an economic exploration of biofuel based greenhouse gas emission mitigation

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)


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 $

)


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


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


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.

an economic exploration of biofuel based greenhouse gas emission mitigation

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