welfare tradeoffs of biofuels investments: a rapid decision support tool

WELFARE TRADEOFFS OF BIOFUELS INVESTMENTS: A RAPID DECISION SUPPORT

TOOL. Preliminary results from a case study in

Tanzania.Giacomo Branca1, Luca Cacchiarelli1, Irini Maltsoglu2,

Alessandro Sorrentino1, Stefano Valle1

1 University of Tuscia – Viterbo2 FAO- Rome

Icabr. 17th Conference “Innovation and Policy for the Bioeconomy. Ravello June 18-21

• Overview • Research scope• Methodology• Case study • Main Results• Final considerations

OUTLINE


• The linkages between biofuels and social welfare are complex.

• On one hand biomass production competes with food production for land and other inputs.

• On the other hand, biomass production for bioenergy use may contribute to rural development by increasing household incomes, local employment and energy supply.

• One key element is that these potential benefits crucially depend on the role of smallholder in the biofuel economy and on the associated institutional set up (Arndt et al. 2010)

Overview


Build and test a model to provide a rapid assessement of the socio-economic impact of investments in biofuels production, under minimum (agronomic, engineering and economic) data requirement.

Profitability indicators, based on the comparison between production cost and the relevant diesel or gasoline equivalent prices are computed for several production scales and different feedstock-based liquid biofuel options. The potential impact of biofuel production on employment opportunities and smallholder involvements is estimated with reference to different institutional arrangement options.

Research Scope


• The model estimates key profitability indicators at feedstock and processing level for different production pathways (crop technology level, processing scale and contractual agreements)

• it relies on “default value” reported in global dataset which are integrated by “ad hoc” national data

• estimate socio-economic impacts (labour demand and smallholder involvement) and financial assessment(economic returns of the investment)

• it also allows for sensitivity analysis with respect to several exogenous variables such as input prices, factory costs, crop yields and land management practises

Methodology (1)


• the crop budget calculates production costs for the crop considered under different technology levels (low, intermediate and high input)

•The processing budget computes costs of biodiesel and ethanol production for varying plant capacities (in analysis two representative plant sizes from 5 and 100 million litres)

• the model considers different institutional arrangements (“indipendent producers”, “outgrower” and “estate farming”)

Methodology (2)


Contractual arrangement Technology levelIndependent Low Subsistence farmerOutgrower Intermediate Market oriented small farmer

Estate farming High

Smallholders

Commercial farmer

Farmer typology

Methodology


FARM(Crop Budget)

PROCESSING(Processing Budget)

Total Production Costs ($/t)

ESTATE SCHEME (production cost of feedstock)

Market Price ($/t)

Production Cost ($/l)

OUTGROWER SCHEME (market price of feedstock)

Comparison with:• International Price of liquid

biofuels• Fossil fuels Equivalent

Prices

Transport – Malawi (Dry Run)

3 UNDERLYING METHODOLOGY

• a global database with technical coefficients related to feedstock and liquid biofuel production has been built

• Crop potential yields are derived from Global Agro ecological Zone database (IIASA/FAO) and are classified according to the level of inputs for rain fed agricultural production and different land suitability classes

• data on fertilizers are computed through a simple agronomic model

• national wage values for agricultural labour, national average values for land rental, Inputs data include seeds and seedlings of traditional and improved varieties, labour required for field operations.

• energy and mass balance data for biodiesel and ethanol production are derived using the model ASPEN Plus V7.3

• international prices of fossil fuels and liquid biofuels and appropriate conversion factors are used to express all prices in fossil fuel equivalents

Dataset


• Tanzania• biodiesel and ethanol production from sunflower and cassava production

Case Study


A B

Independent Low Subsistence farmers 30 0Outgrower Intermediate Smallholders (market oriented) 70 0

Estate farming High Commercial farmers 0 100

Contractual arrangement Technology level Farmer typologyScenarios

(% feedstock biomass)

Table 1. Biofuel processing production costs (with co-products) data in $/litre

Main Results (1)


crop-biofuel Scenario Plant size feedstock energyother input

costslabor

other processing

costsco-products

net production

cost5 MLN 0.96 0.08 0.19 0.01 0.45 -0.08 1.62

100 MLN 0.96 0.03 0.17 0.01 0.19 -0.07 1.285 MLN 0.70 0.08 0.19 0.01 0.43 -0.08 1.34

100 MLN 0.70 0.03 0.17 0.01 0.17 -0.07 1.005 MLN 0.56 0.19 0.04 0.01 0.38 -0.02 1.16

100 MLN 0.56 0.25 0.04 0.00 0.16 -0.02 0.995 MLN 0.38 0.19 0.04 0.01 0.37 -0.02 0.97

100 MLN 0.38 0.25 0.04 0.00 0.15 -0.02 0.79

sunflower-biodiesel

A

B

cassava-ethanol

A

B

Source: own elaboration

Production costs are bigger in A scenario (outgrower involvement) and in a small scale

Table 2. Biofuel production costs and comparison with imported biofuels and equivalent fossil fuels prices in Tanzania ($/litre)

Main Results (2)



crop-biofuel Scenario Plant sizenet

production cost

cost of imported biofuel

differenceprice in diesel

equivalentmarket price of diesel/gasoline

difference

5 MLN 1.62 1.43 0.19 2.22 1.45 0.77100 MLN 1.28 1.43 -0.15 1.84 1.45 0.395 MLN 1.34 1.43 -0.09 1.91 1.45 0.46

100 MLN 1.00 1.43 -0.43 1.54 1.45 0.095 MLN 1.16 0.64 0.52 2.22 1.60 0.62

100 MLN 0.99 0.64 0.35 1.96 1.60 0.365 MLN 0.97 0.64 0.33 1.92 1.60 0.32

100 MLN 0.79 0.64 0.15 1.66 1.60 0.06

cassava-ethanol

A

B

sunflower-biodiesel

A

B

With respect to cost of imported biofuel only biodiesel from sunflower is competitive for large scale

With respect to market price, biofuel production is not competitive for any scenario

Table 3. Labour, land and number of smallholders involved in biofuel economy

Main Results (3)



Plant size Land Labour demand Smallholders(million litres

biofuel) (ha) (man days/year) (n.)5 9,340 1,983 7,784

100 186,807 39,668 155,6725 4,158 38 0

100 83,158 753 05 2,828 496 2,356

100 72,990 9,928 47,1255 1,370 102 0

100 16,440 2,348 0

Cassava-ethanol

A

B

Crop-biofuel

Scenario

Sunflower-biodiesel

A

B

The land needed to implement the plant sizes is bigger in scenario A (outgrower involvement)

Scenario A implies a greater number of jobs and smallholders

Sunflower (plant from 5 millions litres)Production cost sensitivity analysis from 100% estate to 100% outgrower schemes (independent or outgrowers % – estate %)

Sensitivity analysis (1)



The competitive of biofuel prodution can support until 30% of feedstock produced by outgrower

Sunflower (5 millions litres)Labour requirement sensitivity analysis from 100% estate to 100% outgrower schemes




Sunflower (5 millions litres)Smallholder involvement sensitivity analysis from 100% estate to 100% outgrower schemes




Long-run breakeven feedstock price


biodiesel production from sunflower

Technology Unit of measure 5 mln 100 mlnRevenue (final energy product + co-product) 000$ 7,150 143,000 Costs of feedstock conversion 000$ 3,306 31,305 Costs of feedstock purchase 000$ 3,844 111,695 Feedstock requirement t 11,962 239,234 Maximum purchase feedstock price $/t 298 432

Low-input $/tIntermediate $/tHigh-input $/t

Plant size (million liters)

Biodiesel processor

Sunflower producer

292Minimum selling biomass price

398342


feedstock purchase represents a major cost in liquid biofuels production moving from pure estate farming towards scenarios that foresee a bigger involvement of smallholder produce social benefits in term of labour demand and number of farmers involved neverthless, social benefits may be gained at a cost of reduced international competitivness biofuel investments could increase natural resource (land) exploitation, with possible negative consequences in term of reduced food security and environmental esternalities failed markets need governement intervention to generate the expected social benefits which can only be realised under carefully designed and managed biofuel policies

Final considerations


THANK YOU FOR YOUR ATTENTION!!!


welfare tradeoffs of biofuels investments: a rapid decision support tool

Documents

production costs

biofuels production

conference innovation

ethanol production

food production

production scales

hand biomass production

different feedstock