Bioenergy: Where We Are Bioenergy: Where We Are and Where We Should Beand Where We Should Be

Daniel G. De La Torre UgarteDaniel G. De La Torre UgarteChad M. HellwinckelChad M. Hellwinckel

Where we are:Where we are:

Longer term: 30 years of chronic low prices. culture dependent upon fossil fuels.

Recently: Current high commodity prices. Criticism of biofuels policies.

Where we are:Where we are:

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$ p

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el Corn

Wheat

Soybeans

Rice

Corn = $5.80Wheat = $7.98Soybeans = $13.93Rice = $17.55Cotton = $0.689

September delivery

Commodity prices on the rise

Where we are:Where we are:Long term trendsLong term trends

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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

Where we are:Where we are:Agriculture and PovertyAgriculture and Poverty

Developing world 5.5 billion people 2.5 billion are in households involve in Ag 1.5 billion are smallholder households

800 million people food insecure 80% of food insecure people are in rural areas In many developing countries:

>50% of employment in agriculture >25% of GDP from agriculture

Increase in GDP from Ag is twice as efficient for poverty reduction than any other sector. (2008 World Bank Development Report)

Energy Output to Input Egypt (Historical) = 1.8 Afghanistan (today) = 2.9 U.S. (1920) = 3.1 U.S. (1974) = 0.7

Where we are:Where we are:Energy Production through Agriculture Created CivilizationEnergy Production through Agriculture Created Civilization

Now using more energythan creating

Where we are: Where we are: Global Oil SituationGlobal Oil Situation

• Challenge of agriculture is to, once again, be a net SOURCE of energy.

Where we want to be:

Maintain higher price levels than historical trend, while avoiding price spikes.

Transform agriculture into a net energy source once again.

While… Improving soil health.

Providing adequate food to all.

Not all Biofuels are “created” equalNot all Biofuels are “created” equalAdvantages of Dedicated Energy Crops:

Does not have to compete directly with food crops for land resources= fewer price spikes

Perennial grasses, fewer field operations, lower chemical and fertilizer use= better energy conversion (EROEI 1.8 to

8)

Perennial grasses, root structure= improved soil + carbon sequestration

Bulky, therefore production dispersed= value-added spread throughout growing

regions

The Energy BillThe Energy BillEnergy Investment and Security Act of 2007Energy Investment and Security Act of 2007

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

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How fast will cellulosic grow?How fast will cellulosic grow?

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Corn Grain Corn Stover Wheat Straw Switchgrass

Advanced MovementAdvanced Movement

LegislatedLegislated

Standard AssumptionsStandard Assumptions

15 bil. from corn15 bil. from corn

13.5 bil. from corn13.5 bil. from corn

9.8 bil. from corn9.8 bil. from corn

Legislated:Legislated: Mandates the production

of 21 billion gallons of non-corn ethanol.

Standard Assumptions:Standard Assumptions: Model chooses most cost

efficient feedstock for ethanol production

Advanced Movement:Advanced Movement: improve yields of

switchgrass by 1.5% per year

reduce conversion costs by 20% by 2022

17 bil.17 bil.

9.4 bil.9.4 bil.

8.2 bil.8.2 bil.

How fast will cellulosic grow?How fast will cellulosic grow?

‘Advanced Movement’ Scenario:Reduces pressure on food crops Reduces cost of ethanol production

Projected drop corn price2010 2015 2020 2025

Corn -1.05 -1.22 -0.81 -0.75

Wheat -0.01 -0.21 -0.18 -0.11

Soybeans -0.35 -1.66 -1.44 -1.02

Cotton 0.00 0.01 0.01 0.01

Ded Energy Crop 7.57 -0.25 -8.22 -6.07($/ton)

Cost of Ethanol -0.48 -0.41 -0.38 -0.35Production

Change in projected prices between'Legislated' and 'Advanced' scenarios

-1.40

-1.20

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

2010 2015 2020 2025

EISA_standard EISA_advanced

How fast will cellulosic grow?How fast will cellulosic grow?

Dedicated crop price moves to above $40 per dry ton in all scenarios.

Standard=$1.47/gal

Legislated=$1.49/gal

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Legislated Standard Advanced

Advanced=$1.31/gal

Dedicated energy crop price

Cost of ethanol production

Projected Bio-energy Dedicated Crop Acreage under EISA, 2025Projected Bio-energy Dedicated Crop Acreage under EISA, 2025Projected Bioenergy Dedicated Crop Acreage, 2025

Acreszero

1 to 20,000

20,000 to 50,000

50,000 to 100,000

100,000 to 300,000

300,000 to 1,300,000

Source: POLYSYS model, Agricultural Policy Analysis Center, University of Tennessee

Projected Acreage Converted from Cropland Projected Acreage Converted from Cropland to Dedicated Crop Production under EISA, 2025to Dedicated Crop Production under EISA, 2025

Projected Acreage Converted from Cropland to Dedicated Crop Production, 2025

Acreszero

1 to 20,000

20,000 to 50,000

50,000 to 100,000

100,000 to 300,000

300,000 to 1,300,000

Source: POLYSYS model, Agricultural Policy Analysis Center, University of Tennessee

ConclusionsConclusions

Investments in dedicated energy crops could: lower commodity price spikes while

increasing prices above historic trend.

first step in the transformation of agriculture into a source of energy (once again).

Department of Agricultural Economics, Institute of AgricultureUniversity of Tennessee http://www.agriculture.utk.edu/

Agricultural Policy Analysis Centerhttp://agpolicy.org/

Thank Thank youyou ! !

Bio-based Energy Analysis Grouphttp://beag.ag.utk.edu/

Projected Acreage Converted from ‘cropland in pasture’ Projected Acreage Converted from ‘cropland in pasture’ to Dedicated Crop Production under EISA, 2025to Dedicated Crop Production under EISA, 2025

Projected Acreage Converted from Pastureland to Dedicated Crop Production, 2025

Acreszero

1 to 20,000

20,000 to 50,000

50,000 to 100,000

100,000 to 300,000

300,000 to 1,300,000

Source: POLYSYS model, Agricultural Policy Analysis Center, University of Tennessee

Biofuels Expansion took-off when Biofuels Expansion took-off when S/U ratios were decliningS/U ratios were declining

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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

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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!

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$ p

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el Corn

Wheat

Soybeans

Rice

Corn = $5.20Wheat = $10.36Soybeans = $13.98Rice = $16.34Cotton = $0.695

March delivery

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

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 / dayBiodiesel: 23 million barrels / day

Hypothetically:Ethanol: 300m ha of sugar or 590m of cornBiodiesel: 225m ha of palm

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EISA_legislated EISA_standard EISA_advanced