Download - The Energy Bill, Biofuel Markets and the Implications for Agriculture Daniel G. De La Torre Ugarte Chesapeake College, Wye Mill, MD February 21, 2008 University.

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




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/