1. Department of Economics Biofuel Economics Intensive Program in Biorenewables Ames, Iowa June 9, 2009 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

2. Department of Economics World GDP Growth Source: IMF, Global Insight, FAPRI

3. Department of Economics GDP Growth by Market Source: IMF, Global Insight, FAPRI

4. Department of Economics GDP Growth by Country Source: IMF, Global Insight, FAPRI

5. Department of Economics Oil Prices Source: IMF, Global Insight, FAPRI

6. Department of Economics Ethanol Prices Source: FAPRI

7. Department of Economics Ethanol Imports Source: FAPRI

8. Department of Economics Biodiesel Exports Source: FAPRI

9. Department of Economics Argentine Biodiesel Production Source: FAPRI Mostly soybean oil, biodiesel mandate (B5) starts in 2010

10. Department of Economics Brazilian Biofuel Production Source: FAPRI Continues to supply ethanol exports to the rest of the world Mostly soybean oil, biodiesel mandate (B5) by 2010

11. Department of Economics Canadian Ethanol Production Source: FAPRI Roughly 70% corn, 30% wheat

12. Department of Economics Chinese Ethanol Production Source: FAPRI Mostly corn-based

13. Department of Economics EU Biofuel Production Source: FAPRI Roughly 75% rapeseed oil, 18% soybean oil, and 7% sunflower oil Approximately 58% wheat, 16% corn, and 26% barley

14. Department of Economics South Asia Biofuel Production Source: FAPRI Molasses is the major feedstock Palm oil is the feedstock, consumption mandate started this year

15. Department of Economics U.S. Biofuel Production Source: FAPRI Just over 1 billion gallons of cellulosic by 2018 Roughly 60% soybean oil and 40% other fats and oils

16. Department of Economics Spectrum of Biofuels Source: NREL, 2006  Grain/Sugar Ethanol  Biodiesel  Green Gasoline/Diesel  Cellulosic Ethanol  Butanol  Pyrolysis Liquids  Syngas Liquids Most Mature Least Mature

17. Department of Economics Renewable Fuels Standard (RFS) 60% GHG Emission Reduction 50% GHG Emission Reduction 20% GHG Emission Reduction If construction started after Dec. 2007

18. Department of Economics Dept. of Energy Projections Source: Energy Information Administration, Annual Energy Outlook 2009

19. Department of Economics Currently Available Biomass Source: NREL, 2005

20. Department of Economics Biofuel Challenges  Production costs  Conversion, ag. production, etc.  Infrastructure barriers  Developing supply chain for biomass  Continued development of biofuel distribution system  Growth in biofuel-compatible vehicles

21. Department of Economics Biofuel Challenges  Investment risks  Higher capital costs, emerging technology  Biomass production shifts  Inducing farmers to produce new crops  Consumer understanding  About the fuels  About the tradeoffs

22. Department of Economics Progress on Cellulosic Costs Source: NREL, 2007

23. Department of Economics Comparing Costs, 150 Million Gallons Gasoline Equivalent, 2005 $ Source: Wright and Brown, Biofuels, Bioproducts, & Biorefining 1(2007):49-56 Plant TypeCapital CostsOperating Costs ($ Million)($/Gallon) Grain1111.22 Cellulosic7561.76

24. Department of Economics Infrastructure Costs Source: DOE, Biomass Multi-Year Program Plan, March 2008 2007 Cost ($ per dry ton) Harvest & Collection18.40 Storage & Queuing6.10 Preprocessing7.80 Transportation & Handling14.70 2017 Projected Cost ($ per dry ton) 10.60 3.70 6.20 12.30 Costs for Agricultural Straws and Switchgrass

25. Department of Economics Infrastructure Costs 2007 Cost ($ per dry ton) Harvest & Collection29.50 Storage & Queuing22.20 Preprocessing16.40 Transportation & Handling20.10 2017 Projected Cost ($ per dry ton) 10.60 8.60 7.80 14.70 Costs for Agricultural Stovers Source: DOE, Biomass Multi-Year Program Plan, March 2008

26. Department of Economics Conversion Costs 2005 Cost ($ per gallon) Pretreatment0.44 Enzymes0.32 Fermentation0.31 Distillation & Solids Recovery 0.18 (gallons/dry ton) Ethanol Yield65.3 Costs for Corn Stover, 2007 $ 2012 Projected Cost ($ per gallon) 0.25 0.10 0.15 (gallons/dry ton) 89.8 Source: DOE, Biomass Multi-Year Program Plan, March 2008

27. Department of Economics Conversion Costs 2006 Cost ($ per gallon) Feed Handling & Drying0.18 Gasification0.14 Synthesis Gas Clean-up0.69 Fuel Synthesis0.08 Product Purification0.05 (gallons/dry ton) Ethanol Yield63.2 2012 Projected Cost ($ per gallon) 0.16 0.13 0.43 -0.03 0.05 (gallons/dry ton) 69.8 Costs for Hybrid Poplar, 2007 $ Source: DOE, Biomass Multi-Year Program Plan, March 2008

28. Department of Economics Switchgrass in the Plains Source: Schmer, Vogel, Mitchell, and Perrin, Proceedings of the National Academy of Sciences 105(2008):464-469  Found ethanol yields per acre comparable to corn grain ethanol  But indicated that switchgrass would likely be targeted to marginal land where row crop production is less profitable

29. Department of Economics Source: DOE

30. Department of Economics Source: DOE

31. Department of Economics Competing for Acreage CropNet Return ($ per acre) Wheat110 – 140 Rice390 – 510 Corn300 – 380 Sorghum60 – 80 Soybeans240 – 320 Cotton70 – 140 Source: FAPRI

32. Department of Economics Estimated Costs for Iowa Switchgrass Source: Duffy, “Estimated Costs for Production, Storage and Transportation of Switchgrass”

33. Department of Economics Estimated Costs for Iowa Switchgrass Source: Duffy, “Estimated Costs for Production, Storage and Transportation of Switchgrass”

34. Department of Economics Hay Data & Cellulosic Yields Source: USDA-NASS Harvested Acres YieldPriceRevenue (1,000 acres) (tons/ acre) ($/ton)($/acre) United States61,0562.4117.04283.88 Texas5,0642.1111.40238.01 Missouri4,1421.982.30156.48 South Dakota3,7201.880.30145.53 Oklahoma3,0381.890.30155.87 Kansas2,9902.391.50210.79 North Dakota2,8761.561.8091.13 Nebraska2,7242.373.90169.07 Needed Yield @ $53/ton@ $35/ton (tons/acre) 5.48.1 4.56.8 3.04.5 2.74.2 2.94.5 4.06.0 1.72.6 3.24.8 Schmer et al. Yields = 2.3 to 5 tons/acre

35. Department of Economics Thank you for your time! Any questions? My web site: http://www.econ.iastate.edu/faculty/hart/

36. Department of Economics Competing for Acreage CropNet Return ($ per acre) Wheat110 – 140 Rice390 – 510 Corn300 – 380 Sorghum60 – 80 Soybeans240 – 320 Cotton70 – 140 If new energy crop prices are $53/ton and costs are $200/acre, what does the new energy crop yield (tons/acre) have to be to induce farmers to shift production to the energy crop? What if the price is $35/ton?