Micro-economic modelling of biofuel system in France to determine tax exemption policy under uncertainty

Liquid biofuel support program launched in 1993 in France is implemented through tax exemptions to biofuels produced by agro-industrial chains. Activity levels are fixed by decree and allocated by the government to the different chains. Based on earmarked budget increase voted in the parliament, total quantity of biofuels will be increased by 50% in the horizon 2002-2003. A micro-economic biofuel activity model containing a detailed agricultural sector component, that is represented by 700 farms, is used to estimate costs and surpluses generated by the activity at the national level as well as tax exemption levels. Furthermore, Monte Carlo simulation has been used to search for efficient tax exemptions policies in an uncertain environment, where biofuel profitability is significantly affected by petroleum price and soja cake prices. Results suggest that, for the most efficient units both at the industry level (large size biomass conversion units) and at the agricultural sector level (most productive farms), unitary tax exemptions could be decreased by 10-20% for both biofuels, ethyl ether and methyl ester, with no risk for the viability of any existing chain.