Economics, Thermodynamics and Biorenewable Resources

Dr. Robert AnexAgricultural & Biosystems Engineering

Iowa State University

June 8, 2004

Workshop on theEconomic and Environmental Impacts of Bio-based Production

Outline

• Neoclassical economics • Sustainability economics• A brief history of biobased economy• Sustainability and bio-based production• Research directions• Conclusions

Neoclassical Economics 101

• Utility maximization versus preference satisfaction

• Heuristics and biases• Potential Pareto Optimality and

economic efficiency• Ethical conflicts

“Do you have anything better?” - Robert Reed

Market Failures• Non-market goods

– Environmental services– Basic Research– National Security

• Sustainability (one of three legs)– Long-term impacts– Technical substitution potential

to offset social, environmental &

resource depletion– ‘Weak’ versus ‘Strong’ sustainability

Economic Justification for Regulation

Rationales for Limited Substitution

• Finite environmental sink capacity• Bounded rationality• Thermodynamic limits to production

– minimum energy and material requirements

– entropic dissipation– shadow price of dissipation?– finite renewable energy potential

Biobased Economies of the Past

Mesopotamia

Carthage

Rome

Breaking the Cycle

Decoupling Primary Industrial Productivity from Biomass Production

Back to the Past?

1853

Kerosene first distilled from oil

First oil company formed

1912

“…the use of vegetable oils for engine fuels may seem insignificant today, but such oils may become, in the course of time, as important as petroleum and the coal- tar products of the present time.” - Rudolf Diesel -

1898

Paris World’s Fair - diesel engine run on peanut oil

Standard Oil monopoly broken

1868

Back to the Past?

1926 19501935

“ … build a vehicle, affordable to the working family, powered by fuel that would boost the rural farm economy.” - Henry Ford -

Declaration of Dependence Upon the Soil

1977

First U.S. Energy Crisis invigorates bioenergy development efforts

1980s

Biomass GrowthAgricultureSilvicultureAquaculture

Harvest, pre-process, transport

Processing- thermal- chemical- physical- biological

Distribution & Sales

Use

End-of-Life- combustion- composting- landfill

Biobased Product Life Cycle

A Biobased Product System

Agricultural Sustainability

Some factors to think about:• Soil availability and quality• Input efficiency (water, nutrients, …)• Photosynthetic efficiency• Harvest index• Intensity of management• Postharvest storage, processing, and

distribution losses• Societal transformations

Life Cycle Assessment Procedure

LCA is a technique for assessing the environmental aspects and potential impacts associated with a product.

Direct Applications

• Product development and improvement

• Strategic planning

• Public policy making

• Marketing

From ISO14040-1997, Environmental management-- Life cycle assessment-- Principles and framework

Goal andScope

InventoryAnaylsis

ImpactAssessment

Interpretation

Typical Output: Climate Change Potential

Fertilizer/Ag ChemicalProduction and Transportation

Corn Farming

Corn Transportation

Corn Wet Mill

Production of 1,3 Propanediol

kg CO2 eq/kg PDO

N2O CH4 CO2

Impact of climate change on agricultural productivity?Impact of climate change on agricultural productivity?

Some Measures of Strong Sustainability

• Energy return on investment

• Ecological footprint

– net primary production

• Sustainability gaps

– critical stocks

– limiting environmental factors (e.g., CO2)

What We Don’t Yet Know

We know more about the movement of the celestial bodies than about the soil underfoot.

LEONARDO DA VINCI

What We Don’t Yet Know (partial list)

• Soil Fertility• Water Quality• Climate Change Impacts• Resource Sufficiency• Economic Impacts• Social Impacts

They’re makin’ more people every day but They’re makin’ more people every day but they ain’t makin’ any more dirt.they ain’t makin’ any more dirt. – Will – Will Rogers -Rogers -

Further Expanding the System Boundaries

Biotechnology Debate isValue-Driven by Stakeholders

• Impact Assessment is a value-driven process.– Risk has uniquely local & social

characteristics– Risks are not additive across

endpoints

• LCA should be an analytic-deliberative process and serve as a vehicle for building consensus

Basis for Regulation (e.g., Promotion)

• Possible benefits:– Environmental– Economic– Social

• Bioproduction will have long-term (possibly irreversible) impacts that are poorly understood:– Soil fertility– Climate change– Agricultural capacity

Conclusions

• Biobased production on a limited scale may help reach certain environmental, social and political objectives but will have little impact on sustainability

• There is still much we do not know about the implications of a transition to large-scale bioproduction and new tools are needed

• We must seek answers before making large, irreversible investments that lock-in technology choices (a unique opportunity)

Journal of

Industrial EcologySpecial Issue on Biobased Products

Available from MIT Press

Available freefree via theinternet at:http://mitpress.mit.edu/jie/bio-based