office of the chief economist office of energy policy and new uses harry s. baumes, ph. d. associate...

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


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.


BIOFRENZY


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


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


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


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


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


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


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


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


-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


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


• 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


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


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


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


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


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


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


• 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


• 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



• 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,…



What We Need To Know• Technology Development

– Crop productivity – across potential feedstocks

• Implications for other input use (fertilizer, water, chemicals,…)

– Conversion


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


THANK YOU!

Contact Information: Harry S. Baumes

[email protected]

202-401-0497


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

office of the chief economist office of energy policy and new uses harry s. baumes, ph. d. associate...

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