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|| Strategic thinking in sustainable energy

Indirect Land Use Change Impacts of Oilseed Rape for Biodiesel

Working draft

25 February 2010

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The diagram below presents our initial analysis of the indirect impacts of rapeseed biodiesel

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Demand for rapeseed biodiesel

Additional demand for rapeseed

19 Mtonne

Increased EU production19 Mtonnes

RS yield increases contribute3 Mtonnes

RS area increases contribute

16 Mtonnes

Displaces land that would otherwise

become idle 3.3 Mha

Additional supply of rape meal

4.7 Mtonnes

Displaces wheat0.7 Mtonnes

Idle land creation in EU

0.09 Mha

Displaces soy meal2.8 Mtonnes

Avoided expansion in Brazil & Argentina

0.8 Mha

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Our initial estimate of the ILUC impacts of this scenario suggest rapeseed may have a small positive ILUC factor

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EU27 EU27 Argentina Brazil Indonesia Malaysia EU27

Expansion of oilseed rape

Avoided wheat expansion

Avoided soybean expansion Increased palm production ILUC factor

g C

O2

e /

MJ

Foregone sequestration - grassland Foregone sequestration - forest All types of land

There is large uncertainty about

this number, which is discussed on the following slides

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Work to understand sensitivities and uncertainties is on-going

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• Work is being carried out to quantitatively assess the sensitivity of the ILUC factor to key assumptions and uncertainties. However, the table below presents our hypothesis of what these are likely to be:

Sensitivity Scale

Type of land use displaced by rapeseed area expansion (e.g. rotational set-aside, idle land) Large

Rate of afforestation of idle land in Europe Large

Rate of carbon stock accumulation on idle land in Europe Large

Use of co-products (e.g. animal feed or in application where they would not displace a product grown on land) Large

The type of land use change avoided through displacement of soy and the carbon stock of this land (e.g. forest). Large

Quantity of rapeseed required for EU biodiesel production (e.g. Higher demand levels could create the potential for imports and, therefore, substitution of rapeseed oil by palm oil in the food industry (in net importing countries))

Medium

The extent to which increases in rapeseed yield contribute to additional production in EuropeSmall tomedium

The type of land use change resulting from additional palm production caused by displacement of soy Small

Contents

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1. Expansion of oilseed rape area in Europe

2. Impact of co-products

3. Quantity of rapeseed biodiesel demand and consequences of imports

4. Role of yield increases

5. Further information

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The potential area of rapeseed that can be grown in Europe will be limited by the area of cereals grown

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• Oilseed rape achieves low gross margins relative to cereal crops – see table below.

• However, rapeseed has other characteristics that make it attractive as a “break crop” within a rotation – in particular, relatively higher nitrogen transfer (i.e. quantify of nitrogen available to the following crop) and good crop cover (protecting against soil erosion).

• It is assumed that increasing demand for biodiesel in Europe will lead to oilseed rape replacing other break crops (e.g. sunflower, potatoes, sugar beet, peas etc) in a rotation.

Winter sown crops Gross margin*(£ / ha)

Feed wheat 405

Feed barley 248

Rapeseed 130

Feed oats 274

Field beans 254

* Based on 2006 data – Nix (2007).

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Historic trends and forecasts suggest the area of cereal crops grown in EU27 will remain relatively unchanged in 2020

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• An analysis of historic data illustrates that the area of cereal crops grown in the EU27 (barley, buckwheat, maize, millet, oats, rye, sorghum, triticale & wheat) has declined slightly over time – see top graph.

• FAPRI (2009) in their World Agricultural Outlook suggest that this decline will continue in their forecast for 2018. Forecasts by OECD/FAO (2009) show similar results.

• In the Biofuels Scenario, cereals production in Europe is slightly higher due to biofuel demand. The area estimated to be grown is around 58 million hectares. Note: this is very similar to the average area grown over the period 1990 – 2008. 0

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Forecast total area main* cereal crops grown in EU27

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Historic total area all cereal crops grown in EU27

Based on FAO statistics.

Based on FAPRI (2009) *Note: only includes 3 main cereal crops: wheat, barley & maize

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Analysis of historic trends suggest that rapeseed could become more frequently grown in a crop rotation

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• Over recent years, the area of rapeseed grown in Europe has steadily increased relative to the area of cereals cultivated.

• Some countries are unlikely to increase oilseed rape areas (e.g. Southern Europe), however, others remain well short of the technical limit of growing rapeseed within a cereal rotation (i.e. cereal – rape – cereal).

• In order to estimate oilseed rape areas in 2020, it is assumed oilseed rape areas will only increase in those countries which already have substantial rapeseed production – i.e. the ten largest producing countries (which made up 94% of total EU production in 2008).

• Current country-level trends in the ratio of rapeseed area to cereal area are assumed to continue to 2020, although the frequency of growing oilseed rape within a rotation is constrained:

• In the 5 largest producing countries: no more than 1 in every 4 years.

• In the next 5 largest producing countries: no more than 1 in every 5 years.

• This would lead to cultivation of an additional 3.3 million hectares of additional oilseed rape compared with current production of around 6.1 million hectares (2008).

Based on FAO statistics.

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Area of rapeseed grown in Europe relative to cereal cultivation

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Expansion of EU oilseed rape area is likely to lead to ‘displacement’ of land that would otherwise have become idle

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• An analysis of historic trends suggests expansion in rapeseed area would not displace other arable crops, as areas of these crops have been declining.

• Projections of future land use in the EU suggest these trends are expected to continue in the future. For example,

• Fischer et al (2009) suggest that by2030 22 million ha of land in EU 27 countries would become idle in the absence of increased demand for agricultural commodities above the baseline demand for food and feed (based on their “Land use – Environment scenario”).

• OECD/FAO (2009) forecasts declining or static EU production in most other commodities –e.g. sugar, beef, veal, pig, poultry, sheep, some dairy products.

• FAPRI (2009) forecasts declining sugar areas as well as falling stock numbers.

• It is therefore assumed that expansion of rapeseed area does not displace another agriculture commodity. It is assumed to displace land that would otherwise become idle.

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Other* crops grown on arable land in 10 major OSR producing countries

Source: FAOStat (2010).* Other = not cereals or rapeseed

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Oilseed rape expansion will occur on land that would otherwise have become idle, forested by natural succession or afforested

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• Analysis of FAO land use statistics (in Lywood (2010)) suggests that declining arable land is leading to increases in both forest and “other land” (idle land) – top table.

• Increasing biofuel demand is therefore likely to lead to a reduction in the rate of arable land becoming:

• Idle (classified as “other land” by FAO),

• Abandoned and being forested by natural succession,

• Abandoned and being intentionally afforested.

• Idle land and land forested by natural succession are currently treated as one category since they appear to have similar rates of carbon accumulation.

• Afforestation in Europe is estimated to occur on around 12% (=138/1134) of area of abandoned arable land and permanent grassland (Lywood (2010), based on Zanchi(2007) and FAO statistics).

Type of land Average area change, 1995 – 2007 (Mha/y)

Arable land -0.88

Permanent grassland -0.24

Forest 0.71

Other land 0.41

Type of land Average area change, 1995 – 2005 (Kha/y)

Arable land -914

Permanent grassland -220

Total -1134

Forest 721

Afforestation

Total 223

- on abandoned land 138

- on agricultural land 85*

Lywood (2010).* It is assumed afforestation directly on agricultural land is as a result of explicit policy support which is unlikely to be effected by biofuel demand

Source: Lywood (2010).

Change in area of different land types, EU

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Abandoned arable land would accumulated small but important carbon stocks through soil carbon and above ground biomass

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• If abandoned arable land was to become idle, forested by natural succession or afforested, it would have accumulated carbon stock in both above ground and soil carbon.

• Lywood (2010) puts forward evidence from the literature on carbon stock accumulation rates for different land categories – see table below

• Post and Kwon (2000) reviewed literature estimates of changes in soil carbon as a result of land use change to both grassland and forest and across a range of climates.

• The high estimates for afforestation are those typical of intensively managed forestry such as short rotation coppice. Lywood (2010) therefore recommends taking an average of the Greig(2007) data as being representative of European afforestation.

Type of land Carbon sequestration(t C / ha / year)

Reference

Idle land / natural succession to forest 0.34 Post and Kwon (2000)

Afforestation:

Spruce, aspen, poplar 0.25 – 5.28 Peterson et al (1999)

Kielder forest 2.0 Greig (2007)

Thetford forest 1.0 Greig (2007)

Contents

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Additional supply of rape meal is likely to displace feed wheat and soy meal

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• Rape meal produced in Europe is currently used as an animal feed, particularly for its high protein content.

• Lywood et al (2009) analysed the impact of a range of biofuel animal feed co-products that can be used in the EU animal feed market.

• Substitution ratios were calculated for each co-product in each animal group, on the basis of relative digestible energy and digestible protein content.

• EU average substitutions ratios were calculated by weighting each substitution ratio by consumption of animal feed in each sector

• As result, the following substitution ratios were calculated for rape meal:

• Feed wheat: 0.145 tonnes / tonne rape meal

• Soy meal: 0.605 tonnes / tonne rape meal

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Displacement of feed wheat in Europe will lead to an increase in the rate at which idle land is created in the biofuel scenario

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• Europe is currently (FAO, 2009) and is forecast to remain (FAPRI, 2009) a net exporter of wheat. Therefore, any displacement of wheat by rape meal or other animal feed co-products is likely to lead to a reduction in domestic production of wheat.

• In the Baseline Scenario, the area of wheat grown in 2020 is expected to decline due to increasing yields (see table below) – resulting in the creation of idle land. If the effect of animal feed co-products is ignored, the additional demand for wheat in the Biofuels Scenario is expected to slow this decline (an increase of 1.7 Mha). When the effect of co-products is taken into account, the decline in wheat area is slightly closer to the baseline (an increase of 1.4 Mha).

• Rapeseed, therefore, receives a small credit since the supply of rape meal means more idle land is created (due to reduced wheat demand) than would otherwise be the case. Rapeseed is responsible for around 7% of the combined effect of all co-products.

EU wheat production

Baseline Biofuels scenario*

Without co-products With co-products+

2008 2020 2008 2020Relative to

baseline2008 2020

Relative to baseline

Production (Mt) 151 148 151 203 54 151 192 44

Area (Mha) 26.8 24.9 26.8 26.6 1.72 26.8 26.4 1.44

Yield (t / ha) 5.62 5.96 5.62 7.61 - 5.62 7.29

* Area and yield estimates were calculated using the method set out in Lywood et al (2009).+ Includes impact of rape meal, DDGS, PKE

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Displacing soy meal production in South America will lead to avoided land use change

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• The marginal suppliers of soy for the European market in 2020 are likely to be Brazil and Argentina.

• The table below shows the impact of biofuels (with and without co-products) on production of soy beans in these countries. The analysis suggests that in the Biofuel Scenario, animal feed co-products (PKE, wheat DDGS, maize DDGS and rape meal) will lead to a reduction in area expansion of 5 Mha in Brazil and 8.3 Mha in Argentina.

• Rape meal therefore receives a credit for the portion of this displacement for which it is responsible (around 6%).

Soy production Baseline Biofuels scenario*

Without co-products+ With co-products

2008 2020 2008 2020Relative to

baseline2008 2020

Relative to baseline

Brazil

Production (Mt) 59.0 88.8 59.0 88.8 0 59.0 70.0 -18.8

Area (Mha) 21.3 27.7 21.3 27.7 0 21.3 22.7 -5.0

Yield (t / ha) 2.77 3.20 2.77 3.20 - 2.77 3.08 -

Argentina

Production (Mt) 49.5 66.0 49.5 66.0 0 49.5 47.3 -18.8

Area (Mha) 18.0 24.3 18.0 24.3 0 18.0 15.9 -8.3

Yield (t / ha) 2.75 2.72 2.75 2.72 - 2.75 2.97 -

* Area and yield estimates were calculated using the method set out in Lywood et al (2009).+ Assumes increasing biofuel demand has no impact on quantity of soy beans produced.

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Winrock’s data on land use changes and carbon stock losses is currently being used

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• The table below shows the data used from Winrock’s work for RFS2 for both the type of land converted to cropland, and the carbon stock of that land

Land type converted

to cropland

Argentina Brazil

Share of land converted

to cropland

Carbon stock

(tonnes C / ha)


to cropland

Carbon stock

(tonnes C / ha)

Forest 12% 67 12% 176

Grassland 26% 9 21% 32

Mixed 27% 25 22% 67

Savannah 17% 14 38% 46

Shrub 14% 24 7% 59

Wetland 1% 38 0% 104

Barren 3% -18 0% -18

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Displacing soy meal production in South America will also lead to an increase in palm oil production in South East Asia

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• The soy meal displaced in the Biofuels Scenario would have produced around 6.4 Mtonnes of soy oil – which will need to be provided by an alternative source.

• As palm oil is the marginal vegetable oil, we assume it replaces the displaced soy oil. Note: this additional production of palm oil will also result in additional production of PKE, which will in turn displace some soy meal. This effect can be solved using simultaneous equations.

• The net result is that around 1.7 Mha of additional palm production will be required due to soy being displaced – it is assumed that this additional production will occur in Malaysia and Indonesia (50 / 50 split between the two countries).

• Oilseed rape therefore receives a penalty for the portion of this displacement for which it is responsible (around 6%).

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Winrock’s data on land use changes and carbon stock losses is currently being used

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• The table below shows the data used from Winrock’s work for RFS2 for both the type of land converted to cropland, and the carbon stock of that land

Land type converted

to cropland

Indonesia Malaysia


to cropland

Carbon stock

(tonnes C / ha)


to cropland

Carbon stock

(tonnes C / ha)

Forest 39% 170 52% 167

Grassland 5% -60 3% -60

Mixed 29% 21 27% 20

Savannah 22% -54 13% -54

Shrub 3% -25 2% -25

Wetland 2% 55 2% 53

Barren 0% 0 0% -68

Contents

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Imports may occur if demand for rapeseed is higher than in the Biofuels Scenario

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• In the biofuels scenario, around 19 Mtonnes of rapeseed is expected to be required in the EU by 2020.

• As set out above, this level of demand could be met through increases in domestic production –through both area expansion and yield increases.

• Increasing rapeseed demand above this level would probably lead to imports into Europe.

• Net exporters of rapeseed are expected to include Canada, Ukraine, Other CIS countries and Australia. Transport costs suggest Ukrainian rapeseed would be the most likely source of imports into the EU.

• If this situation were to occur, the worst case scenario from an ILUC point of view would be diversion of Ukrainian out of the food industry (domestic or in other net importing markets such as China) and the replacement of that rapeseed oil with palm oil.

• If a 10% increase in rapeseed demand (0.8Mt rapeseed oil) in the EU resulted in an equivalent amount of additional palm being produced, then the ILUC factor for rapeseed is estimated to increase to around 12 g CO2e / MJ (an increase of ~180%).

Contents

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The forecast growth in yield is broadly in line with growth rates achieved historically

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• Achieving the forecast increased production from yield increases would require EU average yields of 3.71 t/ha, compared with current yields of 3.20 t/ha – a CAGR in yield of 1.23%.

• The average national yield in Germany (3.8 t/ha) demonstrates that the required yield is achievable – for a certain set of economic, technical and climatic conditions.

• The significant variation in yields between EU countries suggests that a large proportion of this yield increase could come from existing varieties and practices.

• Yield growth rates have tended to be higher than the required rate in the past, with the exception of the period between 1985 and 1996.

0.00.51.01.52.02.53.03.54.04.5

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Historic EU27 yield growth rates

Contents

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Biofuel’s Scenario description for oilseed rape

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• The primary growth in demand for oilseed rape will occur in Europe, where an additional 19 million tonnes will be required by 2020.

• EU diesel demand in 2020: 9.6 exajoules(EJ); 268 billion litres (based on IEA World Energy Outlook)

Feedstock Composition (of European biodiesel supply)

FAME HVO

Rapeseed oil 46% -

Soy oil 30% -

Palm oil 15% 95%

Jatropha oil 6% -

Used cooking oil 3% -

Tallow - 5%

• Assume FAME will be constrained to a 7% (volume) blend (which equates to 19 billion litres), and the remainder of the RED 10% energy target (3.5% by energy) will be met by HVO.

• Rapeseed oil is assumed to provide around 46% of the FAME (and none of the HVO) – on the basis of technical and economic considerations.

• Growth in demand is also expected to occur in OECD Pacific, India and China. Total global demand for rapeseed for biodiesel is estimated to be around 30 Mtonnes.

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Substitution of rapeseed oil out of the food market is considered unlikely within the European Union

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• The principle use of rapeseed oil outside of the biofuels industry is in food. The other main vegetable oils are all potential substitutes, however, it is unlikely that any substitution will occur.

• Palm oil – while a significantly cheaper oil than rapeseed, palm oil use tends to be constrained due to it’s physical properties (principally the fact it is a solid at room temperature). Experts tend to believe that palm oil has already achieved its technical maximum market share in the EU (particularly EU15 countries).

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40%

60%

80%

100%

2003 2004 2005 2006 2007 2008 2009

Market share of different vegetable oils in the EU food market

Rapeseed Coconut Cottonseed

Olive Peanut Soybean

Sunflowerseed Palm Kernel Palm

• Soy oil – use of soy in the EU food industry has been constrained by concerns about GM. While these barriers may no longer exist by 2020, price (soy oil tends to trade at similar prices to rapeseed oil) and availability (due to increasing demands in producing countries) are likely to constrain its ability to substitute rapeseed in Europe.

• Sunflower oil – price is considered a barrier, as is competition for land with rapeseed.

• The graph illustrates rapeseed oil has not been displaced out of the food market since 2003. Source: USDA FAS (2010)

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Fischer et al (2009) – Land use environment scenario

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Food demand• Projections based on historic trends in consumption per capita. • Historic trends indicate declining consumption of ruminant livestock products – in the

scenario some further decline projected for W. Europe, but not for E. Europe.

Livestock feeding efficiency

• Assumes a modest increase in livestock production intensity in the future.

Aggregate crop yields

• EU15 countries: Aggregate yields were projected to increase by 6-15% (by 2030) – based on historical trends.

• EU 12 (and Ukraine): Assume gap between EU12 and EU15 will gradually close, reaching 80% of the EU15 level by 2030.

Organic farming• Assumed to increase to around 10-15% by 2030 (c.f. 5-10% currently). Take into account

the lower yields of organic farming (fixed at 20% lower than 2005 conventional yields).

Cultivated land reserved for nature conservation

• Takes account of Sustainability Strategy Summit & the Nitrates Directive• EU15: land in the “set-aside with no economic use” category in 2000 is reserved for

nature conservation – 4.5 million hectares• EU12 (& Ukraine): “marginal” agricultural land is reserved from nature conservation (3.1

million ha). Land defined as “marginal” on the basis of its potential for the production of cereals - using agri-ecological zones assessment.

Pasture land • Not converted to arable land.

Fischer et al. Biofuel production potentials in Europe: Sustainable use of cultivated land and pastures, Part II Land use scenarios, Biomass and Bioenergy (2009).

Return to presentation

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References

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• FARPI (2009). US and World Agricultural Outlook. Food and Agricultural Policy Research Institute.

• Fischer et al. (2009). Biofuel production potentials in Europe: Sustainable use of cultivated land and pastures, Part II Land use scenarios, Biomass and Bioenergy.

• Lywood , W. et al. (2009a). Impact of protein concentrate coproducts on net land requirement for European biofuel production in GCB Bioenergy (2009) 1: 346-359, doi: 10.1111/j.1757-1707.2009.01026.x

• Lywood, W. et al. (2009b). The relative contributions of changes in yield and land area to increasing crop output in GCB Bioenergy (2009) 1: 360-369 doi: 10.1111/j.1757-1707.2009.01028.x

• Lywood, W. (2010). Cropland and other land use changes in the EU as a result of increased EU biofuel crop output. Draft - unpublished.

• Nix, J. (2007). Farm management pocketbook. 37th ed. Imperial College London, London.

• OECD / FAO (2009). OECD-FAO Agricultural Outlook 2009-18. OECD, Paris.

• USDA FAS (2010). Production, Supply and Distribution (PSD) online database. http://www.fas.usda.gov/psdonline/psdDownload.aspx Accessed Feb 23rd, 2010.

http://www.fas.usda.gov/psdonline/psdDownload.aspx

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