A socio-economic analysis of biomethane in the transport sector: The case of Italy

Waste Management 95 (2019) 102–115

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A socio-economic analysis of biomethane in the transport sector: The case of Italy Idiano D’Adamo a,b,⇑, Pasquale Marcello Falcone b, Francesco Ferella a a b

Department of Industrial and Information Engineering and Economics, University of L’Aquila, Via G. Gronchi 18, 67100 L’Aquila, Italy Department of Law and Economics, Unitelma Sapienza – University of Rome, Viale Regina Elena 295, 00161 Roma, Italy

a r t i c l e

i n f o

Article history: Received 4 January 2019 Revised 21 April 2019 Accepted 3 June 2019

Keywords: Biomethane Case study Circular economy Economic analysis Transport sector Sustainability

a b s t r a c t The transport sector has a low penetration of renewable energy, and this presents a serious obstacle to tackling climate change. Biomethane is seen as a decarbonisation solution, but only some European countries have pursued its development. Italy is one of these countries, having released a decree to stimulate development of the sector. The present work considers two typologies of substrate (the organic fraction of municipal solid waste and by-products) used in three sizes of plants (125 m3/h, 250 m3/h and 500 m3/h). A detailed socioeconomic analysis is presented and policy implications are provided. The recovery of waste enables the creation of a circular economy, but the economic feasibility of such a model is verified in only some scenarios. A sensitivity analysis on the critical variables is conducted to support investment in this area. The use of green gas is found to be capable of significantly reducing greenhouse gas emissions in the transport sector, but the economic value of any environmental externality is low due to the value of carbon dioxide. Ó 2019 Elsevier Ltd. All rights reserved.

1. Introduction The European Union (EU) has adopted policy measures to promote the use of advanced biofuels for transport in order to reduce greenhouse gas (GHG) emissions and improve the EU’s security of supply. Directive (EU) 2015/1513 introduces several modifications to Directives 2009/28/EC and 98/70/EC, aimed at prioritising the use of advanced fuels produced from waste and residues. In particular, biomethane, which is also known as upgraded biogas, is an advanced biofuel receiving increased interest (Miedema et al., 2018; Singlitico et al., 2019). Europe holds a dominant position in both the biogas and the biomethane markets. At the end of 2016, the region had 17,662 biogas plants; in the first quarter of 2017, it had 497 biomethane plants (41 more plants than 2015 and 310 more than 2011) (Fig. A1). The geographical distribution of biomethane plants in Europe shows that they are predominantly in Germany (39%), followed by the United Kingdom (17%) and Sweden (13%) (Fig. A2)

⇑ Corresponding author at: Department of Industrial and Information Engineering and Economics, University of L’Aquila, Via G. Gronchi 18, 67100 L’Aquila, Italy. E-mail addresses: [email protected] (I. D’Adamo), pasquale.falcone@ unitelmasapienza.it (P.M. Falcone), [email protected] (F. Ferella). https://doi.org/10.1016/j.wasman.2019.06.005 0956-053X/Ó 2019 Elsevier Ltd. All rights reserved.

(European Biogas Association, 2017). Sweden is the primary user of biomethane in the transport sector (Scarlat et al., 2018). In this century, waste recovery is a great challenge. Such recovery aims at tackling climate change via technological alternatives to landfills, in order to decarbonise the heating, transportation and electricity sectors (Ingrao et al., 2019; Lü et al., 2018). In particular, the environmental sustainability of biomethane production by anaerobic digestion (AD) of the organic fraction of municipal solid waste (ofmsw) was demonstrated by (Ardolino et al., 2018; Ardolino and Arena, 2019); AD has also been proposed for byproducts (i.e. manure, agricultural waste and agro-industry waste) (Chiumenti et al., 2018; Valenti et al., 2018). The ultimate objective of biomethane production via this process is to develop a circular economy (Yazan et al., 2018). Given that biofuels play a key role in the transition towards sustainable energy (Falcone et al., 2018a), it is thought that the process will make the biogasbiomethane chain more sustainable (Hoo et al., 2018), given. Italy has often been used as a case study for the biomethane sector because it has a developed biogas market, a large fleet of natural gas vehicles (NGVs) and low internal production of gas. In this context, use of biomethane is reasonable; but Italy has not sufficiently developed capacities in this respect (Fig. A2) (Chinnici et al., 2018). A new decree issued in March 2018 aims

I. D’Adamo et al. / Waste Management 95 (2019) 102–115

103

Nomenclature for the economic model 1°s 2°s 3°s cc 4 cCH cic cpos Cld d Csd d 1
s Cdf 2
s Cdf
Ce1 s 2
s Ce Cce;t Cnr e;t

biogas production upgrading compression and distribution corrective coefficient (double counting) m3 of CH4 linked to one CIC corrective coefficient (point of sale) disposal cost (liquid digestate) disposal cost (solid digestate) depreciation fund (1°s) depreciation fund (2°s) electricity cost (1°s) electricity cost (2°s) electric cost (composters) electric cost (nitrogen removal)

s cu;1 e u;2
s ce
Ci1 s
Ci2 s Ccinv Ccom inv Cdis inv Cnr inv Cu;a l Clcs pos Cinv

unitary electric consumption (1°s) unitary electric consumption (2°s) insurance cost (1°s) insurance cost (2°s) investment cost (composters) investment cost (compression) investment cost (distribution) investment cost (nitrogen removal) unitary labour cost loan capital share cost investment cost (point of sale)

Cu;1 inv

unitary investment cost (1°s)





s


s Cu;2 inv
1 s Cmo 2
s Cmo Ccom o Cdis o Cpos o Cso Cus Cofmsw t Cuts

Cgv cf CO2 cf gas CF CIC dig It

unitary investment cost (2°s) maintenance & overhead cost (1°s) maintenance & overhead cost (2°s) operative cost (compression) operative cost (distribution) operative cost (point of sale)

iucic

unitary subsidy (biomethane)

inf lbs lus n ndebt noh nop NPV ns Ot pub pbiomethane

rate of inflation losses in the biogas system losses in the upgrading system lifetime of investment period of loan number of operating hours number of operators net present value period of subsidies (biomethane) discounted cash outflows unitary potential of biomethane selling price of biomethane

pucic

price of CIC (after 11th year)

puCO2 pcompost pdf pe pi

unitary price of CO2 unitary price of compost percentage of depreciation fund unitary price of electricity percentage of insurance cost




1 s pmo


percentage of maintenance & overhead cost (1°s)

2 s pmo ppos pPTV ptax puz pos PTV r rbm rCO2 rd

percentage of maintenance & overhead cost (2°s) price of biomethane (point of sale) price in the virtual trading point percentage of tax value unitary price of zeolite point of sale virtual trading point opportunity cost recovery rate (biomethane) recovery rate (CO2) interest rate on loan

Rofmsw gross

gross revenues by the ofmsw

Q biogas

quantity of biogas

Q nom biogas

nominal quantity of biogas

operational structuring cost unitary substrate cost

Q biomethane quantity of biomethane Q CO2 quantity of CO2 Q compost quantity of compost

cost of the ofmsw

Q nom biomethane nominal quantity of biomethane

unitary transport cost of substrate generic variable cost conversion factor (CO2) conversion factor (gas) cash flow certificates of emission of biofuel in consumption digestate discounted cash inflows

Qz Sbiogas Sbiomethane t %CH4 %CO2 %rpPTV

at supporting Italy’s transition to more environmentally friendly fuel sources. The scheme is financed by transport fuel retailers who are now legally obliged to include a certain percentage of advanced biofuels and biomethane in their fuel blends (European Commission, 2018). However, the application of this decree may achieve profitability only in some scenarios, in which ofmsw is used as a substrate (Ferella et al., 2019). The present work examines a case study of biomethane plants in Italy, with the overall aim of defining the sustainability of green gas. Several smaller case studies are elaborated according to the following key variables: two business models (biomethane production and joint implementation between a biomethane and a methane producer), three plant sizes (125 m3/h, 250 m3/h and 500 m3/h) and two substrates (ofmsw and by-products). The anal-

quantity of zeolite plant size (biogas) plant size (biomethane) time of the cash flow percentage of methane percentage of CO2 percentage reduction of the price in the virtual trading point

ysis examines several perspectives, considering technical suitability, economic feasibility, environmental improvement, social opportunities and policy implications.

2. Materials and methods Biogas is typically produced from the AD of biodegradable waste such as ofmsw and by-products (Maragkaki et al., 2018). It is composed of methane (CH4), carbon dioxide (CO2), volatile organic compounds (VOCs), ammonia (NH3), hydrogen sulfide (H2S) and water (H2O), depending on the feedstock mixture (Lv et al., 2019). Through biogas upgrading, biomethane is produced. For this purpose, several technologies can be employed, such as

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water scrubbing, pressure swing adsorption, chemical scrubbing, physical scrubbing and membrane separation (Zhu et al., 2016). 2.1. Policy framework The Renewable Energy Directive 2009/28/EC requires 20% of gross final energy consumption at the EU level and 10% of gross final energy consumption in the transport sector in each Member State (MS) to be renewable energy (RE) by 2020 (European Parliament and the Council of the European Union, 2009). In Europe, the share of RE energy used in transport activities almost tripled over the period 2006 to 2016, ultimately reaching 7.1%. However, since then, only two MSs (Sweden and Austria) have reached the target contribution of 10% (Fig. 1) (Eurostat, 2018). Italy’s 2018 decree for biomethane production replaced an earlier decree from 2013. The new decree raised incentives to an annual maximum of biomethane of 1.1 billion m3, and it is through this new decree that the Italian government estimates that they will achieve the European target (MISE, 2018). Italian fuel retailers for the transport sector are now legally obliged to sell a minimum percentage of biofuel in their fuel blends. In this context, Certificates of Emission of Biofuel in Consumption (CICs) have an economic value. A single CIC is issued for every 10 Gcal (single counting) of biomethane produced; considering that 1 m3 CH4 is equal to 8121 kcal, one CIC corresponds to approximately 1231 m3 CH4. The number of CICs doubles in the case of advanced biomethane obtained by certain substrates (e.g. ofmsw and byproducts) that support environmental protection. In this case, relevant producers receive one CIC per 5 GCal (double counting) and, economically, the value may be obtained by multiplying the subsidy with a correction coefficient of 2. Several countries (Italy, the Netherlands and the United Kingdom) have adopted similar policies to meet the 10% RE transportation target (Giuntoli, 2018). The new Italian decree, specifically, mandates the following: (i) payment of 375 € per CIC for a period of 10 years; (ii) a sales price of biomethane defined according to values registered in the virtual trading point (PTV); (iii) twice the unitary subsidy for the production of advanced biomethane; and (iv) an additional premium for producers that also distribute the methane.

2.2. Description of the process A flowchart of the process is shown in Fig. 2. A detailed analysis of each phase of the work is described in previous research (Ferella et al., 2017) and the structure is optimised according to the operators of the biogas-biomethane chain. There are two main types of biomass that undergo AD: ofmsw and vegetable residues from livestock and the agro-food industry, which can be grouped into pumpable and non-pumpable feedstock. The optimal mixture of sludge for co-digestion can enhance digestion and biomethane production (Mahanty et al., 2014). Pumpable feedstock is represented by cow manure, whereas non-pumpable feedstock is comprised of waste from the food industry (potato, tomato and other vegetable and fruit peels/pulp), which must be handled with a mechanical shovel that loads it into a hopper. The mixer then cuts the vegetables into small pieces and mixes them with liquid manure. Ofmsw requires only a few pre-treatment stages to produce organic material for AD. The collection of ofmsw is important for biomethane potential (Nilsson Påledal et al., 2018). Such material is collected into plastic bags, which must be opened with a particular device. Plastic foils and small scraps are separated out and the remaining pulp is ground. The pulp is then mixed with a fraction of vegetable residues and cow manure and pumped into primary digesters. After 30 days, the biomass is transferred into postdigesters, where it remains for 40 days to complete the biological process. The solid digestate is then separated from the liquid fraction via a centrifuge decanter and mixed with wooden scraps, pruning and straw. Such material is stored in the composting room, where a gantry crane turns over the solid material and sprays it with liquid digestate. After 90 days, the high quality fertiliser is ready to be packaged and sold. The biogas is cooled down to condense its water content; it is then scrubbed to remove H2S, NH3 and some VOCs (Morero et al., 2017). The membrane module separates CH4 from CO2, and the latter is liquefied and sold, whereas the recovered biomethane is compressed and stored in a horizontal tank, in which it is compressed to the required pressure, odorised and quantified in the metering station. Finally, the biomethane is injected into the distri-

Fig. 1. Share of renewable energy sources in the transport sector, 2016 (Eurostat, 2018).

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Fig. 2. Flowchart of the proposed process for biomethane production.

bution grid. Membrane technology is used, as neither thermal energy nor chemical compounds are required. A small percentage of biogas is diverted before entering the membrane module, in order to feed the combined heat and power plant that produces the electric and thermal energy consumed by the plant. CO2 can also be used to produce further biomethane – for instance through methanation with renewable hydrogen. However, such upgrading is more expensive due to the large operating costs involved in producing renewable H2 (Curto and Martín, 2019). It is also possible to produce syngas from biogas and, depending on the catalytic process, to generate methanol, ethanol or Fischer-Tropsch fuels. These processes are also expensive, but the cost can be reduced by appropriate green incentives (Hernandez and Martin, 2018). 2.3. Economic model Discounted cash flow (DCF) analysis is a method of valuing a project using the concept of the time value of money. Net present value (NPV), representing the sum of the present values of individual cash flows, is an index used to evaluate profitability (Masebinu et al., 2018). Six months are necessary to construct a plant and the time horizon of the project is defined by its lifetime (20 years). The opportunity cost of capital measures the time value of money, and this is equal to 5%. According to the model presented in (Ferella et al., 2019), the production process includes the recovery of digestate, which can be subsequently sold as compost. Such recovery also supports environmental protection, because it reduces the spilling of nitrates, which contaminate the superficial layer of land (Jensen et al., 2017). When used as a biofertiliser, digestate increases the production of feedstock in both agricultural and forest activities (Hagman et al., 2018). Accordingly, some countries (e.g. the United Kingdom, France, Sweden) have implemented certification schemes for producers to encourage the sale of digestate (De Clercq et al., 2017). The unitary value of subsidies and the selling price of biomethane depend on the business model. A corrective coefficient (of 1.2) is applied to CICs in business models involving joint

implementation between a biomethane and a methane distributor and when selling price is linked to the point of sale and no greater than the price set in the trading virtual point. In addition, other items affect the value of CICs, such as the sale of food-grade CO2 and compost and the net incomes of ofmsw treatment. The cost of the CO2 liquefaction plant is not included in the CAPEX, since the investment is made by the company that supplies the technology; this company subsequently purchases the liquid CO2 at a fixed price below market value. The cost structure is typically divided into three categories: (i) biogas production, (ii) upgrading and (iii) compression and distribution. In addition, further investment costs are required for digestate production and fuelling stations, where applicable. Regarding operating costs, a previous analysis demonstrated that the maintenance and overhead costs involved in producing biogas are critical variables (Cucchiella et al., 2018). The mathematical model is reported as follows:

NPV ¼

n X ðIt  Ot Þ=ð1 þ rÞt

ð1Þ

t¼0

I¼

10 X u ðQ biomethane  icic;t  cc  cpos Þ=ð1 þ rÞt t¼0

þ

n X

ðQ biomethane  pucic;t Þ=ð1 þ rÞt þ

t¼11



n X   ð Q biomethane  pbiomethane;t t¼0

 þ ðQ biomethane  ppos;t Þ þ Q CO2     ofmsw þ Q ofmsw  Rofmsw þ ðQ compost  pcompost;t ÞÞ=ð1 þ rÞt gross;t  Ct puCO2 ;t

ð2Þ u

4 icic ¼ CIC=cCH cic

ð3Þ

4 pucic ¼ CIC=cCH cic

ð4Þ

pbiomethane ¼ pPTV  cf gas  ð1  %rpPTV Þ

ð5Þ

106

O¼

I. D’Adamo et al. / Waste Management 95 (2019) 102–115 ndebt X1



s
s 1
s s ððCinv;t =ndebt Þ þ ð C1inv;t  C1lcs;t =ndebt Þ  rd Þ þ ðC2inv;t

t¼0


 
s 2 s 2
s  rd þ ðC3inv;t  Clcs;t =ndebt Þ Cinv;t 
  3 s 3
s dig þ Cinv;t  Clcs;t  rd þ ðCinv;t =ndebt Þ    dig pos þ Cdig inv;t  Clcs;t  rd þ ðCinv;t =ndebt Þ þ

þ

n      X pos Cpos =ð1 þ rÞt þ Cu;a l;t  nop inv;t  Clcs;t  rd t¼0

     
1
s þ Cus;t  Q substrate þ Cuts  Q substrate þ p1mos  Cinv;t   
  
s
s s þ cu;1  Q biogas  pe þ pi  C1inv;t þ pdf  C1lcs;t e;t 
   

s 2
s s  Q biogas  pe þ p2mos  Cinv;t þ pdf  C2lcs;t þ cu;2 e;t       2
s dis þ puz;t  Q z þ Ccom þ pi  Cinv;t o;t þ Co;t     ld sd pos þ Cce;t þ Cso;t þ Cnr e;t þ Cd;t þ Cd;t þ Co;t  . þ CFt ptax ð1 þ rÞt











s C1invs ¼ Cu;1 inv  Sbiogas s C2invs ¼ Cu;2 inv  Sbiomethane


dis C3invs ¼ Ccom inv þ Cinv

ð6Þ ð7Þ ð8Þ ð9Þ

c nr Cdig inv ¼ Cinv þ Cinv

ð10Þ

Cgv;tþ1 ¼ Cgv;t  ð1 þ inf Þ

ð11Þ

Q nom biogas ¼ Sbiogas  noh  %CH4

ð12Þ

Q biogas ¼ Q nom biogas  ð1  lbs Þ

ð13Þ

Q nom biomethane ¼ Sbiomethane  noh

ð14Þ

Q biomethane ¼ Q biogas  ð%CH4 Þ  ð1  lus Þ  rbm

ð15Þ

Q CO2 ¼ Sbiogas  noh  ð%CO2 Þ  cf CO2  rCO2

ð16Þ

Q substrate ¼ ðSbiomethane  noh Þ=pub

ð17Þ

2.4. Input assumptions The case studies analysed in this work regard two substrates, three plant sizes and two business models. Regarding the former, ofmsw and by-products are analysed is Sections 1 and 2.1. In fact, there is great availability of such waste in the global context (and not only in Italy). Its relevance is defined by the Inter-Ministerial Decree of 2018, which applies a corrective coefficient of 2 (see douu ble counting). The unitary subsidy (icic ) is equal to 0.305 €/m3 (375 €/1231 m3 – see Section 2.1) under the condition of single counting and 0.610 €/m3 in the context of double counting (0.305 * 2). Concerning the second parameter, the new decree does not distinguish between small and large plants and thus the value of the subsidies does not change in this respect. This aspect is crucial for investors, as large biomethane plants are favoured due to their ability to exploit economies of scale. Thus, economic advantages are only possible when there is sufficient feedstock available. In this respect, the following quantities of feedstock are indicative of plant size, as reported by the report of (European Parliament

and the Council of the European Union, 2009): 125 m3/h (small), 250 m3/h (medium) and 500 m3/h (large). Finally, Italy has many NGVs but only a few methane distributors. The new policy aims at resolving this contradiction through the introduction of a corrective coefficient (see Section 2.1). In this u context, the value of icic is modified to 0.732 €/m3 (0.610 * 1.2). With respect to biomethane production, the selling price (pbiomethane ) is assumed equal to the average values registered in 2018, as obtained by the data (pPTV ): 25.68 €/MWh (June 2018), 27.78 €/MWh (July 2018), 24.13 €/MWh (August 2018), 23.08 €/MWh (September 2018), 22.84 €/MWh (October 2018), 24.64 €/MWh (November 2018), 24.04 €/MWh (December 2018), 23.00 €/MWh (January 2019) and 19.44 €/MWh (February 2019) (MISE, 2018). The conversion factor (cf gas ) is 1 m3 = 0.0105 MWh and the final value hypothesised is 0.25 €/m3. In the scenario that a biomethane producer also distributes the biomethane, the price to final consumers net value added tax and excise (ppos ) is assumed equal to 0.529 €/m3 (European Commission, 2018). Two assumptions are provided in this model. First, CIC value is assumed fixed for all 20 years, because no there are statistical data to suggest otherwise. The same assumption is applied to the selling price of biomethane in both scenarios, even if it varies monthly (in the scenario of a biomethane producer) or daily (in the scenario of a methane distributor). Table A1 presents the input data used in this work (Browne et al., 2011; Budzianowski and Brodacka, 2017; Chinnici et al., 2018; Cucchiella et al., 2018; Ferella et al., 2019, 2017; IRENA, 2017; MISE, 2018; Sgroi et al., 2015; Smyth et al., 2010; Uusitalo et al., 2013). The table shows that, while the capital investment for both biogas production and upgrading are affected by economies of scale, this phenomenon is reduced because the weight of capital investment is significantly lower than that of operative costs. Regarding digesters, the definition of size is complex and defined by the trade-off between the investment, the availability of feedstock and the added value of the biogas and fertiliser produced (Taifouris and Martín, 2018). Additional detail on digester plant sizes and biogas production are provided in other works (Maragkaki et al., 2017; Wandera et al., 2018). While the present work is based on economic input data defined in the literature, some assumptions are necessary from a technical point of view (Ferella et al., 2019; Selvaggi et al., 2018): (i) the plant is in continuous operation; (ii) the end specifications of the gas (e.g. relating to composition and pressure) are adjusted to its final use; (iii) the size of the biogas plant maximises the grade of saturation involved in upgrading; (iv) the size of the biomethane plant is assumed a priori and (v) the size of digesters is calculated according to the amount treated. Finally, Fig. A3 reports the quantities of feedstock that are necessary to completely saturate the plants, according to Eq. (17). For the same plant size, the amount of ofmsw produced is lower than that of by-products, due to its biomethane yield (see Table A1). A transport cost of 3 €/ton for both substrates is assumed. Obviously, the availability of feedstock near to a plant determines a significant reduction in unitary cost. At the same time, the amount of feedstock necessary for large plants is greater than that required for small ones; thus, the cost for the former is greater than the cost for the latter. The model presented in this work can and should be replicated so that several case studies can be analysed.

2.5. Environmental aspects Green gas accelerates the development of the circular economy because it involves the recycling and transformation of biomass into clean transportation fuel (Zabaniotou, 2018). Methane emissions are significantly more harmful than CO2 emissions, and both of these substances can be released into the atmosphere following

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the decomposition of manure and waste without AD (Woon et al., 2016). A direct comparison between biomethane (BIO-CNG) and compressed natural gas (CNG) highlights their different feed sources and efficiencies, as well as their diverging estimation methods and methodological boundaries (Speirs et al., 2018). Waste and residues provide greater reduction than do energy crops (Fig. A4). The GHG levels involved in producing BIO-CNG from liquid manure and organic waste are 33 gCO2eq/km and 48 gCO2eq/ km, respectively. Both of these values are lower than the 66 gCO2eq/km involved in producing BIO-CNG from maize, and all are significantly lower than the level involved in producing CNG, which is 124 gCO2eq/km (IRENA, 2017). A similar result is proposed by (DENA, 2011). There is a reduction of 24 gCO2eq/km for CNG composed of 20% biomethane, and 119 gCO2eq/km for BIO-CNG. These emissions are recorded from ‘well to wheel’. Other processes are proposed in Fig. A5, with the reduction of emissions varying from 42% to 86% when BIO-CNG is used as an alternative to CNG (Ammenberg and Feiz, 2017; Collet et al., 2017; Valli et al., 2017; Vo et al., 2018). This work does not present new environmental analyses, but aims at defining the economic value of CO2 when the alternative of BIO-CNG is used. For this purpose, it investigates the CO2 market. The emission allowance (EUA) allows firms to emit 1 tonne of CO2 up to a defined limit (cap). However, the emissions that are actually produced by a firm can be greater or lower than the assigned value; consequently, firms must buy or sell EUAs (trade). The principle of ‘cap and trade’ characterises this market. In the last period, significant growth was registered: from 5 €/tCO2eq (July 2017) to 23 €/tCO2eq (December 2018). Fig. A5 presents the trend of the past six months (Markets Insider, 2018). Biomethane can contribute to reducing emissions in the European Trading Scheme (ETS) or non-ETS sectors, depending on end use (Wall et al., 2017). In fact, the transport, agriculture and heat sectors are known as non-ETS sectors. In all cases, the EUA represents an effective tool for monitoring the price of the CO2 equivalent. The value of 10 €/tCO2eq does not support the transition towards a low carbon energy context. The values proposed by the report of the High-Level Commission on Carbon Prices are more significant, as they vary from 35 €/tCO2eq to 70 €/tCO2eq (Stiglitz et al., 2017). Other works support this assumption, finding values of 70 €/tCO2 (Patrizio et al., 2015), 50 €/tCO2 (Alberici et al., 2014) and 50 $/tCO2 (Smith, S., Braathenm, 2015). Volkswagen Golf and Fiat Panda were the main models of NGVs sold in the period 2016 to 2017, and their consumption typically varied from 3 kg/100 km to 4.5 kg/100 km. The conversion factor for CH4 under normal conditions is 1 m3 = 0.68 kg; consequently, NGV consumption ranges from 4.4 m3/100 km to 6.6 m3/100 km. The value of externality is quantified as a function of CIC, as per the following equation:

ECD ¼ pCD  ðRECD =106 Þ  CNGV  Q CIC

ð18Þ

in which ECD = economic value of externality (€/CIC), pCD = price of CO2 (€/tCO2eq), RECD = reduction of CO2 (gCO2eq/km), CNGV = consumption of a NGV (km/m3CH4) and Q CIC = quantity of CH4 linked to a CIC (m3CH4/CIC). 2.6. Social model It is of paramount importance to gather insights from a variety of stakeholders involved in the socio-economic and technical reconfiguration of an energy system, in order to elicit insight into multiple aspects of social sustainability to support scientific decision making (Sierra et al., 2018; Soltani et al., 2015). To investigate stakeholders’ knowledge, attitudes and perspectives towards bio-

107

gas upgrading to biomethane, we administered a survey to a pool of experts with long-term involvement (i.e. more than a decade) in the field under investigation. A robust list of interview candidates was derived by way of a triangulation strategy aimed at accounting for the experts’ individual peculiarities (Falcone et al., 2018b). Table A2 provides an overview of the respondents, whose names and identifying information were anonymised to protect their privacy. Following the approach employed by (Holley and Lecavalier, 2017), open questions were designed to elicit each respondent’s expertise. Common key questions included: 1. What are the opportunities and challenges surrounding biogas upgrading to biomethane? 2. How should local and national policy makers pursue strategic actions to promote biomethane diffusion? We surveyed 20 experts from 12 Italian regions over Skype video call over the period of July to November 2018. Each interview took, on average, 45 min. This exercise allowed us to derive the experts’ perspectives on the state of biogas upgrading to biomethane in Italy and possible policy directions to spur this transition. The final three interviews provided us with a negligible number of new insights, highlighting the likely empirical saturation of the collected data. Each interview was recorded and then transcribed in order to support qualitative text analysis by means of the QDA Miner 5.0 software package (Provalis Research, 2013). Using this software, we imported the transcripts, performed coding procedures and exploited visualisation and reporting tools (e.g. tables, graphs, quotes, notes). In a further stage, the relevant notes and most recurring quotes were organised in accordance with the awareness motivation pathway (AMP) framework of institutional change (Honig et al., 2015; Petersen et al., 2015). The AMP emphasises the role of three aspects that, when properly combined, can generate proenvironmental systemic change: awareness (understanding of sustainability issues), motivation (motivation to pursue a change) and pathways (policy strategies). In brief, AMP is a practical method for eliciting, from a social perspective, the triggering conditions for socio-institutional change to support biogas upgrading to biomethane. Our study relied on this approach when exploring experts’ views on the challenges and opportunities surrounding the transition towards more environmentally friendly fuel sources with the aim of proposing new policy suggestions.

3. Results 3.1. Profitability analysis – Baseline scenario Economic analysis represents a critical phase for investors. Within this phase, the DCF method is particularly useful for capturing future events. Fig. 3 presents the main results of our DCF analyses, as applied to several case studies. NPV was positive in both business models for ofmsw with a 250 m3/h plant size and by-products with a 500 m3/h plant size. The new Italian decree did not generate any economic changes with respect to ofmsw, as use of this waste material continued to demonstrate increased economic performance (O’Shea et al., 2016); by-products, however, sometimes yielded a negative result due to their low biomethane yield (Chan Gutiérrez et al., 2018). In addition, the net positive income linked to ofmsw played a key role, with its weight varying from 18% to 23% in the percentage distribution of discounted cash inflows in both business models (Fig. 4). Looking forward, this value must be monitored because the law relating to the collection and disposal of waste requires

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Fig. 3. Net present value (k€) of biomethane plants – Baseline scenario.

Fig. 4. Distribution of cash inflows (%).

municipalities to apply a specific tax (TARI) to citizens (Bartolacci et al., 2018). Willingness to pay for separate waste collection depends on both economic and non-economic motivations (Massarutto et al., 2019). In line with the literature (Fubara et al., 2018; Stürmer et al., 2019), subsidies were the main variable in the revenue mix. The CIC values and their corrective coefficients (see double counting) were the same for both substrates analysed in this work, but the weight of the subsidies was greater for by-products (50%) than for ofmsw (39%). The revenue mix for ofmsw depended exclusively on the presence of another item (see treatment of ofmsw). At the same time, the sale of biomethane was afforded greater weight in business models in which the biomethane producer was also the methane distributor. In fact, it increased by 112% (0.529 €/m3 vs 0.25 €/m3), while the increase in subsidies was determined by the corrective coefficient of 20%. The 2018 decree removes uncertainty around CIC values during the first 10 years, in an effort to stimulate the transport sector. However, profitability was verified in only some scenarios (Ferella et al., 2019). The profits obtained in scenarios in which NPV was positive were extremely significant, varying from 1355 k€ to 10,574 k€ for ofmsw and 402 k€ to 1844 k€ for by-products. The joint biomethane producer and distributor business model demonstrated better economic performance. From a mathematical

perspective, the additional revenues of this business model were greater than the additional costs, relative to other business models. In particular, as already underlined, the application of subsidies played a relevant role, but this depended mainly on the price paid by final consumers for natural gas. The new decree supports this aspect because, on the one hand, it encourages increased RE in the transport sector (European Commission, 2018) and, on the other hand, it supports the development of new business opportunities in the form of new methane filling stations. In particular, this may increase the use of cars demonstrating better environmental impact (Lyytimäki, 2018). This economic analysis demonstrated that the recovery of CO2 (Vo et al., 2018) and digestate (Taifouris and Martín, 2018) is important to support the closed loop of materials in the biogasbiomethane chain, creating added value. Finally, the presentation of alternative scenarios is requested by investors (Lauer et al., 2018). 3.2. Profitability analysis – Alternative scenarios Varying the input data caused changes in economic performance. Sensitivity analysis was used to evaluate alternative scenarios. In line with previous research (Ferella et al., 2019), both a pessimistic and an optimistic scenario were analysed for both busi-

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ness models. The following critical variables were examined, and the scenario of no digestate recovery was also considered (Fig. 5):  The unitary value of subsidy (pucic ) was assumed equal to 0.244 €/m3 with a CIC of 300 € and 0.406 €/m3 with a CIC of 500 €.  The selling price of biomethane (pbiomethane ) was defined as 0.20 €/m3 and 0.30 €/m3 in the biomethane producer business model and (ppos ) 0.40 €/m3 and 0.60 €/m3 in the business model of joint implementation. ofmsw ) was  The net income linked to ofmsw treatment (Rofmsw gross  C hypothesised as 15 €/ton and 30 €/ton.

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The analysis of alternative case studies confirmed the results obtained in the previous section (NPV was positive for a 500 m3/ h plant with both substrates and a 250 m3/h plant when ofmsw was used). However, a significant change was found with respect to a 500 m3/h plant using by-products in the biomethane producer business model. In fact, three out of the five scenarios analysed were unprofitable: (i) ‘pessimistic subsidies’, (ii) ‘without selling compost’ and (iii) ‘pessimistic selling biomethane’. In addition, economic feasibility was not reached in another two case studies regarding the joint biomethane producer and distributor business model: (i) a 500 m3/h plant with by-products in a ‘pessimistic selling biomethane’ scenario and (ii) a 500 m3/h plant with ofmsw in a

Fig. 5. Sensitivity analysis – Net present value (k€) of biomethane plants, Case study A: Scenario ‘pessimistic subsidies’ with pucic = 0.244 €/m3, Case study B: Scenario ‘optimistic subsidies’ with pucic = 0.406 €/m3, Case study C: Scenario ‘pessimistic selling biomethane’ with pbiomethane = 0.20 €/m3 orppos = 0.40 €/m3, Case study D: Scenario ofmsw ‘optimistic selling biomethane’ with pbiomethane = 0.30 €/m3 orppos = 0.60 €/m3, Case study E: Scenario ‘pessimistic treatment ofmsw’ with Rofmsw = 15 €/ton, Case study gross  C ofmsw F: Scenario ‘optimistic treatment ofmsw’ with Rofmsw = 30 €/ton, Case study G: Scenario ‘without selling compost’. gross  C

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Fig. 5 (continued)

‘pessimistic treatment ofmsw’ scenario. The recovery of digestate and subsequent sale of compost increased economic performance by approximately 1000 € to 2000 € for m3/h. However, this result was strictly linked to the unitary price of compost. In fact, the

opposite situation was verified when this value was assumed equal to 45 €/ton (5 €/ton less than baseline value). Under this last price, the additional costs linked to digestate production exceeded the relevant revenues.

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This sensitivity analysis did not define the probability of NPV, but was conducted on the base of the potential values of the critical variables, according to the literature. In addition, the unit of measure (€/m3) differed for the three variables examined (pucic ,pbiomethane ,ppos ). For example, pucic varied from 0.061 €/m3 to 0.101 €/m3, while pbiomethane varied from 0.046 €/m3 to 0.054 €/m3. In addition, the subsidy value was incorporated in the 11th year; consequently, the weight of these values significantly reduced ofmsw due to the discount rate. Another variable (Rofmsw ) was gross  C measured in €/ton of ofmsw. The analysis of subsidies underlined a general failing of the new Italian decree: the coefficient correctives (cc , cpos ) are not applied to BIO-CNG until 10 years have elapsed, and this reduces cash inflows. Furthermore, the CIC is not precisely defined after 10 years; a minimum value should be provided to reduce investor risk. Both the selling price of biomethane and the price of biomethane at the point of sale (methane station) varied significantly. Regarding the first variable, the analysis of values (see Section 2.4) presented a range of 5 €/MWh (approximately 0.05 €/m3). Concerning the second variable, CNG could be mixed with biomethane and stations had different values, varying from 1.0 €/kilogram to 1.2 €/kilogram. This difference was irrespective of taxes and excises. Finally, the net income of ofmsw should be increased through adequate management to support a reduction of costs, rather than an increased burden on taxpayers. With respect to ofmsw, the NPV of a 500 m3/h plant ranged from 3961 k€ to 11,695 k€ in the biomethane producer business model and 7501 k€ to 14,266 k€ in the joint biomethane producer and distributor business model. With respect to by-products, the index changed from 2089 k€ to 2126 k€ and 809 k€ to 5608 k€ for the two business models, respectively. The joint implementation model was more profitable than the producer only model. Only the ‘pessimistic selling of biomethane’ scenario presented the opposite situation, because the selling price decreased ‘only’ 0.05 €/m3in the biomethane producer business model and 0.129 €/m3 in the joint implementation model.

3.3. Economic value of environmental externality Some items cannot be translated into cash flows; for these items, the concept of externality can be used to provide an eco-

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nomic approximation. Starting with equation (18), the following input data were chosen: (i) pCD was equal to the minimum value proposed in Fig. A6 (15 €/tCO2eq), with the maximum value (25 €/tCO2eq) not evaluated because it was lower than the value proposed by (Stiglitz et al., 2017). These values were 35 €/tCO2eq and 70 €/tCO2eq, and were both considered. (ii) RECD was hypothesised as equal to 83 gCO2eq/km (scenario LR), and an average value between liquid manure and organic waste was considered (Fig. A4) (IRENA, 2017). The estimates developed by (DENA, 2011) were more optimistic, achieving a reduction of 119 gCO2eq/km (scenario HR). (iii) CNGV was assumed equal to 15 km (scenario LM), indicating mileage with 1 m3 CH4. A lower value of NGV consumption determined an increased mileage of 22 km (scenario HM). (iv) Q CIC was defined as 1231 m3 (see Table A1). Fig. 6 proposes 12 cases as a function of CIC (as Section 1 determined that subsidies play a key role). For example, the quantity of biomethane linked to one CIC permitted 18,465 km of travel in the LM scenario. The alternative use of BIO-CNG (as opposed to CNG) reduced GHG emissions to 1.5 tCO2eq in the LR scenario. Considering a price of CO2 of 15 €/tCO2eq, the externality was equal to 23 €/ CIC (the minimum value); the maximum value of ECD was 226 €/ CIC. These values are significantly lower than 375 €/CIC (see Table A1). Fig. 6 demonstrates the economic value of the CIC in terms of an environmental externality with a fixed price of CO2eq. In contrast, Fig. 7 defines the price of CO2eq with a fixed value of one CIC, equal to 375 €. All calculations were based on break-even analysis. As demonstrated in the figures, CIC value varied from 116 €/CIC (scenarios HR and HM) to 245 €/CIC (scenarios LR and LM). These results suggest the following policy implications: (i) The price of CO2 is growing, but its value is insufficient to support the transition towards a low-carbon society. (ii) The reduction of CO2, varying from 83 gCO2eq/km to 119 gCO2eq/km, is significant, considering emissions released by CNG (124 gCO2eq/km). (iii) Technological improvements made by NGV manufacturers could reduce the consumption of single vehicles.

Fig. 6. The transformation of environmental advantage in economic terms, expressed as a function of CIC.

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Fig. 7. Break-even analysis of the price of CO2.

(iv) The economic value of an externality should consider other parameters, such as fuel risk. Finally, the application of subsidies is necessary to develop the biomethane sector, and firms that do not contribute to tackling climate change should face penalties (e.g. high costs for each tonne of CO2 released in the atmosphere). 3.4. Social analysis: Awareness, motivation and pathways This section builds on the survey addressed to experts (i.e. academicians, policy makers, members of trade associations, etc.) to unveil the challenges of governing the multiple aspects of biogas upgrading to biomethane. The qualitative data analysis enabled us to appreciate and suggest relevant pathways (i.e. tailored policy interventions) considering the experts’ awareness (i.e. their perceptions of the sustainability issues related to biomethane) and associated motivations (i.e. their ideas of the challenges and opportunities of pursuing the energy transition). A summary of the

empirical evidence, portrayed through the AMP framework, is displayed in Fig. 8. All interviewees showed an overall level of awareness of the role of biomethane in closing resource flow loops in a sustainable fashion. There was a broad propensity to link the idea of biomethane to important aspects of sustainability. Two thoughts recurred in the interviews, demonstrating a common shared awareness – namely socio-environmental sustainability and economic profitability. The former was explicitly associated with preservation of the environment and quality of life through a decrease in GHG emissions, energy recovery from waste and potential positive effects on human health and sanitation. The latter held that any economic gains would depend on the substrate employed as well as the biomethane plant size; this view is also supported by the literature (Chan Gutiérrez et al., 2018; Stürmer et al., 2019). While most experts demonstrated a solid awareness of the sustainability of biomethane, their underlying motivations for the transition were manifold and referred to three main groups of con-

Fig. 8. AMP framework of biogas upgrading to biomethane.

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textual factors: the community, businesses and the environment. The emphasis on the community concerned factors that could support or hinder public acceptance of biomethane plants (i.e. job creation, waste management, ‘not in my back yard’ (NIMBY) attitudes, gas dependence, etc.). With reference to waste management and NIMBY attitudes, although many respondents recognised the necessity of supporting the short chain for valorising waste (as materials and/or energy), they did not want plants situated within their cities, because of the potential for increased transport, pollutants and odour. The business focus defined factors that directly affect firms’ bottom lines. The most relevant of these related to: (i) the generation of bioenergy and biomaterials, (ii) the decreasing cost of disposal, (iii) business diversification towards circularity and (iv) innovation and profitability. Generally, participants recognised a win-win solution for biomethane production, seeing it as something that would not only contribute to environmental protection, but also increase the long-term value of companies via innovative performance and closing the loop of the product lifecycle. Finally, the environmental focus was the common thread of most experts’ perspectives. They recognised that a reduction in GHG emissions could be attained by replacing CNG with BIOCNG, which could be distributed via the natural gas grid or used as vehicle fuel, enabling the conservation of natural resources and a reduced dependence on fossil fuels. The analysis of potential policy pathways posed that the main challenge would be catalysing a large-scale market uptake of biomethane. Building on the experts’ views and resulting motivations, the AMP framework enabled us to identify a bundle of policy strategies to deal with the socio-economic and environmental contexts. First, the transition towards a new model of energy production usually requires research and technological transfer among various value-chain actors, and this can sometimes be hampered by economic and institutional issues (i.e. high transaction costs, imperfect appropriation of R&D outcomes, etc.). For this reason, policy makers should encourage scientific and technological collaboration among vested parties by creating a stable domestic market characterised by a high degree of certainty and clarity of the regulatory framework. Clarity and stability of the regulatory environment and public policies represent favourable conditions that can attract local and foreign investors (Christoph, 2018). In this context, industrial projects could develop significantly, even though the new decree only encourages the use of biomethane for the transport sector (MISE, 2018). This would unlock the huge potential of biomethane in Italy, enabling an advanced and innovative energy model to be built and potentially leading to a double green transition (i.e. in waste management and energy security), a reduction in the dependency on foreign imports for natural gas and the achievement of some core targets of the Italian National Energy Strategy 2017. For this to happen, there must be an adequate flow of information to achieve local acceptance of biogas plants. Proper education and active, timely communication to local residents might, over time, win over even diffident persons holding a NIMBY attitude (Capodaglio et al., 2016). Finally, other relevant policy pathways should focus on: supporting public investments in infrastructure (e.g. by expanding the biogas fuelling network for the private transport sector), providing greater incentives for small plants to reach the necessary profitability (e.g., by applying a corrective coefficient), improving certification schemes and standards (e.g., by issuing social sustainability certification schemes along the entire supply chain, incorporating health and safety, working conditions, social benefits, etc.) and supporting the substitution of old fossil fuel–based vehicles with new BIO-CNG vehicles (e.g. by investing in a refuelling infrastructure and public transport to drive the development of biomethane in the transport industry, following the example of Sweden (Ammenberg et al., 2018; Lönnqvist et al., 2017)).

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Overall, the heterogeneous nature of the identified pathways reveal the high complexity of the system and the related need to go beyond a mere one-size-fits-all approach to exploit the synergistic effect of the policy outcomes. 4. Conclusions This work confirms that green gas represents a sustainable alternative to natural gas. Green gas technology is available in the market and presents a valid opportunity for European countries to increase their proportion of RE in the transport sector, in line with EU targets. In fact, the target year of 2020 is near and only two countries (Sweden and Austria) have reached their goal. The biogas-biomethane chain permits the recovery of some resources, such as ofmsw, manure, agricultural waste and agroindustry waste, which can be converted into carrier energy. In addition, the production and sale of food-grade CO2 and digestate can close the loop in an effective manner. The circular economy model is not completely verified, because economic feasibility can only be demonstrated in some scenarios. The role of subsidies is crucial and biomethane plants are profitable when ofmsw is used as a substrate in 250 m3/h biomethane plants or when byproducts are used in 500 m3/h plants. Several case studies demonstrated precise scenarios in which NPV was positive or negative. Profits were significant: ranging from 5420 €/(m3/h) to 21,148€/ (m3/h) and 804 €/(m3/h) to 3688 €/(m3/h) for ofmsw and byproducts, respectively, in the baseline scenario. The opportunity for joint implementation between a biomethane producer and a methane distributor was found to be extremely useful for satisfying the NGV market. From an environmental perspective, the reduction of GHG emissions using BIO-CNG as an alternative to CNG varied from 83 gCO2eq/km to 119 gCO2eq/km. The value of the environmental externality was 226 €/CIC in the optimistic scenario – lower than the value released by the Italian decree (375 € for one CIC). Consequently, new actions are required to support a transition towards a low-carbon society. The social analysis reflects a general awareness of the socio-environmental benefits of the market uptake of biomethane. However, there is room for improvement through clearly defined policy pathways (supporting, e.g., technological collaboration, information campaigns, certification schemes, etc.) that, if adequately combined, could provide a flywheel effect for the entire value chain. A suggestion for future analysis is a fuzzy inference simulation based on a causal-effect map to identify the most effective mix of policy pathways for the biomethane breakthrough. Appendix A. Supplementary material Supplementary data to this article can be found online at https://doi.org/10.1016/j.wasman.2019.06.005. References Alberici, S., Boeve, S., van Breevoort, P., Deng, Y., Förster, S., Gardiner, A., van Gastel, V., Grave, K., Groenenberg, H., de Jager, D., Klaassen, E., Pouwels, W., Smith, M., de Visser, E., Winkel, T., Wouters, K., 2014. Subsidies and Costs of EU Energy – Final Report and Annex 3 [WWW Document]. URL https://ec.europa.eu/energy/ en/content/final-report-ecofys (accessed 7.9.18). Ammenberg, J., Anderberg, S., Lönnqvist, T., Grönkvist, S., Sandberg, T., 2018. Biogas in the transport sector—actor and policy analysis focusing on the demand side in the Stockholm region. Resour. Conserv. Recycl. https://doi.org/10.1016/j. resconrec.2017.10.010. Ammenberg, J., Feiz, R., 2017. Assessment of feedstocks for biogas production, part II—Results for strategic decision making. Resour. Conserv. Recycl. https://doi. org/10.1016/j.resconrec.2017.01.020. Ardolino, F., Arena, U., 2019. Biowaste-to-Biomethane: An LCA study on biogas and syngas roads. Waste Manag. 87, 441–453. https://doi.org/10.1016/J. WASMAN.2019.02.030.

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