1. Economic Impacts and Value- Added Benefits of Biofuel in the United States Hosein Shapouri United States Department of Agriculture Office of the Chief Economist Hshapouri@oce.usda.gov International Convention on Biofuels-Driving India’s Future November 7-9, 2002, New Delhi, India

2. Overview World Crude Oil Price and Demand Projections Biofuels: Fuel Ethanol and Biodiesel Incentives Value Added Benefits Economic Impacts

6. Biofuels Ethanol: Feedstocks-- Starch (grains, roots) Sugar (sugarcane, sugar beets, molasses) Other biomass (wood, grass, agricultural residues, etc.) Biodiesel: Feedstocks-- Oilseeds (soybeans, rapeseed, sunflower, jetropha, mahua, karanja, jojoba, etc.) Animal fats (lard, tallow) Others (recycle oils “yellow grease”)

7. Biodiesel (Catalyst) 100 pounds + 10 pounds = 100 pounds + 10 pounds Soy Oil Methanol Biodiesel Glycerine or Animal Fats B100 = Biodiesel Specified by ASTM D 6751 B20 = 20 % B100 blended with 80% petrodiesel

9. Comparison of Fuel Ethanol and Gasoline Prices In general, biofuel production costs are higher than costs of petroleum products. Biofuel plants are small relative to petroleum refineries, therefore, they are price takers and practically have no influence on ethanol prices.

12. Fuel Ethanol and Biodiesel Incentive Programs Federal tax incentives: alcohol blended credit, straight alcohol credit, and small ethanol producer’s credit State incentives The USDA’s Credit Commodity Corporation (CCC) Bioenergy Program

13. Fuel Ethanol and Biodiesel Incentive Programs, Continued Current ethanol tax credit is $0.53 per gallon and is scheduled to drop to $0.52 by 2003, declining $0.51 by 2005. Under the current law, the Federal exemption expires on December 31, 2007. At least 13 States have some kind of ethanol incentives, ranging from $0.01 per gallon excise exemption in Connecticut, to $0.40 per gallon producers payment in Wyoming. The CCC Bioenergy Program provides cash incentives to producers of ethanol and biodiesel for incremental production. This Program was first implemented during FY 2000 and funded for 2001 and 2002 at $150 million each year.

14. Fuel Ethanol and Biodiesel Incentive Programs, Continued The 2002 Farm Bill: The CCC Bioenergy Program has been extended for FYs 2003 through 2006 under the 2002 Farm Bill ($150 million per year). The 2002 Energy Bill: Renewable Content of Motor Vehicle Fuel--This bill will eliminate the oxygen mandate, phase out MTBE use and increase renewable fuel use to 5 billion gallons by 2012. Biodiesel Used as Fuel--Includes a mixture of biodiesel V made from virgin vegetable oils, and biodiesel NV made from animal fats and non-virgin vegetable oils with diesel fuel. Biodiesel is monoalkyl of long chain fatty acids derived from vegetable oils and animal fats for use in compressional-ignition engines.

15. Value-Added Benefits, U.S. Corn to ethanol : Corn 1 bushel -$2.40 Ethanol 2.8 gallons +$3.39 Byproducts,DDGS +$0.60 CO2 + Value of ethanol & byproducts +$3.99 Value-added +1.59 Soybean oil to biodiesel: Soybeans 1 bushel -$5.60 Biodiesel 1.5 gallons +$2.94 Byproducts, soymeal +$4.53 Cost of methanol = Glycerin credit Value of biodiesel & byproducts +$7.47 Value-added +$1.87

16. Value Added Benefits, U.S. Sugarcane to sugar: Sugarcane -$28.77/metric ton Raw sugar @ 120 kg x $0.46/kg= $55.2 Molasses @ 37 Kg x $0.05/kg = $1.85 Value of sugar and molasses $57.05 Value-added +$28.28 Sugarcane to ethanol: Sugarcane - $28.77/metric ton Ethanol @ 20.3 gal. x $1.21/gal. = $24.56 Vinasse 1,000 liters @ /liter and excess electricity Value of ethanol $24.56 Value-added -$4.21

17. Value Added Benefits, India Source: Nizam Sugars Limited, P. Srimannarayana, General Manager, Hyderabad, India Sugarcane to sugar: Sugarcane - $19.08/metric ton Plantation white @ 100 kg x $0.268 /kg= $26.80 Molasses @ 40 Kg x $0.041 kg = $1.64 Value of sugar and molasses $28.44 Value-added +$9.36 Sugarcane to ethanol: Sugarcane -$19.08 /metric ton Ethanol @ 19.79 gal. x $1.25/gal. = $24.74 Vinasse 1,000 liters @ /liter and excess electricity Value of ethanol $24.74 Value-added +$5.66

18. Value Added Benefits, Brazil Source: UNICA, Sao Paulo Sugarcane, Agroindustry Union, Mr. Luiz Carlos Correa Carvalho, Consultant Sugarcane to sugar; Sugarcane -$6 /metric ton Raw sugar @ 120kg x $0.13/kg =$15.60 Molasses @ 37 kg x $0.03/kg = $1.11 Value of sugar and molasses $16.71 Value-added +$10.71 Sugarcane to ethanol: Sugarcane -$6 /metric ton Ethanol @ 20.3 gal. x $0.70/gal. = $14.21 Excess electricity ? Value of ethanol $14.21 Value-added +$8.21

19. Economic Impacts Data Models Scenarios Past studies Results

20. Data Agricultural commodities, supply, demand, and price projections, U.S. Department of Agriculture Baseline Energy consumption, production, and price projections, U.S. Department of Energy Volumes of biofuels demand projections, Energy Bill or Congress

21. Models Food and Agricultural Policy Simulator Model (FAPSIM) of USDA/ERS was used to estimate the changes in major crops and livestock prices, major crop supply and demand, retail food prices, and net farm income due to higher farm product use scenario. The Input-Output (I-O) multiplier model was used to estimate the direct and indirect changes in employment for each scenario.

22. Scenarios Higher ethanol demand on farm economy and employment Higher biodiesel demand on commodity markets, farm income, and employment Elimination of Federal excise tax on ethanol production, farm economy, and employment

23. Past Studies Economic effects of Renewable Fuel Standards on commodity markets, farm income, balance of trade, and employments, Senator Tom Harkin, August 1, 2002 Economic impacts of soybean-oil biodiesel production on commodity prices, farm income, balance of trade, and employments, Senator Charles Grassley, July 10, 2001 Economic effects of eliminating the production of corn- ethanol on farm economy, Senator Harkin, 2000 Economic effect of increased corn-ethanol production on land use, U.S.Department of Energy, 1999

24. Economic Impacts Biofuel production: –Generates new demand for agricultural commodities and increases the commodity prices –Utilizes the unused resources –Increases farm income –Improves the balance of trade –Creates new jobs

27. Conclusions Many countries in the world have problems of overproduction and lower commodity prices, i.e. corn and soybeans in the United States, sugarcane in Brazil, India, and Cuba, and wheat, oilseeds, and sugar in European Union. Converting surplus commodities to biofuels and/or bioproducts will create new jobs, increase commodity prices, increase farm income, improve the balance of trade, and reduce country’s dependency on imported fuel and chemicals.