biofuel economics

Department of Economics

Biofuel Economics

Intensive Program in BiorenewablesAmes, Iowa

June 9, 2009

Chad HartAssistant Professor/Grain Markets Specialist

[email protected]


World GDP Growth

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

20

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% C

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Source: IMF, Global Insight, FAPRI


GDP Growth by Market


-4.0

-2.0

0.0

2.0

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6.0

8.0

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Developed Developing


GDP Growth by Country


-10.0

-5.0

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5.0

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15.0

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European Union Japan United States China India Argentina Brazil


Oil Prices


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Ethanol Prices

Source: FAPRI

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1.50

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$ p

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Ga

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Anhydrous Ethanol Price, Brazil Ethanol, FOB Omaha


Ethanol Imports

Source: FAPRI

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Canada China European Union India Japan South Korea United States ROW


Biodiesel Exports

Source: FAPRI

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Argentina Brazil Indonesia Malaysia United States


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sArgentine Biodiesel Production

Source: FAPRI

Mostly soybean oil, biodiesel mandate (B5) starts in 2010


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Ethanol Biodiesel

Brazilian Biofuel Production

Source: FAPRI

Continues to supply ethanol exports to the rest of the world

Mostly soybean oil, biodiesel mandate (B5) by 2010


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Mill

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Ga

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sCanadian Ethanol Production

Source: FAPRI

Roughly 70% corn, 30% wheat


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sChinese Ethanol Production

Source: FAPRI

Mostly corn-based


EU Biofuel Production

Source: FAPRI

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Ethanol Biodiesel

Roughly 75% rapeseed oil, 18% soybean oil, and 7% sunflower oil

Approximately 58% wheat, 16% corn, and 26% barley


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India - Ethanol Indonesia - Biodiesel

South Asia Biofuel Production

Source: FAPRI

Molasses is the major feedstock

Palm oil is the feedstock, consumption mandate started this year


U.S. Biofuel Production

Source: FAPRI

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Ethanol Biodiesel

Just over 1 billion gallons of cellulosic by 2018

Roughly 60% soybean oil and 40% other fats and oils


Spectrum of Biofuels

Source: NREL, 2006

Grain/Sugar EthanolBiodieselGreen Gasoline/DieselCellulosic EthanolButanolPyrolysis LiquidsSyngas Liquids

Most Mature

Least Mature


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Conventional Biofuels Cellulosic Biofuels

Biodiesel Additional Advanced Biofuels

Renewable Fuels Standard (RFS)

60% GHG Emission Reduction

50% GHG Emission Reduction

20% GHG Emission ReductionIf construction started after Dec. 2007


Dept. of Energy Projections

Source: Energy Information Administration,Annual Energy Outlook 2009


Currently Available Biomass

Source: NREL, 2005


Biofuel ChallengesProduction costs

Conversion, ag. production, etc.Infrastructure barriers

Developing supply chain for biomassContinued development of biofuel

distribution systemGrowth in biofuel-compatible vehicles


Biofuel ChallengesInvestment risks

Higher capital costs, emerging technology

Biomass production shiftsInducing farmers to produce new crops

Consumer understandingAbout the fuelsAbout the tradeoffs


Progress on Cellulosic Costs

Source: NREL, 2007


Comparing Costs, 150 Million Gallons Gasoline Equivalent, 2005 $

Source: Wright and Brown, Biofuels, Bioproducts, & Biorefining 1(2007):49-56

Plant Type Capital Costs Operating Costs

($ Million) ($/Gallon)

Grain 111 1.22

Cellulosic 756 1.76


Infrastructure Costs

Source: DOE, Biomass Multi-Year Program Plan, March 2008

2007 Cost

($ per dry ton)

Harvest & Collection 18.40

Storage & Queuing 6.10

Preprocessing 7.80

Transportation & Handling 14.70

2017 Projected Cost

($ per dry ton)

10.60

3.70

6.20

12.30

Costs for Agricultural Straws and Switchgrass


Infrastructure Costs

2007 Cost

($ per dry ton)

Harvest & Collection 29.50

Storage & Queuing 22.20

Preprocessing 16.40

Transportation & Handling 20.10

2017 Projected Cost

($ per dry ton)

10.60

8.60

7.80

14.70

Costs for Agricultural Stovers



Conversion Costs

2005 Cost

($ per gallon)

Pretreatment 0.44

Enzymes 0.32

Fermentation 0.31

Distillation & Solids Recovery

0.18

(gallons/dry ton)

Ethanol Yield 65.3

Costs for Corn Stover, 2007 $2012 Projected Cost

($ per gallon)

0.25

0.10

0.10

0.15

(gallons/dry ton)

89.8



Conversion Costs

2006 Cost

($ per gallon)

Feed Handling & Drying 0.18

Gasification 0.14

Synthesis Gas Clean-up 0.69

Fuel Synthesis 0.08

Product Purification 0.05

(gallons/dry ton)

Ethanol Yield 63.2

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 $



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

Department of EconomicsSource: DOE


Competing for Acreage

Crop Net Return

($ per acre)

Wheat 110 – 140

Rice 390 – 510

Corn 300 – 380

Sorghum 60 – 80

Soybeans 240 – 320

Cotton 70 – 140

Source: FAPRI


Estimated Costs for Iowa Switchgrass

Source: Duffy, “Estimated Costs for Production, Storage and Transportation of Switchgrass”


Hay Data & Cellulosic Yields

Source: USDA-NASS

Harvested Acres

Yield Price Revenue

(1,000 acres)

(tons/acre)

($/ton) ($/acre)

United States 61,056 2.4 117.04 283.88

Texas 5,064 2.1 111.40 238.01

Missouri 4,142 1.9 82.30 156.48

South Dakota 3,720 1.8 80.30 145.53

Oklahoma 3,038 1.8 90.30 155.87

Kansas 2,990 2.3 91.50 210.79

North Dakota 2,876 1.5 61.80 91.13

Nebraska 2,724 2.3 73.90 169.07

Needed Yield

@ $53/ton @ $35/ton

(tons/acre) (tons/acre)

5.4 8.1

4.5 6.8

3.0 4.5

2.7 4.2

2.9 4.5

4.0 6.0

1.7 2.6

3.2 4.8

Schmer et al. Yields = 2.3 to 5 tons/acre


Thank you for your time!

Any questions?

My web site:http://www.econ.iastate.edu/faculty/hart/


Competing for Acreage

Crop Net Return

($ per acre)

Wheat 110 – 140

Rice 390 – 510

Corn 300 – 380

Sorghum 60 – 80

Soybeans 240 – 320

Cotton 70 – 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?

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