How much will you pay for renewable fuels?

Among early adopters and pioneers, there’s a clear association between fuel costs and social benefits — but how much, and for which fuel?

The Digest asked you about E85 ethanol, B2 biodiesel, drop-in fuels and renewable jet fuel.

In early December, The Digest undertook a voluntary survey on renewable fuels and pricing, inviting its global readership to answer four questions relating to the price of ethanol, biodiesel, jet fuel and drop-in fuels — and adoption of those fuels.

While the survey looked directly at fuel price and adoption — it also looked squarely at valuing the social benefits of renewable fuels. If all respondents had taken the purely “economic” view that all fuels are equal commodities and adoption is based strictly on comparable per-mile prices, all responses would have been at the “parity price level”.

Most interesting, in the results, was a clear relationship between price and adoption. There was no outright rejection of, or preference for, renewable fuels irrespective of price.

Respondents generally were able to quantify benefits in terms of price, and did so with ease, whether they were looking at percentage discounts, fuel premiums measured in cents per gallon, or airline ticket premiums measured in dollars per ticket.

The Results

As the survey results demonstrate, the respondents were willing to switch to a renewable fuels based on:

E85 — 15 percent price discount
B2 biodiesel — 3 cent premium per gallon
Drop-in renewable fuel — 4 cent premium per gallon
Airline ticket – $5 premium (based on 50 percent renewable fuel content)

All numbers are medians, not averages.

Applying the numbers to renewable fuel prices, the respondents would switch based on a 18 percent discount for ethanol relative to gasoline, a $1.50 per gallon premium for biodiesel, a 4 cent premium for drop-in fuels, and a 23 percent premium for renewable jet fuel.

Why the disparity between fuels?

One aspect we noted in the responses, was that the results followed a typical bell curve (as is usually the case in price and adoption surveys) in terms of fuel price and adoption rate — but that the fuel premiums didn’t correlate from fuel to fuel. That is to say, the biodiesel premium was much higher on a per gallon basis than for, say, renewable diesel (a drop-in fuel).

Suggesting that “renewable fuel” has a brand value as well as an economic value — since the presence of even a 2 percent blend of biodiesel elicited almost as much of a price premium as 100% drop-in renewable diesel — a highly comparable product in terms of performance and the type of vehicle the fuel is used for.

Just as many consumer products with equal performance attributes (e.g. a branded consumer product and its generic pair) have differing prices because of brand trust, awareness and product loyalty.

Is there a green premium?

In terms of paying more for commodities sold as commodity equivalents — almost certainly not.

But — just as in the example of branded consumer products and their generic pairs — there is evidence that consumers will associate a premium price with a social benefit, so long as the social benefits are clearly understood by the customer at the point of sale or point of decision.

How much of a green premium? It varies intensively by fuel. Clearly the greatest support appears to be for minimal blends of renewable biodiesel at the B2 level — so long as the social benefit is explained as an aggregate (for example, a 60 percent reduction in greenhouse gases compared to petroleum, per gallon of biodiesel consumed — rather than calculating through the per-gallon of B2 consumed).

Another opportunity for industry is aviation fuels. Though airlines are deeply skeptical of fuel premiums, they are used to collecting them at times of skyrocketing petroleum prices (as are taxicabs and other transport providers) — and though they do not see their marketing mission in terms of “selling” renewable fuels at a premium price to petroleum, there is evidence here that a $5 per-ticket premium is available for those airlines who are bold enough to take the marketing initiative.

About the Survey

Before the survey was closed 597 readers had responded to the invitation, and in addition to the survey answers, provided 453 comments in the comment box provided.

Though the survey response, relative to the Digest’s audience, creates a larger margin of error and reduced confidence that this is a representative sample — we have found remarkable consistency from other Digest surveys on “control” questions, that gives us confidence that the sample size is sufficient to inspire confidence in the findings.

For example, in 8 surveys on industry confidence conducted since 2009 that receive similar participation rates, response has varied less than 5 percent, survey to survey, on “control” questions such as job title and office location.

Whether the questions are ideally structured to “tease out” a response that corresponds to behavior at the pump — and whether The Digest’s 600,000 global online and newsletter readership is representative of the buying habits of the general public — these remain open questions, and survey results should be viewed with appropriate levels of caution in terms of applying them to the general population. Ourselves, we look at this as reflective of a survey of pioneers and early adopters, rather than as a survey of the market as a whole.

The Bottom Line – an array of eager comments

Click here for the complete set of reader comments regarding renewable fuels and prices — fascinating perspectives from the field.