(Table 4) are compared to the Reference case to understand how
fuel supply policies influence the biofuel adoption.
To promote the adoption of biofuel vehicles in the Initial Push
scenario, the supply-push incentives take place through both the
installation of bio-diesel and bio-ethanol plants (with a capacity of
2.5 million liters per year) and the installation of fuel stations for all
biofuels in 2018. Since a biogas plant is currently in operation in
Iceland, further initial push for the supply capacity is not required.
The Initial Push strategy is intended to overcome the chicken-andegg
problem between vehicle adoption and initial fuel availability.
After giving the initial momentum, the UniSyD_IS model attempts
to equilibrate the demand for the generated energy with the supply
from various plants by changing the offer price. Hence, this scenario
corresponds to a “capacity matching” strategy, in which the model
seeks to match the forecasted demand and supply capacity in every
time step after an initial supply push [48,49].
Whereas the default model structure assumes risk-aversion
towards capacity investment by minimizing costs, the Enthusiastic
scenario is intended to simulate the impact of relatively lower
investment risks on the biofuel markets. This proactive scenario
conforms to a “capacity leading” strategy in which capacity is
expanded in anticipation of higher demand growth [48,49], which
is implemented by a more optimistic demand forecast than the
model would normally foresee in other scenarios. The inflated
predicted demand makes investment seem less risky. This scenario can also be viewed as a continuing supply-push policy that ensures
higher supply flexibility and generation buffer [49].
All scenarios assume significant improvements in the purchase
cost and fuel economy of vehicles as described in Tables 2 and 3.
According to the current tax policy in Iceland, the excise duty rate is
zero for LDVs that emit lower than 80 gCO2 per km. However, the
rate is increased stepwise up to 65% of vehicle price for LDVs
emitting higher than 250 gCO2 per km. The oil price is assumed to
grow from US$50 to the maximum price of US$100 per barrel by
2030. The carbon tax is increased from US$20 in the base year to
US$100 per tonne in 2050.