an economic exploration of biofuel based greenhouse gas emission mitigation bruce a. mccarl regents...
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An Economic Exploration of Biofuel based An Economic Exploration of Biofuel based Greenhouse Gas Emission MitigationGreenhouse Gas Emission Mitigation
Bruce A. McCarl
Regents Professor of Agricultural Economics
Texas A&M University
Presented at Workshop on
Agriculture as a Producer and Consumer of Energy
Washington D.C.
June 24-25, 2004
OtherOther CollaboratorsCollaborators
Darius Adams, Oregon StateRalph Alig, USDA Forest ServiceBrian Murray, RTIUwe Schneider, University of HamburgSubhrendu Pattanayak, RTIBen DeAngelo EPAKen Andrasko, EPA Ron Sands, PNNL, MarylandFrancisco Delachesnaye, EPA Mahmood El-Halwgi, TAMUHeng-Chi Lee, University of Western OntarioDhazn Gillig, AMEXXiaoyun Qin , TAMU
BasicBasic ComponentsComponents ofof TalkTalk
Project Goals
Policy Context
Project Scope
Key Findings
Policy Implications of Results
Directions Being Pursued
ProjectProject GoalsGoals
Examine the portfolio of land based GHG mitigation
strategies
Identify ones for further scrutiny considering Afforestation,
Forest management, Biofuels, Ag soil, Animals,
Fertilization, Rice, Grassland expansion, Manure, Crop
mix
Look at market and time conditions under which strategies
dominate
Educate on needed scope of economic analysis
Bring in a full cost and GHG accounting
Look at market effects and co benefits/ costs
Paper/Study ObjectivesPaper/Study Objectives
Assess the economic potential of U.S. agriculture
and forestry to mitigate emissions considering
carbon dioxide, nitrous oxide and methane
Focus on the role of Biofuel strategies
Examine the dynamics of mitigation strategies
PolicyPolicy ContextContext
U.S. is outside of the context of Kyoto Protocol
U.S. has a largely voluntary policy to reduce GHG emission
intensity by 18% by 2012. Intensity is emissions divided by
GDP. This commitment is 1/6 the size of Kyoto obligation.
Many U.S. states proceeding unilaterally, Northeast, West
Coast, Texas and others.
Virtually all U.S. companies have climate change offices
and emissions are becoming of widespread concern
Chicago Climate Exchange is emerging but price low.
I think something will happen, but when?
BackgroundBackground
Society has concerns about build-up in atmospheric concentrations of greenhouse gases
Scientific consensus emerging that buildup will affect the global climate, stimulating warming.
Disturbances caused by GHG concentrations will take a long time to reverse.
IPPC asserts
a) centuries for sea level to stop risingb) decades for atmospheric GHG to stabilize
once emissions stabilizec) decades to retrofit/replace equipment and
technology causing current emissions.
BackgroundBackground
Society faces decision i) let emission increases continue ii) reduce emissions in effort to stabilize
atmospheric concentrations.
Decision involves uncertain future effects of GHG induced climate change
Implications for many sectors of the economy
Decision involves whether to insure against possible future deleterious effects by either reducing emissions, creating sinks, or creating offsets.
Irreversibility dimensions to decision
Mitigation related role of Ag & ForestryMitigation related role of Ag & Forestry
Agriculture and forestry can play a role
Small emitters of the most prevalent greenhouse gas
(carbon dioxide - CO2),
Other emissions important U.S. agricultural GHG emissions contribute
7% of total carbon equivalent emissions
28% of methane emissions (GWP 21)
70% of nitrous oxide(GWP 310).
U.S. forests are large but shrinking sink for carbon
dioxide 14% of 1997 emissions, 23% in 1990.
Agriculture has substantial potential for offsetting
emissions
Sink augmenting GHG absorption,
changes in tillage
conversion of ag land to grassland or forest.
Increasing production of commodities, which can
serve as
feedstocks for the production of biofuel or
offset GHG emission intensive commodities (steel,
concrete)
Mitigation related role of Ag & ForestryMitigation related role of Ag & Forestry
FinallyFinally BiofuelsBiofuels
Biofuel production contributes to reduction in net
GHG emissions because
As plant grows photosynthesis absorbs CO2
from atmosphere concentrating it in the feedstock
When burned this is released
Thus Biofuel use involves recycled carbon.
Offsets net GHG emissions relative to fossil fuels by
about 75-95 percent for power use about 35% for
liquid fuel
Never has been an economic proposition.
In U.S. ethanol subsidies often amount to over 50% of
product sale price.
Bolstered by sugar program
It likely to remain uneconomic in the near future in
absence of subsidies.
Can climate change contribute a new subsidy source?
FinallyFinally BiofuelsBiofuels
MitigationMitigation AssessmentAssessment
Multi-period analysis of ag/forest response
Examines overall and component response at varying
carbon equivalent prices
Also observe commodity and factor prices, levels of
production, exports and imports, management choices,
resource usage, and environmental impacts
Simultaneous across all agricultural GHG mitigation
strategies including biofuels
Simultaneous modeling of other agricultural
environmental problems
Based on life cycle comparisons
GHGGHG Activities in FASOMGHGActivities in FASOMGHG
Multiple GHG mitigation strategy setup
Detailed GHG emission accounting
• Forest carbon
• Soil carbon
• N2O
• CH4
• Fuel use carbon emissions
National GHG balance
GWP weighted sum of all GHG accounts
GHG Policy implementation
FASOMGHGFASOMGHG MITIGATIONMITIGATION OPTIONSOPTIONSStrategy Basic Nature CO2 CH4 N2O
Crop Mix Alteration Emis, Seq X XCrop Fertilization Alteration Emis, Seq X XCrop Input Alteration Emission X XCrop Tillage Alteration Emission X XGrassland Conversion Sequestration XIrrigated /Dry land Mix Emission X X
Biofuel Production Offset X X X
Afforestation Sequestration XExisting timberland Management Sequestration XDeforestation Emission X
Stocker/Feedlot mix Emission XEnteric fermentation Emission XLivestock Herd Size Emission X XLivestock System Change Emission X XManure Management Emission X XRice Acreage Emission X X X
BiomassBiomass OptionOption
Fast growing trees or switchgrass plus corn
Feedstock for electrical power plants or
liquid fuel production
Offsets fossil fuels recycles emissions
Requires land Opportunity cost
Sustainable, verifiable
WhyWhy notnot justjust biofuelsbiofuels
We consider biofuel net contribution to GHG emissions considering carbon dioxide, nitrousoxide and methane not biofuels in isolation
We examine relative desirability as compared to other GHG mitigation strategies
Why?
incredible interrelatedness of ag economyopportunity cost of resources
Land to crops to feed to cattle all involved with GHG
PortfolioPortfolio CompositionComposition
0
5
10
15
20
25
30
0 500 1000 1500 2000
Emission Reduction in MMT CO 2 Equivalent
$ /T
on o
f C
O2
Afforestation
Biomass Offsets
CH4&N2O
Forest Management
Crop Management FF
Soil Sequestration
Ag soil goes up fast then plateaus and even comes downWhy – Congruence and partial low cost
Lower per acre rates than higher cost alternatives Biofuel takes higher priceNo Ethanol
DynamicDynamic RoleRole ofof StrategiesStrategies ResultsResults
Cumulative Contribution at a $5 per tonne CO2 Price
Cumulative Contribution at a $15 Price
Cumulative Contribution at a $50 Price
0
5000
10000
15000
20000
25000
30000
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Time
MM
T C
O2
Eq
CH4 & N2O
Soil Sequestration
Crop Management FF
All Forest
0
5000
10000
15000
20000
25000
30000
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Time
MM
T C
O2
Eq
Biomass offsetsCH4 & N2OSoil SequestrationCrop Management FFAll Forest
0
50000
100000
150000
200000
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Time
MM
T C
O2
Eq
CH4 & N2O
Biomass offsets
Soil Sequestration
Crop Management FF
All Forest
Note
Effects of saturation on sequestrationGrowing nonco2 and biofuels
Source Lee, H.C., B.A. McCarl and D. Gillig, "The Dynamic Competitiveness of U.S. Agricultural and Forest Carbon Sequestration," 2003.
DynamicDynamic RoleRole ofof StrategiesStrategies ResultsResults
<$15/metric ton >$15/metric ton Level of Price
Tim
e fr
om n
owO
to30
yea
rs
>30
yea
rs
Ag soils
Forest management
Non co2
Limited forest and afforest
Non co2
Bio fuels
Non co2
Limited Ag soils
Forest and afforest
Biofuels
Non co2
Source Lee, H.C., B.A. McCarl and D. Gillig, "The Dynamic Competitiveness of U.S. Agricultural and Forest Carbon Sequestration," 2003.
DynamicDynamic RoleRole ofof StrategiesStrategies ResultsResultsSaturation of Sequestration Ag Soils and Forests
-1000
-500
0
500
1000
0 5 10 15 20 25 30 35
year
g/m2
/yr
Figure 2. Cumulative Carbon sequestration in a Southeastern U.S. pine plantation
Source: Data Drawn form Birdsey (1996)
0
20
40
60
80
100
120
0 20 40 60 80 100 120
Age (years)
Me
tric
ton
s C
/ac
C in trees and understory
C in soil and litter
Total C
West and Post, Oakridge NL Birdsey et al, USFS, FORCARB
Note saturation by year 20 Note saturation by year 80
GHGGHG MitigationMitigation andand AgAg--MarketsMarkets
20
40
60
80
100
120
140
160
180
200
220
0 50 100 150 200 250 300
Fis
her
ind
ex
Carbon price ($/tce)
Crop prices
Livestock prices
Livestock production
Crop productionCrop exports
Tradeoff between carbon and traditional production – ag prices rise, forest products fall
Source: Pattanayak, S.K., A.J. Sommer, B.C. Murray, T. Bondelid, B.A. McCarl, and D. Gillig, "Water Quality Co-Benefits of Greenhouse Gas Reduction Incentives in Agriculture and Forestry," Report to EPA, 2002.
Multi-environmental Impacts
40
50
60
70
80
90
100
0 50 100 150 200 250 300
Pol
luti
on (
%/a
cre)
Carbon price ($/tce)
Nitrogen Percolation
Nitrogen Subsurface Flow
Soil erosion
Phosphorus loss through sediment
Ag-Sector Welfare
-100
-50
0
50
100
150
0 50 100 150 200 250 300
Wel
fare
ch
ange
s (b
ill $
)
Carbon price ($/tce)
U.S. Producers (Net)
U.S. Consumers
Foreign Countries
Dead Weight Loss
Results: Co-Benefits, Economic & Envir.Results: Co-Benefits, Economic & Envir.
Producers gain & Consumers loseProducers gain & Consumers lose
Exports reduced Exports reduced
Environmental gainsEnvironmental gains
High prices erode co-benefits due to High prices erode co-benefits due to intensificationintensification
• Some co-benefits do not saturate over time but continue to be accrued (erosion, runoff, farm income).
• Ecosystem gains in habitat may saturate
Source: Pattanayak, S.K., A.J. Sommer, B.C. Murray, T. Bondelid, B.A. McCarl, and D. Gillig, "Water Quality Co-Benefits of Greenhouse Gas Reduction Incentives in Agriculture and Forestry," Report to EPA, 2002.
Change in WQIfrom Baseline
-40 to -101 to 56 to 100
Preliminary Results, at $25/tC
Co-Benefits: Water Quality ChangesCo-Benefits: Water Quality Changes
Source: Pattanayak, S.K., A.J. Sommer, B.C. Murray, T. Bondelid, B.A. McCarl, and D. Gillig, "Water Quality Co-Benefits of Greenhouse Gas Reduction Incentives in Agriculture and Forestry," Report to EPA, 2002.
0
100
200
300
400
500
600
700
800
900
1,000
2000 2005 2010 2015 2020 2025 2030
mill
ion
tC
other energy systemcarbon capture and disposalafforestationsoil sequestrationcommercial biofuels
From Sands, R.D., B.A. McCarl, and D. Gillig, "Assessment of Terrestrial Carbon Sequestration Options within a United States Market for Greenhouse Gas Emissions Reductions," Presented at the Second Conference on Carbon Sequestration , Alexandria, VA, May 7, 2003.
SGM CGE ModelComposition of U.S. Emissions Reductions (remain at year 2000 emissions)
TotalTotal EconomyEconomy CompetitiveCompetitive PotentialPotential
0
50
100
150
200
0 100 200 300 400 500
Em
issi
on
Red
uct
ion
in
MM
T o
f C
arb
on
Eq
uiv
alen
ts
Carbon Value in Dollars per TCE
Biomass for Power PlantsSoil Carbon Sequestration
Pine Trees on AG-LandEthanol as Gasoline
Conclusions Biofuels could play an important part in a GHGE mitigating
world if price was above $50 per ton of carbon.
At low prices opportunity cost of resources exceeds value of
feedstocks generated.
Only the ability to collect benefits from carbon savings makes
the biofuels competitive.
Competitive because biofuels continually offset fossil fuel
emissions in comparison to changing tillage which saturates
Biofuels may also yield other ancillary benefits.
Big question: Will society choose to reward their carbon
recycling characteristics?
This will entail society deciding to attach a substantial price to
the right to emit GHGs into the atmosphere.
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