Agriculture Reference
In-Depth Information
3. MODELLING THE BIO-FUEL PRODUCTION
SYSTEM
The micro-economic model represents the agro-energy chain mechanics
and cost structure by simulating the farmers and industry behaviour to
assist the government in evaluating support policies. Taking into account
tax exemptions and activity levels exogenously fixed along with industry
cost structure, and material input cost (based energy crop supply curves)
agents' surpluses can be estimated as shown graphically in Fig. 15.2.
The integrated model that simultaneously optimises economic
surplus in the two-chain bio-fuel system is a MILP bi-level model based on
mathematical programming principles. It can minimise the social cost
(budget cost - agents' surpluses) of environmental policy to mitigate global
warming by determining tax exemption values per unit of biofuel volume
and activities for both chains given a fixed amount of government
expenditure.
The bio-fuel industry is vertically optimised with the use of two-
level programming that combines agricultural and industrial activities.
Bard
et al.
(1998) formulated bi-level programming methods to solve this
problem and have proposed a non-linear program (NLP), where the model
determines simultaneously tax exemptions and energy crop prices. For
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