Margaret Loudermilk, Joshua Elliott, and Todd Munson Modeling Land-Use Changes and Other Indirect Effects of Biofuel Production in CIM-EARTH STEPPING FORWARD 1.Add adjustment/transition costs for capital 2.Explore the employment effects of varying levels of biofuel production. 3.Develop a deterministic social planning model of biofuel technology life- cycles This project is developing modeling components to analyze the economic and environmental impacts of current and future biofuel production pathways. The effort is intended to address some of the uncertainties involved in land use change simulation models. CIM-EARTH BIOFUELS MODEL (CE-Bio) The overall focus of this project is constructing a detailed and versatile representation of the global biofuels market, with a focus on U.S. ethanol production and the co-generated products, in the CIM-EARTH model. Under this project, we have developed a new version of CIM-EARTH called CE-bio. Com- pared to the original prototype (CE v0.1), this version contains significantly more detail in agriculture and related services. CE-bio also includes an explicitly modeled biofuels sector. The data and estimates for ethanol production, taxes, tariffs, subsidies, treatment of co-products, and other components are specific to CE-bio. These are the result of our concerted data collection and computational efforts. Other contributions include improved data on land use and land conversion, dynamic modeling and analysis, crop yield responses to market factors, and sensitivity analysis. ETHANOL PRODUCTION SIMULATIONS The renewable fuel standard (RFS) would increase US ethanol use to about 36 billion gallons in It caps corn ethanol at 15 billion gallons, requiring 21 billion from cellulosic or 'advanced' biofuels. Projected ethanol production from CE-Bio is clearly policy driven and dominated by the RFS targets. Corn ethanol production maxes out at the 15 billion gallon fairly quickly, with little difference among the scenarios. Cellulosic ethanol production is more sensitive to scenario dynamics such as feedstock and capital prices causing significantly more variation in production volumes, which increases with the forecast horizon. The overall trend for cellulosic ethanol seems plausible though given the advanced biofuel targets set by the RFS. CROP YIELDS & LAND USE CHANGE Some preliminary results for changes to land use in the US corn industry are shown below. This is the primary channel for indirect land use change effects from biofuel demand. Projected Harvested Corn Area: Though the uncertainty in these preliminary results is still substantial, the median forecast of land demand for domestic corn production stabilizes once corn ethanol demand plateaus at 15 billion gallons (due to the US RFS). Historical Harvested Corn Area and Yields since 1870: The historical trend lines show annual data, along with a darker trend line smoothed over 5 years. TAX POLICY SIMULATIONS Three major federal tax credits are available to domestic producers and blenders of biofuel. 1.Volumetric Ethanol Excise Tax Credit (VEETC) - $0.45/gal of ethanol blended with gasoline, expires December 31, Small Ethanol Producer Tax Credit (SEPTC) - $0.10/gal produced up to 15 million gallons annually, expires December 31, Cellulosic Biofuel Producer Tax Credit (CBPTC) - up to $1.01/gal of cellulosic biofuel produced, expires December 31, 2013 Case 1: VEETC expires Case 2: CBPTC & SEPTC expire Left: Projected Cumulative Blended Fuel Production in billions of gallons – black line is domestic petrol, dotted black adds imported refined petrol, grey line adds corn ethanol, and the blue line is total with cellulosic and imported ethanol. Right: Projected Prices in dollars per gallon – solid lines are domestic fuel, dashed lines are imports, dark grey is corn ethanol, light grey is cellulosic ethanol, black is refined petroleum, and blue is blended gasoline