market will be filled with imported bioethanol. If the entire supply ofbioethanol is imported, Korea can no longer expect those co-benefits. This study aims atsimulating the desirable ratios of domestic versus imported bioethanol as well as domesticversus imported feedstock for producing bioethanol in Korea by combining the marginalsocial benefit (MSB) with the marginal social cost (MSC) for bioethanol supply. MSB isderived from a choice experiment and the MSC is derived from the differences in thebioethanol production costs and the petroleum price. The simulation results show thatconsiderable portions of bioethanol should be produced domestically under the conditionthat MSB is equivalent to MSC in bioethanol production. Thus, the upcoming RFS policyshould allow for some quota on behalf of domestic bioethanol with domestic feedstock ormore credit should be given to the petroleum companies that use domestic bioethanol withdomestic feedstock.