1. Office of the Chief Economist Office of Energy Policy and New Uses Harry S. Baumes, Ph. D. Associate Director Office of Energy Policy and New Uses Presented at Southern Association of Agricultural Scientists 2009 Annual Meetings Westin Peach Tree Plaza Atlanta Georgia February 1, 2009 Alternative Energy and Agriculture: Spotlight or Stoplight

2. Office of the Chief Economist Office of Energy Policy and New Uses OVERVIEW Relevant Policy and Market Factors – Interstate Highway, no speed limits 2008, stoplights and traffic congestion Moving Forward, intersection, or a traffic circle with many possible ways to go.

3. Office of the Chief Economist Office of Energy Policy and New Uses BIOFRENZY

4. Office of the Chief Economist Office of Energy Policy and New Uses Relevant Policy CCC Bioenergy Program Energy Policy Act of 2005 –RFS 7.5 bgpy by 2012 –Excludes liability protection for MBTE producers from water contamination lawsuits (MTBE – 5 bgpy market) Energy Independence Act of 2007 (EISA) –RFS2 36 bgpy by 2022 –Caps corn starch ethanol at 15 bgpy –Focus on advanced biofuels – cellulosic –GHG Thresholds –Research and Development Food, Conservation, and Energy Act of 2008 (FCEA) –Biofuel Production Incentives –Rural Development Programs –Research, Development & Commercialization

5. Office of the Chief Economist Office of Energy Policy and New Uses RFS1 Conventional Corn Starch Gasoline WTI Market Factor: Rising Energy Prices

6. Office of the Chief Economist Office of Energy Policy and New Uses Market Factor: Corn – Ethanol Prices Ethanol – Corn Price Spread Profitability Indicator

7. Office of the Chief Economist Office of Energy Policy and New Uses Source: Renewable Fuels Association Accelerating Investment

8. Office of the Chief Economist Office of Energy Policy and New Uses Source: National Biodiesel Board Accelerating Investment

9. Office of the Chief Economist Office of Energy Policy and New Uses EISA – EPACT Renewable Fuels Standard RFS1 Conventional Corn Starch Cellulosic Biofuels Other Biofuels Biobased Diesel Years

10. Office of the Chief Economist Office of Energy Policy and New Uses Source: Renewable Fuels Association

11. Office of the Chief Economist Office of Energy Policy and New Uses 2008 Further Run-up in Energy and Commodity Prices Export Bans - Weather Food and Fuel Debate –Texas Waiver Request RFS2 Rulemaking Indirect Land Use Collapse of Financial Sector and commodity price bubble Global Slowdown

12. Office of the Chief Economist Office of Energy Policy and New Uses Source: International Monetary Fund Petroleum Agriculture Food Primary Commodities Year – Over Year Change in Commodity Prices

13. Office of the Chief Economist Office of Energy Policy and New Uses

14. Issues and Concerns –Climate Change –Sustainability –Environment –Land Use –Consistency of Supply and feedstock quality Policy Objectives –Energy security –Food security –Implementation EISA –Implementation FCEA Bioenergy Complicated and Interdisciplinary

15. Office of the Chief Economist Office of Energy Policy and New Uses Energy Independence and Security Act of 2007 Fuel categories must meet greenhouse gas life cycle performance threshold  20% life cycle reduction threshold – Conventional Biofuels (ethanol derived from corn starch from new facilities)  50% life cycle reduction threshold – Advanced Biofuels  50% life cycle reduction threshold – Biomass-based Biofuels  60% life cycle reduction threshold – Cellulosic Biofuels Life Cycle Analysis must include  direct and indirect land use change due to biofuel feedstock production  Baseline fuel comparison to gasoline and diesel fuel in 2005

16. Office of the Chief Economist Office of Energy Policy and New Uses Source: Michael Wang, Argonne National Laboratory

17. Office of the Chief Economist Office of Energy Policy and New Uses Source: Renewable Fuels Association, January 29, 2009 Ethanol Capacity –11.8 bg capacity –1.8 bg under construction –0.6 bg expansion projects –14.2 bg total capacity –1.8 bg idled RFS 2009 –10.5 bg ethanol –0.6 bg advanced biofuel (0.5 biodiesel) –11.1 bg renewable fuels

18. Office of the Chief Economist Office of Energy Policy and New Uses Moving Forward – Which Way to Go? Economy must improve – Stimulus package help directly for bioenergy industry and credit markets New Administration’s team is being put in place – seems clear of support for bio or renewable energy – commitment to alternative energy (beyond transportation fuels) Recognition that bioenergy is not independent of climate change, environment, and sustainability Alternatives to fossil based energy is a global concern

19. Office of the Chief Economist Office of Energy Policy and New Uses Moving Forward – What will it take? Recognize the complexity of developing, deploying, and using alternative bioenergy - Systems approach to solutions Interdisciplinary cooperation and collaboration – research teams Commitment to Research and Development Continue to be a role for public policy

20. Office of the Chief Economist Office of Energy Policy and New Uses Moving Forward - What we need to know Overcoming Infrastructure Constraints –Blend Wall Vehicles E-85 availability –Transport of “ethanol” –Production, harvest, transport, & storage biomass Concentrate or improve energy density of biomass

21. Office of the Chief Economist Office of Energy Policy and New Uses Overcoming Infrastructure Constraints –Getting Connected to the Grid Wind farms and solar technology Biomass –NIMBY attitude Moving Forward - What we need to know beyond biofuels

22. Office of the Chief Economist Office of Energy Policy and New Uses Biomass Production –Alternative Feedstocks Switchgrass, miscanthus, algae, … –Supply, Use & Price –Feedstocks for energy (not exclusively transportation fuels) –Land Use Direct & Indirect effects –Life Cycle Analysis Moving Forward - What we need to know

23. Office of the Chief Economist Office of Energy Policy and New Uses Will a sustained increase in commodity prices – provide incentives for investment in agriculture? –Domestic & Foreign Investment –Increase adoption of new and existing technology in developing (and developed) countries/regions Trade-offs between bioenergy and other industries – food, forestry,… Moving Forward - What we need to know

24. Office of the Chief Economist Office of Energy Policy and New Uses What We Need To Know Technology Development –Crop productivity – across potential feedstocks Implications for other input use (fertilizer, water, chemicals,…) –Conversion

25. Office of the Chief Economist Office of Energy Policy and New Uses Source: USDA, Office of Budget and Program Analysis

26. Office of the Chief Economist Office of Energy Policy and New Uses THANK YOU! Contact Information: Harry S. Baumes hbaumes@oce.usda.gov 202-401-0497

27. Office of the Chief Economist Office of Energy Policy and New Uses Section 9006 Funding Activity FY 2003 thru 2007 Renewable Energy/Energy Efficiency Technology No. Amount Leveraged Biomass 218 $49,219,744$282,508,476 Wind 193 35,800,088 505,221,691 Solar 49 1,862,651 4,519,509 Geothermal 24 1,230,996 3,232,743 Hybrid 13 2,514,643 185,649,921 Subtotal497 $90,628,122 $981,132,340 Energy Efficiency 762$16,493,734 $42,969,435 Subtotal 1,259 $107,121,856 $1,024,101,775 Guaranteed Loans 153 $91,529,855 $181,321,296 Grand Total1,412 $198,651,711 $1,205,423,071