Upload
brianna-floyd
View
214
Download
1
Tags:
Embed Size (px)
Citation preview
Biofuels : At the Crossroads of Agricultural and Energy Policies
Bruno Larue Canada Research Chair in International Agri-food Trade and director of
CREATE
Growing Our Future Institute for the Advanced Study of Food and Agricultural Policy
Ottawa, April 5, 2012
SPAANetworkStructure and Performance of Agriculture and Agri-products industry Network
A popular conception of biofuels
Biofuels: A bit of chemistry
Biofuels, like ethanol and biodiesel, are designed fuels derived from biological carbon fixation.
Ethanol is produced from the fermentation of carbohydrates produced by the sugar found in plants like corn and sugarcane.
Ethanol can be used as an alternative car fuel, like the E85 used in Brazil, or as a gasoline supplement, like the E10, which is common in North America.
Ethanol by-products, dry and wet distillers grains, are fed to livestock.
The ratio of energy produced by sugar cane-based ethanol over the energy needed to produce it varies between 8.3 and 10.2. For corn-based ethanol, the ratio varies between 1.3 and 1.6.
Biofuels: a bit of history
Ethanol has been with us for a surprisingly long time. The Ford model T could run on gasoline or ethanol and Henry Ford was reportedly an ethanol advocate.
The first use of sugarcane ethanol as a fuel in Brazil goes back to the 1920s. A 50% mandatory blend was imposed in 1943 as a response to threatened oil supplies during WWII.
Until the early 1970s, oil was cheap and ethanol was not competitive. Environmental issues were not in public policy discussions.
Ethanol Production (1975-2010), in millions of gallons
0
5,000
10,000
15,000
20,000
25,00019
7519
7719
7919
8119
8319
8519
8719
8919
9119
9319
9519
9719
9920
0120
0320
0520
0720
09
World
US
Brazil
EU
The events that changed the views on ethanol
The two oil shocks (1973 and 1979) made oil importing countries aware of the dangers of oil dependancy and willing to subsidize the production of alternative fuels.
Brazil embarked on its « Programa nacional do alcool » in 1975 and a blending mandate varying between 10% and 22% was used between 1976 and 1992.
Cars running on E100/neat ethanol were first commercialized in Brazil in 1979.
Brazil imposed a mandatory blend of 22% anhydrous ethanol in 1993. The mandated blend has varied between 20% and 25% afterward.
First Flex Fuel cars sold in 2003.
Brazilian ethanol: a case illustrating the infant industry argument? Price subsidies for ethanol producers
Low interest loans to encourage investment
Subsidized ethanol retail prices below gas prices
Private and public investments in R&D
By 2004, technological advances and economies of scale made ethanol competitive with gasoline (Goldemberg, 2008).
In 2007, Brazil exported about 20% of its production, but it has been importing from the United States recently.
Costs of production (€/1000 liters)
USA corn Germany wheat Germany sugarbeet
Brazil sugarcane
Buildings 0.39 0.82 0.82 0.21 Equipment 3.40 5.30 5.30 1.15 Labor 2.83 1.40 1.40 0.52 Insurance, taxes and other costs
0.61 1.02 1.02 0.48
Feedstock 20.93 27.75 35.10 9.80 Other operation costs
11.31 18.68 15.93 2.32
Total production cost
39.47 54.97 59.57 14.48
Sale of byproducts
6.71 6.80 7.20
Government subsidies
7.93
Net production cost
24.83 48.17 52.37 14.48
Source: Goldemberg (2008)
Recent changes in the United States The US$0.54/gallon tax on ethanol imports and the US$0.45/gallon
tax credit on blending have been terminated at the very end of 2011, saving an estimated US$6 billion/year to US taxpayers (Babcock, Barr and Carriquiry, 2010).
The 2005 Energy Policy Act required that 7.5 billion gallons of renewable fuel be used by 2012.
The 2007 Energy Independence and Security Act imposed an annual limit of 36 billion gallons for 2022, of which 44% must be advanced renewable fuel.
Ethanol as a fraction of gasoline use went from 1% in 2000 to a bit less than 10% in 2010.
Production is concentrated in the Midwest (Iowa, Nebraska, Minnesota, Illinois and Indiana).
As recently as 2009, the US was a net importer of ethanol, but it exported 940 million gallons more than it imported in 2011, from an estimated production of 13900 million gallons.
Ethanol production in Canada Canada produced 462 million gallons of ethanol in 2011.
This makes it the fifth largest producing nation in the world, behind the US, Brazil, the EU and China.
As of December 2010, Canada mandated that ethanol account for 5% of gasoline use.
Grier, Mussell and Rajcan (2012) evaluate government support at $250 million/year.
Some provinces, like Quebec, have decided NOT to expand their production capacity of corn-based ethanol, but invested $27 million to help Enerkem and Greenfield Ethanol build a full-scale commercial cellulosic ethanol plant.
Canada’s biggest ethanol plants
Table 2. Canada’s largest ethanol plants
Ethanol Plant Location Feedstock Capacity (Mmly)
Suncor St. Clair Ethanol Plant Sarnia, Ontario corn 400 GreenField Ethanol Inc. Johnstown, Ontario Corn 230 GreenField Ethanol Inc. Chatham, Ontario Corn 195 IGPC Ethanol Inc. Aylmer, Ontario Corn 162 GreenField Ethanol Inc. Varennes, Quebec Corn 155 Terra Grain Fuels Inc. Belle Plaine, Sask. Wheat 150 Husky Energy Inc. Minnedosa, Manitoba Wheat and corn 130 Husky Energy Inc. Lloydminster, Sask. Wheat 130 Source: http://www.greenfuels.org/en/industry-information/plants.aspx
The economics of mandates
Ethanol S
PE
PB
AveP
PG
D D
0 2 4 6 8 100
2
4
6
8
10
What if the mandate is increased? What if the price of corn increases?
Biodiesel: production trends
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100
1,000
2,000
3,000
4,000
5,000
6,000
WorldUSEU
Biodiesel in Canada and elsewhere In Canada, renewable fuel regulations mandate that biodiesel be
blended to represent 2% of all diesel fuel sold, or over 1.5 billion litres of biodiesel.
Current production and production capacity are low, but Alberta, Ontario and Quebec have projects for larger plants.
Mixes of biodiesel and petrodiesel commonly marketed include B100 (100% biodiesel), B20 (20% biodiesel, 80% petrodiesel), B5 and B2. The last three can be used in standard diesel engines.
In France, buses equipped with special engines run on a 50% blend.
Land diversion: US Corn acreage over time
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
20000000
40000000
60000000
80000000
100000000
120000000
US Corn planted acres
Corn acreage in Canada (1990-2011)
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
CanadaQuebecOntario
Consequences of ethanol boom
US corn demand for ethanol is up, but exports and feed use are down. Rising feedgrain prices in the United States and Canada made livestock
producers angry at ethnanol policies, but made land owners happy. The average price for an acre of cropland in the US was around $1600 in 2003 compared to $3200 in 2011.
0
50
100
150
200
250
300
350
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Production
Feed
Ethanol
Exports
Corn and oil prices
Feb-
02
Aug-0
2
Feb-
03
Aug-0
3
Feb-
04
Aug-0
4
Feb-
05
Aug-0
5
Feb-
06
Aug-0
6
Feb-
07
Aug-0
7
Feb-
08
Aug-0
8
Feb-
09
Aug-0
9
Feb-
10
Aug-1
0
Feb-
11
Aug-1
1
Feb-
120
50
100
150
200
250
300
350
Crude Oil Price
Corn Price
Is ethanol responsible for the high and volatile price of corn? Mitchell (2008) said « yes ». OECD (2008) said « some » Baffes and Haniotis (2010) said “not really” Effect on food prices differ between poor and rich
countries.
Many causes: - Strong aggregate demand stemming from economic
growth in the developping world, low inventories and inelastic supply and demand functions;
- Weather and other exogenous shocks;- Peculiar policies (Tangermann, 2011);- Speculators;- Commodity prices are not more volatile than before.
Is the price of corn more « exposed » to oil price shocks than before? The relationship between corn and oil prices
has evolved over time. 3 structural breaks: 2nd oil price shock, end of
export subsidy war between the US and the EU and the ethanol boom.
The corn price systematically adjusts to oil price shocks in recent years only. The converse is not true: the oil price does not systematically adjust to shocks to the price of corn (El Marzougui and Larue, 2012).
Conclusion Biofuels are a response to concerns about dependency on
foreign fossil fuels, a desire to curb GHG emissions and a desire to redistribute wealth with a specific regional/commodity focus.
A more efficient way to internalize the environmental externality would be to tax sources of GHG emissions.
Canada’s mandates on ethanol and biodiesel are relatively low and hence not too distorting.
Ag prices are more than ever affected by oil price shocks. Arable land endowments are trending downward in many
parts of the world, pressure to get better yields (more bushels/acre, more ethanol per bushel).
How will demand for fuels and food change in the future?