Beyond Ethanol Siouxland Bankers Meeting Storm Lake, Iowa February 17, 2009 Chad Hart Assistant Professor/Grain Markets Specialist [email protected] 515-294-9911 Department of Economics.
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Beyond Ethanol Siouxland Bankers Meeting Storm Lake, Iowa February 17, 2009 Chad Hart Assistant Professor/Grain Markets Specialist [email protected] 515-294-9911 Department of Economics 88 90 92 94 96 98 00 02 04 06 Ja Ja Department of Economics Ja Ja Ja Ja Ja Ja Ja Ja 08 n20 n20 n20 n20 n20 n19 n19 n19 n19 n19 n19 86 Ja n19 Ja $ per Barrel Crude Oil Prices 140 120 100 80 60 40 20 0 Source: Energy Information Administration Ethanol Production 9 Jan. – Oct. 2008 8 Billion Gallons 7 6 5 4 3 2 1 Department of Economics 07 20 04 20 01 20 98 19 95 19 92 19 89 19 86 19 83 19 19 80 0 Sources: Renewable Fuels Association, Energy Information Administration Biodiesel Production 600 Jan. – Sept. 2008 Million Gallons 500 400 300 200 100 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Department of Economics Sources: National Biodiesel Board, Energy Information Administration 80 Projected Crude Oil Prices $ per Barrel 70 60 50 40 30 Mar Dec Dec Dec Dec Dec Dec Dec Dec Dec 2009 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: NYMEX Department of Economics Population 2008 2020 2050 (billion) (billion) (billion) World 6.678 World 7.601 World 9.393 China 1.330 China 1.431 India 1.808 India 1.148 India 1.362 China 1.424 U.S. 0.304 U.S. 0.336 U.S. 0.420 Indonesia 0.238 Indonesia 0.268 Nigeria 0.357 Brazil 0.192 Brazil 0.212 Indonesia 0.313 Pakistan 0.168 Pakistan 0.204 Bangladesh 0.280 Bangladesh 0.154 Bangladesh 0.190 Pakistan 0.278 Russia 0.141 Nigeria 0.184 Brazil 0.228 Nigeria 0.138 Russia 0.132 Congo 0.189 Source: U.S. Bureau of the Census, International Data Base Department of Economics Liquid Fuel Usage 2004 (Million Barrels Oil Equivalent per Day) 2010 2015 2020 United States 20.7 103% 109% 115% 121% 129% Canada 2.3 100% 100% 104% 104% 104% Mexico 2.0 110% 115% 130% 135% 145% Europe 15.6 99% 99% 100% 101% 101% Japan 5.4 96% 96% 96% 96% 96% China 6.4 147% 164% 186% 213% 245% India 2.5 108% 128% 144% 160% 176% Africa 2.8 118% 139% 154% 164% 175% Central and South America 5.4 120% 137% 152% 167% 180% World 82.5 110% 118% 126% 134% 143% 2030 (Percent of 2004 Value) Source: U.S. Dept. of Energy, Energy Information Administration Department of Economics 2025 Countries Pursuing Biofuels US Brazil Argentina Colombia Paraguay Canada Uruguay Mexico Department of Economics Thailand New Zealand South Africa South Korea Philippines Indonesia Pakistan China India Malaysia Australia Japan EU Russia Not a complete list Government Policies for Biofuels Ethanol Ad valorem tariff of 2.5% Import duty of $0.54 per gallon Volumetric Ethanol Excise Tax Credit (VEETC) $0.45 per gallon starting in 2009 Biodiesel Biodiesel Mixture Excise Tax Credit $1.00/0.50 per gallon Cellulosic Cellulosic Biofuel Producer Tax Credit $1.01 per gallon Department of Economics Renewable Fuels Standard (RFS) 40 35 Billion Gallons 30 25 20 15 10 20% GHG Emission Reduction If construction started after Dec. 2007 5 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 0 Conventional Biofuels Cellulosic Biofuels Biodiesel Additional Advanced Biofuels Department of Economics Currently Available Biomass Department of Economics Source: NREL, 2005 Spectrum of Biofuels Grain/Sugar Ethanol Biodiesel Green Gasoline/Diesel Cellulosic Ethanol Butanol Pyrolysis Liquids Syngas Liquids Department of Economics Most Mature Least Mature Source: NREL, 2006 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 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 Department of Economics Cellulosic Biofuel Waiver Provisions EPA (in consultation with DOE and USDA) can reduce the cellulosic biofuel mandated volume Waiver trigger based on EIA projections EPA will also sell cellulosic biofuel credits Price set at Max($0.25 per gallon, $3.00 – Average wholesale gasoline price per gallon) Department of Economics Components of 2007 Energy Act Up to $500 million per year in grants for the production of advanced biofuels (with at least an 80% reduction in GHG emissions relative to current fuels) Up to $25 million per year in grants for R&D for biofuel production in states with low rates of biofuel production Department of Economics Energy in the Farm Bill Grants for the development and construction of advanced biofuel biorefineries, up to 30% of the cost of the project Loans for the same, up to $250 million or 80% of the cost per project Department of Economics Biomass Crop Assistance Program To support production of crops for bioenergy and assist with collection, harvest, storage, and transportation of biomass to conversion facilities Excluded materials Farm program crops, animal byproducts, food waste, yard waste, algae Department of Economics Biomass Crop Assistance Program Requires producers and conversion facilities to submit proposal establishing a project area Establishes contracts between USDA, producers, and facilities to promote project Sets up establishment payments for perennial crops and annual payment to biomass producers Department of Economics Biomass Crop Assistance Program Payments are also authorized for biomass collection, harvest, storage, and transportation Matching payments $1 for each $1 per ton paid by conversion facility, up to $45 per ton, for 2 years Department of Economics Thank you for your time! Any questions? My web site: http://www.econ.iastate.edu/faculty/hart/ Iowa Farm Outlook: http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/ Ag Decision Maker: http://www.extension.iastate.edu/agdm/ Department of Economics