The Energy Bill, Biofuel Markets and The Energy Bill, Biofuel Markets and the Implications for Agriculturethe Implications for Agriculture
Daniel G. De La Torre UgarteDaniel G. De La Torre Ugarte
Chesapeake College, Wye Mill, MDChesapeake College, Wye Mill, MD
February 21, 2008February 21, 2008
University of Maryland, College Park, Center for Agricultural & Natural Resource PolicyUniversity of Maryland, College Park, Center for Agricultural & Natural Resource Policy
Eleventh Annual Agriculture Outlook and Policy ConferenceEleventh Annual Agriculture Outlook and Policy Conference
Biofuels OpportunityBiofuels Opportunity
Transportation Fuels Consumption: Gasoline: 21 m barrels / day (Ethanol 3%) Diesel: 21 m barrels /day (Biodiesel 0.2%)
Equivalent of: Ethanol: 30 million barrels / day Biodiesel: 23 million barrels / day
Hypothetically: Ethanol: 300m ha of sugar or 590m of corn Biodiesel: 225m ha of palm
Main driver in biofuels expansion is Main driver in biofuels expansion is policy and high oil pricespolicy and high oil prices
Policy objectives Energy security/independence Climate change
Policy Instruments Consumption mandates Tax rebate Tariffs
Policy instruments have a costPolicy instruments have a cost
Policy decisions have market consequencesPolicy decisions have market consequences
The economics of market driven The economics of market driven biofuel productionbiofuel production
Production increases if margins grow Margin = Price of Oil - Feedstock Margin pays: conversion, distribution, profits
Price of feedstock increases as biofuels production expands
Higher feedstock prices reduce margin and slow down biofuels expansion
Expand ag production capacity and set of Expand ag production capacity and set of feedstocks; improve conversion and feedstocks; improve conversion and distribution technologies are keydistribution technologies are key
Biofuels Expansion took-off when Biofuels Expansion took-off when S/U ratios were decliningS/U ratios were declining
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
1980/81 1983/84 1986/87 1989/90 1992/93 1995/96 1998/99 2001/02 2004/05 2007/08
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Corn Rice Wheat
Source: USDA
Animal feed has been driving growth Animal feed has been driving growth in world demand for grains & proteinin world demand for grains & protein
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
00
0 t
on
s
World Feed Demand Feed Demand minus USA Fuel Demnd
Source: OECD-FAO Agricultural Outlook 2007-2016 - OECD © 2007 - ISBN 9789264025097
Feed long term driver of ag. demand
Biofuels demand, the straw that broke the camel’s back
Developing countries are reproducing diet of the west based on high content of animal protein
Commodity Prices on the Rise!Commodity Prices on the Rise!
0
2
4
6
8
10
12
14
16
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Friday
Year
$ p
er b
ush
el Corn
Wheat
Soybeans
Rice
Corn = $5.20Wheat = $10.36Soybeans = $13.98Rice = $16.34Cotton = $0.695
March delivery
Long term trend in Long term trend in agricultural commodity pricesagricultural commodity prices
0
50
100
150
200
250
300
350
1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
Pri
ce In
dex
Nominal Real
Source: International Financial Statistics Online, IMF February 10,2008. Except for real price in 2007, which is estimated by author.
30+ years of declining and or flat prices
The most famous table of the The most famous table of the Energy BillEnergy Bill
A B C D E F
Year
Volume of Renewable
FuelCorn
EthanolAdvance Biofuels
Cellulosic Biofuels
Biomass disesel
Other advanced biofuels
A = B+C B=A-C C=D+E+F
2008 9,000 9,000 0 0 0 02009 11,100 10,500 600 0 500 1002010 12,950 12,000 950 100 650 2002011 13,950 12,600 1,350 250 800 3002012 15,200 13,200 2,000 500 1,000 5002013 16,550 13,800 2,750 1,000 1,7502014 18,150 14,400 3,750 1,750 2,0002015 20,500 15,000 5,500 3,000 2,5002016 22,250 15,000 7,250 4,250 3,0002017 24,000 15,000 9,000 5,500 3,5002018 26,000 15,000 11,000 7,000 4,0002019 28,000 15,000 13,000 8,500 4,5002020 30,000 15,000 15,000 10,500 4,5002021 33,000 15,000 18,000 13,500 4,5002022 36,000 15,000 21,000 16,000 5,000
The Energy Bill & The 2008 USDA BaselineThe Energy Bill & The 2008 USDA Baseline
Renewable Energy
Electricity Biodiesel Ethanol
Cattle Manure
CropResidues
Dedicated Energy Crops
Digester Dairy, Poultry, Hogs
Mill Wastes
Forest Residues
Oilseed Crops
Yellow Grease
TallowBeef and Poultry
Sugar/Starch Crops
CropResidues
Dedicated Energy Crops
Forest Residues
Food Residues
Mill Wastes
Feedstock Diversity: An Opportunity for Feedstock Diversity: An Opportunity for Agriculture and a Technological ChallengeAgriculture and a Technological Challenge
Not all Biofuels are “created” equalNot all Biofuels are “created” equal Feedstock Agricultural production practices Soil characteristics Land use and land displaced Producers / growers Conversion process Biofuel and bio-products produced End use
Global Anthropogenic GHG EmissionsGlobal Anthropogenic GHG Emissions
Source: Fourth Assessment Report, IPCC (2007)(a) Global annual emissions of anthropogenic GHGs from 1970 to 2004. (b) Share of different anthropogenic GHGs in total emissions in 2004 in terms of CO2-eq. (c) Share of different sectors in total anthropogenic GHG emissions in 2004 in terms of C02-eq (Forestry includes deforestation.)
0.26% Searchinger, et al.GHG for ag and forestry is to address the 31% of annualemissions coming. If we take care of this we take care of
Ethanol Production: Ethanol Production: By Feedstock, 2006 – 2030By Feedstock, 2006 – 203060 Billion gallon and cellulosic available by 60 Billion gallon and cellulosic available by 20122012
Bill
ion G
allo
ns
Bill
ion G
allo
ns
Ethanol Production: Ethanol Production: By Feedstock, 2006 – 2030By Feedstock, 2006 – 203060 Billion gallon and cellulosic available by 60 Billion gallon and cellulosic available by 20152015
Distribution of the Production Distribution of the Production of Cellulosic Materials, 2010of Cellulosic Materials, 2010
Distribution of the Production Distribution of the Production of Cellulosic Materials, 2015of Cellulosic Materials, 2015
Distribution of the Production Distribution of the Production of Cellulosic Materials, 2020of Cellulosic Materials, 2020
Distribution of the Production Distribution of the Production of Cellulosic Materials, 2030of Cellulosic Materials, 2030
Change in Soybean AcreageChange in Soybean Acreage
Change in Soybean Acreage, 2030 Change in Soybean Acreage, 2030
Trade IssuesTrade Issues Biofuels is an answer to WTO’s idea that excess
production is causing low prices
Biofuels trade has a role: expand supply, reduce price pressures, use more suitable feedstock available, new opportunities
Biofuels trade brings very high risks: size of energy market, expansion of arable land in to sensitive areas, overtake land holdings of small landholders, water conflicts
Biofuels trade need to be regulated
The OpportunitiesThe Opportunities
Agriculture can have a significant role in meeting America’s energy needs
Bio-energy feedstocks could generate billions of Farm Income through 2022.
Savings in government payments
Create a several hundred billion industry in the U.S. and several million more jobs. Many of which will be located in RURAL AMERICA
The ChallengesThe Challenges Cellulose to Ethanol path available by 2012
Disseminate information for farmers to gear them up to plant millions acres in dedicated energy crops.
Input availability for energy dedicated crops: seed, chemical labeling, machinery.
Yield gains for main crops
Integrate animal feed to co-products of biofuel production
Logistics for supplying bio-refineries: pre-treatment, transportation, storage.
Building several hundred new plants
Distribution of ethanol and E85
ConclusionsConclusions Investments have to be ahead of the curve:
Agronomic research Pre-treatment and conversion Infrastructure of distribution and sales
Government policy consistent with objectives and speed of adoption
To address environmental and social concerns, incentives need to be link to environmental performance
Department of Agricultural Economics, Institute of AgricultureUniversity of Tennessee http://www.agriculture.utk.edu/
Agricultural Policy Analysis Centerhttp://agpolicy.org/
ThanksThanks ! !
Bio-based Energy Analysis Grouphttp://beag.ag.utk.edu/