This week I had some pretty significant accomplishments. First of all, I think I am fairly close to finishing with the first half of my project, which is analyzing the benefit side of the Cost-Benefit analysis. I did a lot of reading regarding the aviation industry, government subsidies on sustainable fuel, river cleanup projects and nutrient credit trading. All I need to do now is do the write up for these potential markets and learn a little more about nutrient trading.

Secondly, I had my presentation to the algae working group yesterday (6/29/11).

I delivered the talk to Professor Tracy, Professor Cooke, Professor Dennis Manos, and two graduate students who worked on the site. I think the talk was pretty informative. I reported to them the 4 markets that I thought that had the most potential:  Aviation, government, river-cleanup, and nutrient trading. They were most curious about the nutrient trading market, because no one really knew exactly how the Exchange worked. Would it be similar to a stock market where people can just buy and sell credits online, or would it be similar to a futures market where everything is build on promises. Some questions that were asked proved to be really helpful in my next few steps of research. Now, I need to figure out the answers to the following:

1) How much credit of nitrogen/phosphorus is currently available. Is there an extra supply or extra demand? If the prices are set at such a low price, wouldn’t there always be an extra demand of credits?

2) Where are the supplies currently coming from? Are they from upgrades that are currently happening, or upgrades that will be made in future? The point is, why would people still upgrade when they can buy credits at such a low price? TMDL?

3) Who determined these prices of $2/$4? How were they calculated? The current spot price of phosphorus is $45 per pound, http://www.chemicool.com/elements/phosphorus.html ,Why is it so cheap in the exchange? It also costs about $45 to take out the a pound of phosphorus, according to professor Manos.

4) What role do local governments play this the exchange? Can MS4 municipality (regulated municipal separate storm sewer, a local government that owns a storm water sewer system within an urbanized area designated by the EPA) trade in the Exchange? (Because local government has money).

Next week, I hope to answer these questions and start working on the cost side of the analysis. I’m pretty happy to see that the idea of research is getting clearer and clearer everyday!

After the past week’s interview with Mark Haley,the president of the VA Nutrient Credit Exchange Association, I revisited the notes that I took during the interview and prepared a Powerpoint with some of the main ideas. I will be presenting this Powerpoint on the market opportunities of Algae Biofuel to the current algae working group, which consists of professors from the college as well as faculties form VIMS. The layout of the presentation includes the following: Introduction to the market opportunities for Algae Biofuel, River cleanup projects such as Chesapeake Bay, Nutrient credit exchange, and Nutrient Offset programs.

Other than preparing for this presentation, I have also begun looking into the procedures for a cost-benefit analysis (CBA). After reading through the text that Professor McInerney recommended, Cost Benefit Analysis—Concepts and Practice by Boardman, I followed the nine-step process for a CBA and now have a general outline of the analysis. The decision I have to make now is whether to evaluate some of the social costs, such as CO2 emission and water usage, in monetary value. If I do, then I am adding a price tag to something that is apparently free. However, if I choose to not add them in the analysis, I might be underestimating the benefit of the sustainable energy. Another question that I am running into is what model I should use to do this cost-benefit evaluation. I don’t think simply adding up all the benefits and then subtracting the costs from it is a very persuasive argument to switching to sustainable energy. I intend to spend more time considering these issues. However, I will email Professor asking for advice McInerney if necessary.

The last piece that I worked on over the past two weeks includes a thorough reading of a Cost Effectiveness analysis of algae energy done in EU by Vujadin Kovacevic and Justus Wesseler. There, I was able to see how a full analysis was done, including the models and assumptions that the author chose to make. I hope to study this article more carefully and ask myself “what is different about my algae biofuel approach that is different?” Could there be a new market that the author was unaware or simply chose to ignore? Could my approach be less costly because of the materials that we chose to use?

Next week I will present to the Algae working group and react accordingly to the feedback. If I need to spend a bit more time on the market research, I will do that for the rest of the week. Otherwise, I will try to figure out the problems that I posed regarding the CBA.

My research on the economics of algae biofuel officially started on June 1^st of 2011. This was my first research project, so undoubtedly I was very excited and even a little afraid of the whole process. But after the first week, I can say that this experience is not so bad, and maybe even enjoyable.

On the first day of my research, I found out that my advisor, Professor Gene Tracy, was going to be out of town for the day. So I simply went through some background articles that he sent me over the summer. There, I learned about Algae Turf Scrubber, a new technology that VIMS is currently using for this project to grow and harvest algae. I also read about nutrient trading, which was a foreign concept to me. It is very similar to carbon trading in some respects. The EPA put up a nutrient quota for each bay area, so everyone within this area must upgrade its facilities to meet such requirements. Factories that can afford to reduce extra nutrient output may receive credits for their work, which can be sold to other plants which has a higher cost of upgrading to meet their nutrient output requirement.

On the second day, I met up with professor Tracy and talked about the goal of this project. Ultimately, I would like to do a cost-benefit analysis of algae biofuel, including all of the costs that it would take to create the algae, harvest the algae, the drying process, and the extraction of the oil. It will also include the profit side that the final product and its co-products can make, which would include markets like the Chesapeake Bay cleanup programs, Nutrient Offset programs, Nutrient Trading markets, and finally the sustainable energy market. Professor Tracy recommended me to interview some people from the Williamsburg Environmental Group to learn a bit more about the Nutrient trading market. I was not able to get in contact with the WEG. However, I did successfully conduct an interview with the president of the Virginia Nutrient Credit Exchange Association—Mark Haley. The hour long interview went very well. I was able to obtain several key numeric facts, such as the exchange price of the nutrients, and was able to get a general understanding of how the Exchange worked and their success in the past few years.

Next week, my plan is to create a power point based on the interview I conducted, and present it to the algae working group in VIMS to give them a better understanding of what the economic markets are like for algae biofuel. Also, I will be doing some basic reading on benefit analysis and start up my research on the different sectors of the biofuel market.