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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 and Marrero, Gustavo A. and Puch, Luis A. (2012) Costs for conventional and renewable fuels and electricity in the worldwide transport sector: a mean-variance portfolio approach. [Working Paper or Technical Report] (In Press)

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Abstract

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.

Item Type:Working Paper or Technical Report
Additional Information: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.
Uncontrolled Keywords:Fuel costs, Road sector, Efficiency frontiers, Mean-variance analysis.
Subjects:Social sciences > Economics > Econometrics
Series Name:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2012
Number:19
ID Code:15914
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Deposited On:11 Jul 2012 12:26
Last Modified:06 Feb 2014 10:34

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