Department of Economics Biofuel Economics Intensive Program in Biorenewables Ames, Iowa June 9, 2009 Chad Hart Assistant Professor/Grain Markets Specialist

Department of Economics World GDP Growth Source: IMF, Global Insight, FAPRI

Department of Economics GDP Growth by Market Source: IMF, Global Insight, FAPRI

Department of Economics GDP Growth by Country Source: IMF, Global Insight, FAPRI

Department of Economics Oil Prices Source: IMF, Global Insight, FAPRI

Department of Economics Ethanol Prices Source: FAPRI

Department of Economics Ethanol Imports Source: FAPRI

Department of Economics Biodiesel Exports Source: FAPRI

Department of Economics Argentine Biodiesel Production Source: FAPRI Mostly soybean oil, biodiesel mandate (B5) starts in 2010

Department of Economics Brazilian Biofuel Production Source: FAPRI Continues to supply ethanol exports to the rest of the world Mostly soybean oil, biodiesel mandate (B5) by 2010

Department of Economics Canadian Ethanol Production Source: FAPRI Roughly 70% corn, 30% wheat

Department of Economics Chinese Ethanol Production Source: FAPRI Mostly corn-based

Department of Economics EU Biofuel Production Source: FAPRI Roughly 75% rapeseed oil, 18% soybean oil, and 7% sunflower oil Approximately 58% wheat, 16% corn, and 26% barley

Department of Economics South Asia Biofuel Production Source: FAPRI Molasses is the major feedstock Palm oil is the feedstock, consumption mandate started this year

Department of Economics U.S. Biofuel Production Source: FAPRI Just over 1 billion gallons of cellulosic by 2018 Roughly 60% soybean oil and 40% other fats and oils

Department of Economics Spectrum of Biofuels Source: NREL, 2006  Grain/Sugar Ethanol  Biodiesel  Green Gasoline/Diesel  Cellulosic Ethanol  Butanol  Pyrolysis Liquids  Syngas Liquids Most Mature Least Mature

Department of Economics Renewable Fuels Standard (RFS) 60% GHG Emission Reduction 50% GHG Emission Reduction 20% GHG Emission Reduction If construction started after Dec. 2007

Department of Economics Dept. of Energy Projections Source: Energy Information Administration, Annual Energy Outlook 2009

Department of Economics Currently Available Biomass Source: NREL, 2005

Department of Economics Biofuel Challenges  Production costs  Conversion, ag. production, etc.  Infrastructure barriers  Developing supply chain for biomass  Continued development of biofuel distribution system  Growth in biofuel-compatible vehicles

Department of Economics Biofuel Challenges  Investment risks  Higher capital costs, emerging technology  Biomass production shifts  Inducing farmers to produce new crops  Consumer understanding  About the fuels  About the tradeoffs

Department of Economics Progress on Cellulosic Costs Source: NREL, 2007

Department of Economics Comparing Costs, 150 Million Gallons Gasoline Equivalent, 2005 $ Source: Wright and Brown, Biofuels, Bioproducts, & Biorefining 1(2007):49-56 Plant TypeCapital CostsOperating Costs ($ Million)($/Gallon) Grain Cellulosic

Department of Economics Infrastructure Costs Source: DOE, Biomass Multi-Year Program Plan, March Cost ($ per dry ton) Harvest & Collection18.40 Storage & Queuing6.10 Preprocessing7.80 Transportation & Handling Projected Cost ($ per dry ton) Costs for Agricultural Straws and Switchgrass

Department of Economics Infrastructure Costs 2007 Cost ($ per dry ton) Harvest & Collection29.50 Storage & Queuing22.20 Preprocessing16.40 Transportation & Handling Projected Cost ($ per dry ton) Costs for Agricultural Stovers Source: DOE, Biomass Multi-Year Program Plan, March 2008

Department of Economics Conversion Costs 2005 Cost ($ per gallon) Pretreatment0.44 Enzymes0.32 Fermentation0.31 Distillation & Solids Recovery 0.18 (gallons/dry ton) Ethanol Yield65.3 Costs for Corn Stover, 2007 $ 2012 Projected Cost ($ per gallon) (gallons/dry ton) 89.8 Source: DOE, Biomass Multi-Year Program Plan, March 2008

Department of Economics Conversion Costs 2006 Cost ($ per gallon) Feed Handling & Drying0.18 Gasification0.14 Synthesis Gas Clean-up0.69 Fuel Synthesis0.08 Product Purification0.05 (gallons/dry ton) Ethanol Yield Projected Cost ($ per gallon) (gallons/dry ton) 69.8 Costs for Hybrid Poplar, 2007 $ Source: DOE, Biomass Multi-Year Program Plan, March 2008

Department of Economics Switchgrass in the Plains Source: Schmer, Vogel, Mitchell, and Perrin, Proceedings of the National Academy of Sciences 105(2008):  Found ethanol yields per acre comparable to corn grain ethanol  But indicated that switchgrass would likely be targeted to marginal land where row crop production is less profitable

Department of Economics Source: DOE

Department of Economics Source: DOE

Department of Economics Competing for Acreage CropNet Return ($ per acre) Wheat110 – 140 Rice390 – 510 Corn300 – 380 Sorghum60 – 80 Soybeans240 – 320 Cotton70 – 140 Source: FAPRI

Department of Economics Estimated Costs for Iowa Switchgrass Source: Duffy, “Estimated Costs for Production, Storage and Transportation of Switchgrass”

Department of Economics Estimated Costs for Iowa Switchgrass Source: Duffy, “Estimated Costs for Production, Storage and Transportation of Switchgrass”

Department of Economics Hay Data & Cellulosic Yields Source: USDA-NASS Harvested Acres YieldPriceRevenue (1,000 acres) (tons/ acre) ($/ton)($/acre) United States61, Texas5, Missouri4, South Dakota3, Oklahoma3, Kansas2, North Dakota2, Nebraska2, Needed $35/ton (tons/acre) Schmer et al. Yields = 2.3 to 5 tons/acre

Department of Economics Thank you for your time! Any questions? My web site:

Department of Economics Competing for Acreage CropNet Return ($ per acre) Wheat110 – 140 Rice390 – 510 Corn300 – 380 Sorghum60 – 80 Soybeans240 – 320 Cotton70 – 140 If new energy crop prices are $53/ton and costs are $200/acre, what does the new energy crop yield (tons/acre) have to be to induce farmers to shift production to the energy crop? What if the price is $35/ton?