 Agricultural Subsidies is a governmental subsidy paid to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities.  Tax Credits Tax credits promote the production and consumption of biofuels date back to the 1970s, and the current credits are based on the Energy Policy Act of 2005, the Food, Conservation, and Energy Act of 2008, and the Energy Improvement and Extension Act of 2008, and are due to expire on December 31,  Biofuel Production Fuel is made from vegetable oils, animal fats or recycled greases. Biodiesel can be used as a fuels for vehicles in its pure form, but it is usually used as a diesel additive to reduce levels of particulates. Biodiesel is produced from oils or fats using transesterification and is the most common biofuel in Europe. Biofuels provided 1.8% of the world’s transport fuel in Investment into biofuels production capacity exceeded $4 billion worldwide in 2007 and is growing.

 The United States currently pays around $20 billion per year to farmers in direct subsidies as "farm income stabilization” via U.S. farm bills. These bills date back to the economic turmoil of the Great Depression with 1922 Grain Depression with 1922 Grain Futures Act, the 1929 Agricultural Marketing Act and the 1933 Agricultural Adjustment Act creating a tradition of government support. A Canadian report claimed that for every dollar U.S. farmers earn, 62 cents comes from some form of government, with total aid in 2009 from all levels of government adding up to $180.8 billion.

 In 2007, in the United States, average retail (at the pump) prices, including federal and state fuels taxes, of B2/B5 were lower than petroleum diesel by about 12 cents, and B20 blends were the same as petrodiesel. However, as part as a dramatic shift in diesel pricing over the last year, by July 2009, the US DOE was reporting average costs of B20 15 cents per gallon higher than petroleum diesel ($2.69/ gal vs. $2.54/gal). B99 and b100 generally cost more than petrodiesel except whee local governments provide a tax incentive or subsidy.

 Biofuels are a wide range of fuels which are in some way derived from biomass. The term covers solid biomass, liquid fuels and various biogases. Biofuels are gaining increased public and scientific attention, driven by factors such as oil price spikes, the need for increased energy security, concern over greenhouse gas emissions from fossil fuels, and government subsidies.

 Competitors  Return investment  Technology Needed  Production needed

 Cellulosic ethanol prices are cost competitive with first- generation ethanol on new enzymes and processing methods  Companies involved in cellulosic ethanol projects say cellulosic ethanol prices are already at par with corn-based ethanol.  Environmental opponents of corn-based ethanol say there is a place for biofuel development, but the focus on corn-based ethanol does little to make a dent in greenhouse gas emissions, can cause food price spices and diverts federal resources away from developing other sustainable biofuels.  Among those better investments are improvements in vehicle fuel efficiency, as well as a stronger push toward advanced biofuels that don’t require food crops like corn.

 Based on modeling, it was found that a corn-based ethanol plant needs to reach between S2.25-S2.50/gal in a fully loaded production cost without subsidies to be competitive. This figure includes depreciation as well as a 10% return on investment [ROI] over 20 years for the plant investment.  Congress will soon introduce legislation that would extend the biofuel tax credit through If the bill fails, the credit for corn-based ethanol will expire at the end of this year.  If passed the extension bill will continue the credit of $0.45 per gallon of ethanol from large producers and $0.10 per gallon from smaller producers. It also would extend a larger tax credit for producers of cellulosic ethanol, at $1.01 per gallon; the current cellulosic credit expires at the end of 2012.

 Novozymes has been working with several partners worldwide in its effort to commercialize cellulosic ethanol using the company's new enzyme. Cellic CTec2, launched in February The company said the enzyme will enable cellulosic ethanol to be commercially competitive with gasoline and conventional ethanol.  The company announced that productivity increases with its new Cellic CTec2 enzymes have brought enzyme costs down to 50 cents per gallon, and will enable the biofuel industry to produce cellulosic ethanol at a price below $2.00 per gallon for the initial commercial-scale plants that are scheduled to be in operation this year.

10 Dupont Danisco Cellulosic Ethanol, a 250,000 cellulosic plant Vonore, TN 20. POET a 25 million gallon a year cellulosic ethanol plant in Emmetsburg, Iowa Maybe the next big cash crop for the South. Could you be a Kudzu Farmer?

 Our growing dependence on foreign oil is leading to a crisis of sorts in the United States.  Answers? ▪ Biofuels ▪ Open up Alaska to more drilling ▪ Alternative ways such as solar, wind, etc.

Increases food prices & Reduces food availability These can be countered by increased productivity Second generation biofuels Biotech The demand for BF is affected by Mandates and ag policies energy content differences between ethanol and gasoline The basic issues are meeting growing demand and addressing environmental concerns

 During the last decade, Congress has implemented subsidies for biofuels (such as corn-based ethanol.  Gas prices continue to climb as well as food prices.

The main concern – Biofuels are driving up food prices by shifting rightward the demand function for some items. Ethanol Palm oil Rapeseed oil – What does this cause? World Bank calculates that 75 percent of the recent increase in food prices is attributable to biofuels while the U.S. Department of Agriculture puts that figure at only 3 percent.

Farmers will sell a food crop to biofuel processor if earning from biofuel plus residue > earning from food adjusting to transport and other costs Higher price of energy and lower price of food will increase supply of biofuel – Subsidy will increase willingness of farmer to commit to biofuels

There are several factors that play a major role in the investment in a processing plant for biofuel. – when price of biofuel plus the subsidy will be – sufficient to compete for corn and cover expense. – The subsidy reduces the threshold price for adoption. – Location matters for subsidies, costs of transportation and energy for processing – Clean fuel upper bound (limiting GHG/gallon fuel)will make some processing unprofitable but lead to creative solution (biofuel and winds)

Number 1: Consumers will adopt if better deal than gasoline Special Note: Ethanol has 2/3 of energy, but higher octane, may need to be cheaper than gasoline with new cars/modifications for new fuels Number 2: Fuel seller will consider if there is demand and supply need to invest in special pumps and storage Number 3: Processor considers demand and cost of processing facilities Number 4: Farmer considers whether biofuel will be more profitable than corn for consumption.

What does economic studies show? – Tax credits Increases the price of both ethanol and corn – It does not harm producers of ethanol or corn in the rest of the world. – The only effect is that it could potentially harm the gasoline industry. Social Effects? – Reduce Local pollution Greenhouse gas Oil Dependency

The unstable nature of food and energy has lead to random shocks when it comes to the public. – This means that with biofuels there will always be a lot of cycles of growth and then contraction. – Food concerns are a major issues and will increase moving forward The reason is that shortages and price increase of food and biofuel is always a concern. Some of these are major risks to the future of biofuels