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AGRENER 2006Campinas, BRJunho 6-8, 2006
Bioethanol in EuropeAdequate Conditions to Face International Competition?
Bioetanol na EuropaCondições adequadas para enfrentar a competição international?
Oliver Henniges
Department of Agricultural Economics(Prof. Zeddies)
UNIVERSITY OF HOHENHEIMStuttgart, Germany
1. General Framework in D and EU (Condições gerais na Alemanha e União Européia)
2. Production Costs (Custos de produção)
Germany (BR, USA, CN, AUS, TH)
3. Competitiveness (Competitividade)
4. Risks from European Perspective(Riscos de uma perspectiva Européia)
Structure
Bioethanol in EuropeAdequate Conditions to Face International Competition?
• Kyoto Protocol ⇒ CO2 reduction
• Energy (in)dependence
• Jobs in rural areas
• Market relief for agricultural commodities
• Alternative incomes for farmers
• Maintenance of sugar beet cultivation?!
Why Bioethanol?
General Framework D and EU
Ethanol vs. Gasoline(Density und Calorific Value)
Property [Unit] Ethanol Gasoline Ethanol/Gasoline
Density [kg/l] 0,79 0,76 1,05
Calorific value (Mass) [MJ/kg] 26,80 43,00 0,62
Calorific value (Mass) [kWh/kg] 7,40 11,90 0,62
Calorific value (Vol.) [MJ/l] 21,15 32,47 0,65
Calorific value (Vol.) [kWh/l] 5,84 8,98 0,65
Experts: Blends up to 10 Vol-% are equivalent to pure gasoline
Advantages of ethanol:
→ Higher octane number and higher oxygen content
General Framework D and EU
Share of renewable energy in fuels by end of
2005 2,00 % (+ 0,75 %points per year)2010 5,75 % (→ 8,8 Vol.-% )
For Germany that means:
Gasoline consumption 2005: 25 Mio t
2,00 Energy % 10 mln hl (1.0 bln liters)5,75 Energy % 29 mln hl (2.9 bln liters)
Legal ConditionsEU Level
1. Support of Biofuels (Directive 2003/30/EC)
General Framework D and EU
Legal Conditions
Germany
so far: 100 % exemption (65,45 €-Ct/l)→ for pure and blended biofuels→ only for non-denatured alcohol (tariff: 19,2 €-Ct/l)future:→ from August 2006: taxation→ from January 2007: mandatory blending
EU Level
2. Possible petrol tax exemption of biofuels in Member States (Directive 2003/90/EC)
General Framework D and EU
Legal ConditionsGerman Level: latest proposal (Date: June 2nd, 2006, not decided yet!)
→ from August 2006: petrol tax on biofuels
→ Biodiesel B100 (until 2009): 9 €-Ct/lB5 (until 2009): 15 €-Ct/l
Diesel: 47 €-Ct/l
→ Vegetable oil free (until 2009)
→ Bioethanol E5: free until 2015 (only if „CO2 neutral“ and EU Cross Compliance standard)
(initial E5 proposal: full taxation)E85: free
Gasoline: 65 €-Ct/l
→ All fuels incl. petrol tax are subject to 16 %VAT (19 % from 2007!)
General Framework D and EU
Legal ConditionsGerman Level: latest proposal (Date: June 2nd, 2006, not decided yet!)
from January 2007: mandatory biofuel share based on energy content→ 2.0 % ethanol in gasoline market (from 2010: 3.0 %)
→ 0,73 mln tons
→ 4.4 % biodiesel in diesel market→ 1.4 mln tons
→ From 2010: “global quota” of 5.7 % biofuels in fuel market(from 2011: 6 %)
→ Implementation of tradeable biofuel credits (Source: FO Licht)
General Framework D and EU
Feedstock and Land Requirementin Germany according to EU Target „5.75 %“
Bioethanol Biodiesel
Minimum required biofuels [Mio hl/a] 29,4 21,5[Mio gal/a] 774 566
If only domestic productionWheat requirement [Mio t/a] 8,0or Beet requirement [Mio t/a] 29,6
Rapeseed [Mio t/a] 5,4
Land RequirementOnly wheat [Mio ha] 1,07Octual wheat land 2004 [Mio ha] 3,05
orOnly beet [Mio ha] 0,49Actual beet land 2004 [Mio ha] 0,44
Rapeseed [Mio ha] 1,50Actual rapeseed land 2004 [Mio ha] 1,28
Compare to
Total ag. land 2004:
17 Mio ha
Without grassland:
11,9 Mio ha
Set aside land 2004:
0,78 Mio ha
Energy crop land 2004
1,04 Mio ha
1. General Framework in D and EU
2. Production Costs D, BR, USA, CN (AUS, TH)
3. Competitiveness
4. Risks from European Perspective
Structure
Bioethanol in EuropeAdequate Conditions to Face International Competition?
Bioethanol in Germany
long ethanol tradition ...
Production Costs
Bioethanol in Germany
today...Production Costs
Production Costs in Germany
Assumptions:
• Multiple feedstock planta) 0,5 mln hl/yearb) 2,0 mln hl/year
• Raw materialBeet campaign (90 days): beet juiceRest of year: wheat→ 64 % ethanol from wheat, 36 % from beet
• Wheat Price: 100 €/t → Beet Price: ?
Production Costs
Production Costs in Germany(Multiple feedstock plant)
Production Costs
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Beet Price?
Production Costs
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Production Costs in Germany(Multiple feedstock plant)
Production Costs
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Sugar Beet as Feedstock?
Reform of CMO sugar• 40 % price cut
→ Minimum beet price from 2009: 26,3 €/t→ Who can produce for that price?
Disadvantage of Beet• Low storability and transport-worthiness
Advantage• High area yield, no starch pulping• Enormous breeding potential• Crop rotation• Also interesting for dry (sub)tropical zones
Production Costs
in
Brazil (Cane)
Production CostCalculations forother Countries
USA (Corn)
Production Costs
Production CostCalculations forother Countries
AustraliaAustralia (Cane, (Cane, MolassesMolasses))
Production Costs
Production CostCalculations forother Countries
Thailand (Cane)
Production Costs
Feedstock Feedstock forfor futurefuture: : Cassava?Cassava?
Production CostCalculations forother Countries
China (Corn)Production CostCalculations forother Countries
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Production CostCalculations forother Countries China (Corn)
Manual Manual HarvestHarvestProduction CostCalculations forother Countries
China (Corn)
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Manual Manual HarvestHarvestProduction CostCalculations forother Countries
China (Corn)
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1. General Framework in D and EU
2. Production Costs D (BR, USA, CN, AUS, TH)
3. Competitiveness
4. Risks from European Perspective
Structure
Bioethanol in EuropeAdequate Conditions to Face International Competition?
International Comparison of Production Costs
Assumptions:
- Plant Capacity: 2 Mill hl/a (200 Mill. Liters per year)
- No subsidies considered
- 5 % Risk premium included
- Bagasse for internal energy need
Competitiveness
(Gross Prod. Costs – Co-Product Sale = Net Prod. Costs)
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< Costs EU
* USD1.2/EUR
** without profit margin and VAT
Competitiveness of Brazilian Ethanol in D (cost-based)
(D = Deutschland = Alemanha)Competitiveness
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≥ Costs EU
* USD1.3/EUR
** without profit margin and VAT
Competitiveness of Brazilian Ethanol in D (January 2006)
Competitiveness (D = Deutschland = Alemanha)
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* USD1.2/EUR
** without profit margin and VAT
Low Price Scenario(January 2004)
< Costs EU
Competitiveness (D = Deutschland = Alemanha)
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* USD1.2/EUR
** without profit margin and VAT
Low Price and Low Tariff
EU Ethanol (†)
Competitiveness (D = Deutschland = Alemanha)
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Ethanol Price Brazil
Source: FO Licht Today: >45 $/hl !
Competitiveness
0
200
400
600
800
1.000
1.200
1.400
2003-52 2004-18 2004-36 2005-02 2005-20 2005-38 2006-4
Ti me [ Ye a r - We e k ]
Etha
nol p
rice
[BRL
/hl,
USD/
hl]
AnhydrousEthanol[BRL/m3]
HydrousEthanol[BRL/m3]
AnhydrousEthanol[USD/m3]
HydrousEthanol[USD/m3]
Who benefits?
Competitiveness against Gasoline in Germany
Competitiveness
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1. General Framework in D and EU
2. Production Costs D (BR, USA, CN, AUS, TH)
3. Competitiveness
4. Risks from European Perspective
Structure
Bioethanol in EuropeAdequate Conditions to Face International Competition?
Risks on Feedstock Level
• Feedstock costs for ethanol differ worldwide (cane vs. cereals vs. beet)→ for biodiesel lower differences
• Strong bargaining power of processors→ possible solution: vertical integration
(e.g.: cooperatives)
• Better CO2 balance of ethanol from other crops?
Risks
Risks on Processing Level
• Comparably high investment costs:Bioethanol twice as much as biodiesel
• Competitors from other industries (e.g. mills) might offer higher prices→ possible solution: horizontal integration
(e.g.: ADM, Cargill, Bunge)
• Direct combustion of grains → higher energy recovery for lower price
Risks
Risks on Marketing Level
• Other products – other markets – other risks:Fuels instead of food→ other sellers and quality requirements
• policy-dependent demand• Market power (vs. internat. petrol companies)• Technical problems (vapour pressure)• Gasoline demand stagnates (Diesel increases)• Future: Synfuels?
Risks
Risks on Political Level
• Import tariff reduction? (WTO)
• Import tariff application: (non) denatured
• Lowering of tax reduction (planned)
• Mercosur negotiations
• Will 5,75-%-target be followed?
Risks
Conclusion• The higher the oil price → the better the conditions
• Remaining questions in Europe:– What are the priorities?– Who shall benefit?– How can the risks be limited?
• Bioethanol is a possibility to resolve– climate-– trading-– agricultural-– structural- and– energy-political problems.
→ The world should tackle these problems jointly!
Conclusion
Best Solution for Ethanol?
Outlook
Drink the Bestand
Burn the Rest!
Best Solution for World Cup?(Melhor Solução para o Campeonato Mundial de Futebol)
Outlook
Thank you for your attention!
Muito obrigado pela atenção!
O final:Alemanha - Brasil!
AGRENER 2006Campinas, BRJunho 6-8, 2006
Bioethanol in EuropeAdequate Conditions to Face International Competition?
Bioetanol na EuropaCondições adequadas para enfrentar a competição international?
Oliver Henniges
Department of Agricultural Economics(Prof. Zeddies)
UNIVERSITY OF HOHENHEIMStuttgart, Germany