1. 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 of Maryland, College Park, Center for Agricultural & Natural Resource Policy Eleventh Annual Agriculture Outlook and Policy Conference

2. Biofuels 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

3. Main driver in biofuels expansion is policy and high oil prices  Policy objectives Energy security/independence Climate change  Policy Instruments Consumption mandates Tax rebate Tariffs  Policy instruments have a cost  Policy decisions have market consequences

4. The economics of market driven biofuel 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 feedstocks; improve conversion and distribution technologies are key

5. Biofuels Expansion took-off when S/U ratios were declining Source: USDA

6. Animal feed has been driving growth in world demand for grains & protein 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

7. Commodity Prices on the Rise! Corn = $5.20 Wheat = $10.36 Soybeans = $13.98 Rice = $16.34 Cotton = $0.695 March delivery

8. Long term trend in agricultural commodity prices 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

9. The most famous table of the Energy Bill

10. The Energy Bill & The 2008 USDA Baseline

11. Renewable Energy Electricity Cattle Manure Crop Residues Dedicated Energy Crops Digester Dairy, Poultry, Hogs Mill Wastes Forest Residues Biodiesel Oilseed Crops Yellow Grease Tallow Beef and Poultry Ethanol Sugar/Starch Crops Crop Residues Dedicated Energy Crops Forest Residues Food Residues Mill Wastes Feedstock Diversity: An Opportunity for Agriculture and a Technological Challenge

12. Not 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

13. Global 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 CO 2-eq. (c) Share of different sectors in total anthropogenic GHG emissions in 2004 in terms of C0 2-eq (Forestry includes deforestation.) 0.26% Searchinger, et al. GHG for ag and forestry is to address the 31% of annual emissions coming. If we take care of this we take care of

14. Ethanol Production: By Feedstock, 2006 – 2030 60 Billion gallon and cellulosic available by 2012 Billion Gallons

15. Ethanol Production: By Feedstock, 2006 – 2030 60 Billion gallon and cellulosic available by 2015

16. Distribution of the Production of Cellulosic Materials, 2010

17. Distribution of the Production of Cellulosic Materials, 2015

18. Distribution of the Production of Cellulosic Materials, 2020

19. Distribution of the Production of Cellulosic Materials, 2030

20. Change in Soybean Acreage

21. Change in Soybean Acreage, 2030

22. Trade 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

23. The 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

24. The 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

25. Conclusions 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

26. Department of Agricultural Economics, Institute of Agriculture University of Tennessee http://www.agriculture.utk.edu/ Agricultural Policy Analysis Center http://agpolicy.org/ Thanks ! Bio-based Energy Analysis Group http://beag.ag.utk.edu/