Office of the Chief EconomistOffice 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 MeetingsWestin Peach Tree Plaza
Atlanta GeorgiaFebruary 1, 2009
Alternative Energy and Agriculture: Spotlight or Stoplight
Office of the Chief EconomistOffice 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.
Office of the Chief EconomistOffice of Energy Policy and New Uses
BIOFRENZY
Office of the Chief EconomistOffice 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
Office of the Chief EconomistOffice of Energy Policy and New Uses
RFS1
Conventional Corn Starch
WTI and Conventional Gasoline Prices
0
20
40
60
80
100
120
140
160
180
Jan-0
0
May
-00
Sep-0
0
Jan-0
1
May
-01
Sep-0
1
Jan-0
2
May
-02
Sep-0
2
Jan-0
3
May
-03
Sep-0
3
Jan-0
4
May
-04
Sep-0
4
Jan-0
5
May
-05
Sep-0
5
Jan-0
6
May
-06
Sep-0
6
Jan-0
7
May
-07
Sep-0
7
Jan-0
8
May
-08
Sep-0
8
Year
$/b
bl
Gasoline
WTI
Market Factor: Rising Energy Prices
Office of the Chief EconomistOffice of Energy Policy and New Uses
Market Factor: Corn – Ethanol PricesEthanol – Corn Price Spread Profitability Indicator
Ethanol - Corn Price Spread
-1.000.001.002.003.004.005.006.007.008.009.00
1/7/
1999
7/7/
1999
1/7/
2000
7/7/
2000
1/7/
2001
7/7/
2001
1/7/
2002
7/7/
2002
1/7/
2003
7/7/
2003
1/7/
2004
7/7/
2004
1/7/
2005
7/7/
2005
1/7/
2006
7/7/
2006
1/7/
2007
7/7/
2007
1/7/
2008
7/7/
2008
Per
Bu
shel
Ethanol and Corn Prices
0.001.002.003.004.005.006.007.008.00
1/7
/1999
1/7
/2000
1/7
/2001
1/7
/2002
1/7
/2003
1/7
/2004
1/7
/2005
1/7
/2006
1/7
/2007
1/7
/2008
Do
llars
Corn Chicago $/bu U.S. Avg Ethanol $/gal
Office of the Chief EconomistOffice of Energy Policy and New Uses
Source: Renewable Fuels Association
Ethanol: Industry Overview
0
1000
2000
3000
4000
5000
6000
7000
8000
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Mar-06 Sep-06 Oct-06 Dec-06 Apr-07 Jun-07 Sep-07 Oct-07
Mil
Gal
Per
Yea
r
0
20
40
60
80
100
120
140
Nu
mb
er
Plants Plants (UC) Capacity UC (L) Capacity
Accelerating Investment
Office of the Chief EconomistOffice of Energy Policy and New Uses
Source: National Biodiesel Board
Biodiesel: Industry Overview
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Jun-06 Sep-06 Nov-06 Jan-07 Sep-07
Mil
Gal
Per
Yea
r
0
20
40
60
80
100
120
140
160
180
Nu
mb
er
Plants Plants (UC) Capacity UC (L) Capacity
Accelerating
Investment
Office of the Chief EconomistOffice of Energy Policy and New Uses
EISA – EPACT Renewable Fuels Standard
0
5
10
15
20
25
30
35
40
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Billion Gallons
Yea
rs
RFS1 Conventional - Corn Starch Biobased Diesel Cellulosic Biofuels Other Advanced Biofuels
RFS1
Conventional Corn Starch
Cellulosic Biofuels
Other Biofuels
Biobased Diesel
Years
Bill
ion
Gal
lon
s
Office of the Chief EconomistOffice of Energy Policy and New Uses
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Mill
ion
gal
lon
s
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008e
U.S. Ethanol Production, 1980-2008
Source: Renewable Fuels Association
Office of the Chief EconomistOffice 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
Office of the Chief EconomistOffice of Energy Policy and New Uses
-80.00
-60.00
-40.00
-20.00
0.00
20.00
40.00
60.00
80.00
100.00
120.00
Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08
Month
Per
cen
t C
han
ge
Source: International Monetary Fund
Petroleum
Agriculture
Food
Primary Commodities
Year – Over Year Change in Commodity Prices
Office of the Chief EconomistOffice of Energy Policy and New Uses
September November January2005 2007 2009
Corn Price, Cash $/bu 2.25 3.50 3.48
Feedstock $/gal 0.82 1.27 1.27DDG $/gal 0.24 0.34 0.37Net Corn Cost $/gal 0.58 0.93 0.90
Energy $/gal 0.15 0.24 0.18Other $/gal 0.35 0.40 0.43
Cost to Produce $/gal 1.08 1.57 1.51
Ethanol Price $/gal 2.40 1.70 1.88
Net to Ethanol Producer $/gal 1.32 0.13 0.37
Tax Credit Blenders $/gal 0.51 0.51 0.45Net Cost of Ethanol $/gal 1.89 1.19 1.43
Gasoline (wholesale) $/gal 2.50 2.58 1.32
Premium to Blend $/gal 0.61 1.39 -0.11
Ethanol 101
Office of the Chief EconomistOffice of Energy Policy and New Uses
• 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
Office of the Chief EconomistOffice 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
Office of the Chief EconomistOffice of Energy Policy and New Uses
Energy inputs for farming
FertilizerCarbon in
kernelsCarbon in ethanol
DGS
N2O emissions from soil and water streams
In direct land use changes for other crops and in
other regions
Change insoil carbon
CO2 emissions from ethanol combustion
CO2 emissions during fermentation
CO2 in the atmosphereCO2 via
Photosynthesis
Conventional animal feed production cycle
Fossil energy inputs to ethanol plant
GHG Benefits and Burdens for Fuel Ethanol Cycle Occur at Different Stages (and With Different Players)
1Source: Michael Wang, Argonne National Laboratory
Office of the Chief EconomistOffice 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
Office of the Chief EconomistOffice 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
Office of the Chief EconomistOffice 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
Office of the Chief EconomistOffice 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
Office of the Chief EconomistOffice 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
Office of the Chief EconomistOffice 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
Office of the Chief EconomistOffice 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
Office of the Chief EconomistOffice 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
Office of the Chief EconomistOffice of Energy Policy and New Uses
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008Actual Actual Actual Actual Actual Actual Actual Estimate
Biobased Products, Bioenergy/Renewable Energy Related Programs
Commercialization…………………………..…………………………………………………………………………………..…………………………………………………………………………… $43,385 $83,243 $170,750 $175,171 $118,209 $116,877 $50,999 $76,109
Research and Development ……………………………..……………………………………………………………………………………………………………………………………………………………. 73,535 88,852 111,040 116,961 113,395 112,841 113,941 116,600
Education and Outreach………………………………………………..…………………………………………………………………………………………………………………………………. 0 0 1,000 1,000 1,000 1,909 1,753 1,924
Energy Efficiency and Conservation……………………………...……………………………………………………………………………………………………………………………………………… 7,059 7,539 723 0 0 3,152 689 689
Total, Discretionary (Budget Authority)…………………………………………….………………. 123,979 179,634 283,513 293,132 232,604 234,779 167,382 195,322
Total, Discretionary + Loans/Guarantees…………………………………………….………………. (153,637) (176,814) (261,673) (293,132) (242,125) (274,216) (289,373) (458,387)
UNITED STATES DEPARTMENT OF AGRICULTUREBiobased Products, Bioenergy/Renewable Energy Related Programs
(Dollars in Thousands)
Source: USDA, Office of Budget and Program Analysis
Office of the Chief EconomistOffice of Energy Policy and New Uses
THANK YOU!
Contact Information: Harry S. Baumes
202-401-0497
Office of the Chief EconomistOffice 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
$282,508,476Wind 193 35,800,088 505,221,691Solar 49 1,862,651 4,519,509Geothermal 24 1,230,996 3,232,743Hybrid 13 2,514,643 185,649,921
Subtotal 497 $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 Total 1,412 $198,651,711 $1,205,423,071