Publication Type

Journal Article

Version

submittedVersion

Publication Date

6-2023

Abstract

Motivated by the agricultural industries, this paper studies the economic and environmental implications of biomass commercialization; that is, converting organic waste into a saleable product, from the perspective of a processor that uses a commodity input to produce both a commodity output and biomass. We characterize the economic value of biomass commercialization and examine how input and output spot price uncertainties affect this value. Using a model calibration, we find that lower input spot price variability or higher output spot price variability or correlation between the two spot prices increases this value for a typical palm oil mill. To measure the environmental impact we use total expected carbon emissions resulting from profit-maximizing decisions and characterize the change in total expected emissions after commercialization. Our analysis reveals that while higher biomass demand or biomass price always increases the value of biomass commercialization, these changes are not necessarily environmentally beneficial as they may increase the emissions associated with biomass commercialization. We also characterize conditions under which biomass commercialization is environmentally beneficial or harmful; that is, it leads to a reduction or an increase in the total expected emissions, respectively. In comparison with the existing understanding which does not take into account optimization of operational decisions, our analysis highlights two types of misconceptions (and characterizes the specific conditions under which they appear): (i) we would mistakenly think that biomass commercialization is environmentally beneficial when it is not, and (ii) we would mistakenly think that biomass commercialization is environmentally harmful when it is not.

Keywords

Biomass, Agriculture, Commodity, Sustainability, Emissions, Spot Price Uncertainty, Renewable Energy, Palm Oil

Discipline

Agribusiness | Operations and Supply Chain Management

Research Areas

Operations Management

Publication

Management Science

Volume

69

Issue

9

First Page

3561

Last Page

3577

ISSN

0025-1909

Identifier

10.1287/mnsc.2022.4518

Publisher

INFORMS

Embargo Period

8-16-2022

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1287/mnsc.2022.4518

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