Economics, Thermodynamics and Biorenewable Resources Dr. Robert Anex Agricultural & Biosystems Engineering Iowa State University June 8, 2004 Workshop on the Economic 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 Paris World’s Fair - diesel engine run on peanut oil Standard Oil monopoly broken 1868

Back to the Past? “ … 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 Growth Agriculture Silviculture Aquaculture 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 ISO , Environmental management-- Life cycle assessment-- Principles and framework

Typical Output: Climate Change Potential 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., CO 2 )

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 ain’t makin’ any more dirt. – Will Rogers -

Further Expanding the System Boundaries

Biotechnology Debate is Value-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 Ecology Special Issue on Biobased Products Available from MIT Press free Available free via the internet at: