Biofuel from Jatropha curcas: Environmental sustainability and option value

This paper considers the use of a non-edible plant, Jatropha curcas (J. curcas), for the production of biofuel as a substitute for traditional fossil fuel. It is shown that the net energy balance and greenhouse gases (GHGs) balance are positive. The investment value in biofuel from J. curcas is also studied, and both its intrinsic and option values are calculated. A reference case is evaluated, namely, the cultivation of J. curcas as a substitute for conventional fuel in a specific less-developed country, Kenya, that lies in the tropical region where J. curcas grows. The investment is modeled as a perpetual investment call option. It is shown that the Net Present Value is positive for a vast range of discount factors and investment costs, while the option value depends crucially on the parameters of the model. A positive option value points out those cases in which it is optimal to defer the investment even if it entails a positive and possibly high Net Present Value.

►We consider the use of Jatropha curcas for biofuel production. ►The replacement of gasoil with oil from Jatropha is analyzed. ►The real option value of the investment in a real case-study in Kenya is calculated. ►The value of the investment is shown to be positive and high. ►Value's volatility is high, depending on the land cost and the discount factor.