Section: Cost-Benefit Analysis At one point of time, the decision of investment must answer to the question: Which choice

provides the greatest net benefits? This apparently simple rule turns out to raise much more complex discussions and issues in policy planning, designing and financing. We begin our discussion by exposing in more detail the benefits of the usage of algal biodiesel. Using the cost estimates in the previous section, a benefit-cost analysis is held. Based on this, we suggest a policy. SubSect: Benefits SubSubSect Environment Probably one of the first benefits raised in discussions about biodiesel in general is how cleaner they are to produce and burn in comparison to Petroleum derivates. Burning a gallon of regular gasoline produces about 19.64 pounds of carbon dioxide and a gallon of diesel fuel produces about 14% more than that, not including other sub-products of burning chemical compounds that are added to them. The U.S. Energy Information Administration (EIA) estimates that the consumption of diesel fuel and gasoline for transportation resulted in the emission of 1,511 million metric tons of carbon dioxide, accounting for 29% of total U.S. energy-related CO2 emissions. Putting in perspective, B100 fuel (fuel that is only biodiesel) burning leads to no CO2 emission. To quantify the benefits of this reduction, we are using an estimate for the future price of carbon reduction unit of 15 dollars per metric ton of carbon dioxide in carbon European market (European Union Emission Trading Scheme, abbreviated as EU ETS), which has been the biggest carbon market existent in the world and tends to be the largest one in the following years (Ellerman, Buchner (2007)). The EU ETS was created by government regulation and was designed so that firms internalize costs of pollution. Its noticeable that this price is not the current price negotiated in future markets [REFERENCE: As negotiated by November of 2013] (around 6 dollars), because of the recent crash (going from around 26 to less than 6.5 dollars in a few months) in prices biases the estimate of the value of these reductions. This fall in the price is credited by Kossoy et al. (2013) to the oversupply in Kyoto Protocol and the European Union Emission Trading System post-2012, but it may be overcame as soon as legislation changes to regulate the price. SubSubSect Energy Independence Since the decade of 1970, energy independency became an issue to the United States. This is so because of two petroleum supply shocks that lead to economic instability. Wigmosta et al. (2011) study suggest that algae cultivation in optimized areas can potentially generate an oil volume equivalent to 17% of imports of transportation fuels as of 2008. During that year, United States imported 3,681,979 thousand barrels of transportation fuel meaning that exploring algaes potential would lead to the reduction of 625,936 thousand barrels of fuel. In monetary terms, this would be equivalent to the cost reduction of 2,047,365,602 dollars (updated to 2013 dollars). SubSubSect Does not compete with food Due to its efficiency, algal biofuel does not require as many land as other biodiesel production does. Even though algae can be cultivated in open ponds at low costs at first sight, it has been shown in the previous section that this cultivation method is not economically viable due to contamination problems. The cultivation in photobioreactors on the other hand has led to dramatic decrease in land required to produce the same amount of biofuel. The table that follows, as presented by Chisti (2007), compares the area necessary in order to produce biodiesel from different sources. As one may notice, algal biodiesel is the one that is less intensive in land, meaning that the government does not interfere either with food prices domestically

or doesnt compensate the fall in imports due to fuel substitution with the raise in food bought from abroad.

SubSection Distribution of benefits Another scope necessary in public policy designing is determining who the potential beneficiaries and payers of a given policy are. The investment in algal biofuel production, though, has very diffuse benefits in the sense that it impacts most of the people. The first one is that it mitigates greenhouse gas emission, leading to incalculable benefits in terms of biodiversity preservation and climate stabilization, reducing the variability of crop sizes and, consequently, food prices. The higher degree of energy independence also increases general welfare by reducing variability in oil prices due to less exposure to external markets (one insight is provided by Stiglitz (2008), relating the intervention of the United States in Iraq and the increase in petroleum prices). Not only that, it also relieves external political tension (as discussed more profoundly by Little (2009)). The last dimension that is extremely important is that the investment in the extraction of biodiesel from algae also spills over biological sciences and may provide more insights on the puzzle of substituting petroleum as one of the main energy sources. SubSection Comparing costs and benefits -Allow for uncertainties Section Current Policies Aware of the potential of biodiesels as a viable green energy source, the government of the United States has been undertaking policies to incentive and level the ground of the competition between those and other non-renewable energy sources as coal or gasoline. This section is an overview of the three major legislations at federal level in the relevant to the production of algae biofuel, by the time this article was written. SubSection Renewable Fuel Standard

Established by the Energy Policy Act of 2005, the Renewable Fuel Standard requires transportation fuel sold in the United States to be mixed with renewable biofuel. The requirements were initially of 4 billion gallons of biofuel by 2006, 6.1 billion gallons by 2009 and 7.5 billion gallons by 2012. The Energy Independence and Security Act of 2007 increased the requirements in 2011 from about 7 billion to 13.95 billion gallons and added the requirement of 36 billion gallons of biodiesel mixed with commercialized transport fuel by 2022. 21 out of the 36 billion gallons of biodiesel must be of what is called advanced biofuel, category in which algal produced biofuel belongs to. {Cite (Yacobucci, 2013)} SubSection Biodiesel Tax Credit The Biodiesel Tax Credit, established in the American Jobs Creation Act of 2004 [note: (extended by the Energy Policy Act of 2005 and later modified by the Energy Improvement and Extension Act of 2008)], make biodiesel producers (or those who mix biodiesel with biofuel) are eligible to make a credit claim. The credit is valued at one dollar per gallon of agri-biodiesel, category which algal produced biofuel is likely to be in (Yacobucci 2006), therefore acting as an incentive to the production of algal biofuel. Its important to notice that this program is schedule to end in December 31st 2013, after being extended from the previous year. SubSection Biorefinery Assistance Program The program, conducted by the United States Department of Agriculture (USDA), funds new and already existent biorefineries in the country in order to accomplish USDAs policy goals of developing renewable biofuels while strengthening the rural economy. Created in 2008, through the Farm Bill, the Biorefinery Assistance Program provides loan guarantees to facilities with proven commercial and scale viabilities, in order to develop new technologies for advanced biofuels and generate lasting job opportunities. Throughout the years of its existence, this program has already allocated 450 million dollars in facilities that attend to its requirements. As explained in the last section, its arguable that a loan in this program is probably not possible because photobioreactors are not economically viable yet, even though it is possible to improve their productivity and reduce their costs. Therefore, it may not be the case that algae biofuel producers can get resources in the Biorefiery Assistance Program until the production is effectively viable. SubSection Advanced Biofuel Payment Program The USDA, besides guaranteeing facility loans, also provides payments to producers of advanced biofuels to support and extend their production. It excludes biodiesel produced from corn kernel starch, and helps ensure the expanding production of advanced biofuels. The program was established in 2008 by the Food, Conservation and Energy Act of 2008 and even though it was scheduled to end the end of 2012s fiscal year, it has been expanded to 2013. Since its beginning, the program has transferred more than 325 million dollars to advanced biodiesel refineries. Section Policy Suggestion

http://www.eia.gov/tools/faqs/faq.cfm?id=307&t=11

http://www.eia.gov/oiaf/1605/coefficients.html#tbl2
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Energy Policy Act of 2005, available at http://www.gpo.gov/fdsys/pkg/PLAW-109publ58/html/PLAW109publ58.htm USDA Announces Availability of Funding to Develop Advanced Biofuels Projects Oct 21st 2013, http://www.usda.gov/wps/portal/usda/usdahome?contentid=2013/10/0195.xml USDA Advanced biofuel payment program http://www.rurdev.usda.gov/BCP_Biofuels.html Stiglitz - Economics of the Public Sector