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Costs for conventional and renewable fuels and electricity in the worldwide transport sector: a mean-variance portfolio approach


Guerrero-Lemus, Ricardo y Marrero, Gustavo A. y Puch, Luis A. (2012) Costs for conventional and renewable fuels and electricity in the worldwide transport sector: a mean-variance portfolio approach. [ Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 19, 2012, ] (En prensa)

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In this paper we analyze the role of changes in the fuel mix on emissions reduction and the diversification of risks associated to rising prices of energy. To this purpose we
evaluate the average cost and the cost volatility of alternative fuel combinations in the road transport sector by means of the Mean-Variance Portfolio Theory. The results
suggest big gains in diversification of risks and emissions reduction associated with shifts away the current fuel mix, which is more than 90% concentrated worldwide in fossil fuels. Those shifts are discussed vis à vis the policy recommendations of the International Energy Agency on fuel use in the transport sector, and both the business as usual and the low carbon scenarios of the European Commission. In particular, shifting toward an efficient system would involve optimizing the use of biofuels (mostly from endogenous feedstock), with second generation biofuels taking the lead in the long-run, and this combined with electricity from clean sources. This scenario would mean
reducing cost volatility by more than 50% as well as CO2 emissions by more than 30% in the long-run.

Tipo de documento:Documento de trabajo o Informe técnico
Información Adicional:

We thank Manuel A. García for excellent research assistance. We also thank the Editor and three anonymous referees for very helpful comments and suggestions. Puch and Marrero thanks Dirección General de Investigación through projects ECO2010-17943 and ECO2009-10398, respectively.

Palabras clave:Fuel costs, Road sector, Efficiency frontiers, Mean-variance analysis.
Materias:Ciencias Sociales > Economía > Econometría
Título de serie o colección:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
Código ID:15914

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