Energy and Agriculture I.Energy types, sources, and uses II.Ag use of energy III.Ag production of energy IV.Outlook

I. Energy types, sources, and uses Energy types: Coal Natural Gas Petroleum – Crude Oil Nuclear Renewable

I. Energy types, sources, and uses

Energy use in the US: Commercial 18% Residential22% Transportation27% Industrial33%

II. Ag use of energy Uses: Fuel Nitrogen fertilizers Crop drying/Ginning Transportation

II. Ag use of energy Proportion of expenses that are fuel and energy related? –From about 20% for dryland wheat to 70% for irrigated rice Forecast impact of higher energy prices in 2005 on expected farm income: –Rice -81% –Feedgrains -31% –Cotton-29% –Wheat -7% –Beef cattle -10% –Dairy -3.5%

II. Ag use of energy

Energy efficiency in ag production: 1978:2.5 quadrillion BTUs 12,550 BTUs / real US $ of prod. 2002:~1.8 quadrillion BTUs 7,600 BTUs / real US $ of prod.

III. Ag production of energy Ethanol –Feedstocks –Fossil energy inputs –Net energy controversy Biodiesel –Feedstocks Wind –Dependability of wind resource –Space for towers and access roads Most energy produced by ag is clean and renewable Some environmental concerns, however

III. Ag production of energy Ethanol production capacity (gallons / year): US (current): 4.7 billion US (current + under construction): 6.4 billion Brazil (2004): 4.0 billion China (2004): 1.0 billion Biodiesel production capacity: US (current, dedicated): 0.2 billion 1.5 billion in Houston ??????

III. Ag production of energy Policy: Decrease dependence on energy imports Promote clean and renewable energy sources Policy instruments: Renewable Fuel Standard Excise tax credits Tariffs on imports Caribbean Basin Initiative Ultra-Low Sulfur Diesel Requirements Conservation Reserve Program Federal Production Tax Credit, rapid capital depreciation (wind) State programs MTBE bans

III. Ag production of energy Renewable Fuel Standard (RFS) in 2005 Energy Bill –Amount of RF that must be used –FTC to study market power issues –4 billion gallons in 2006 –7.5 billion gallons by 2012 –Review and increase later –Biomass requirements RFS flexibility provisions –Waivers for economic or environmental harm –Tradable credits –Annual averaging

III. Ag production of energy Federal excise tax reductions: Ethanol: 51¢ / gallon Biodiesel (virgin oil): $1 / gallon Biodiesel (yellow grease): 50¢ / gallon Ethanol credit good through 2010 Biodiesel credit good through ????

III. Ag production of energy Tariffs on imports of ethanol: 54¢ / gallon Caribbean Basin Initiative: –Duty-free imports up to 7% of previous year’s consumption –Duty-free imports on the next 35 million gallons comprised of >= 30% indigenous commodities –Duty-free imports on additional gallons comprised of >= 50% indigenous commodities Brazil

III. Ag production of energy Ultra-low Sulfur Diesel (ULSD): Staring in July 2006, only 15 ppm (down from 200+ ppm) of sulfur allowed in 80% of on-road diesel fuel Lubricity concerns => increased use of biodiesel? Conservation Reserve Program: Biomass pilot projects – switchgrass, hybrid poplar, willows Federal Production Tax Credit (wind): 1.9¢ / kWH on the first 10 years’ production Through Dec. 2007

IV. Outlook Crude Oil –Tight world oil market – esp. light sweet –Declining production rates in many producing countries –Growth in developing economies –Inelastic demand Natural gas –Storm damage –Declining N. American production? –High prices likely to continue

IV. Outlook

Energy Policy Issues Self-sufficiency –Food vs. Fuel –Technology Development (efficiency) Environmental Market Stability/Change Political Pressures