1. Sustainable Farming: Role of Bio-energy Production
Alan Renwick
SAC
CECS Seminar
5th October 2007

2. Talk Outline Sustainable Development Agenda Final Energy
Economics, Energy and GHG Balances
Dedicated Energy Crops
Economic and Environmental Implications
Conventional Crops Used for Energy
Further Issues

3. UK Sustainable Development Agenda
"to enable all people throughout the world to satisfy their basic needs and enjoy a better quality of life without compromising the quality of life of future generations"

4. UK Principles of Sustainable Development

5. Forward Strategy For Scottish Agriculture
'We want a prosperous and sustainable farming industry, one of Scotland's success stories, which benefits all the people of Scotland. It should be:
focused on producing food and other products for the market;
a major driver in sustaining rural development, helping rural communities prosper;
a leading player in the protection and enhancement of the environment;
a major contributor to key objectives on animal health and welfare and human health and well-being;
keen to embrace change and market opportunities.

6. Why Interest in Energy Crops at Farm Level?
Farm Incomes
Period of low returns from traditional enterprises
Period of low returns from traditional markets for commodities
Common Agricultural Policy Reform
Support for Energy Crops arising from wider concerns about Global Warming and energy security
Push for sustainable farming

7. Some Key Questions What do we mean by bio-energy production
Does it make economic sense?
Are there environmental benefits?
Will farmers adopt energy crops

8. Will concentrate on crops for bio-energy production both conventional and non-conventional
Other forms of bioenergy – anaerobic digestion e
Other non-food use of crops – raises many similar issues

9. Energy Crops and Conversion Technology

10. Economics of Final Energy

11. Heat and Electricity
Source SAC/University of Cambridge (2005)

12. Biofuels Source SAC/University of Cambridge (2005)

13. Carbon and Energy Balances

14. Energy Requirements Source SAC/University of Cambridge (2005)

15. GHG Emissions Source SAC/University of Cambridge (2005)

16. Economics of production of final energy is marginal at best (without support)
Energy and Carbon Savings could suggest environmental benefits associated with production of renewable fuels
At what cost?

17. Cost of Carbon Abated: Best Case Scenarios
Caution: our estimates only
Others may vary considerably
Source SAC/University of Cambridge
Source SAC/University of Cambridge (2005)

18. Support Measures Government Support
Energy Crop Payment (45 Euro hectare)
Planting Grants (£1000/£900)
Capital Grants
Producer Group Grants
Renewable Obligation Certificates (ROC’s)
Tax Relief - Biofuels
Road Traffic Fuel Obligation

19. Dedicated Energy Crops
Can they contribute to sustainable farming systems?
Economics
Environment
Social

20. Dedicated Energy Crops
A number of policies in place that may be seen to support production of energy crops either directly or indirectly
However, only a very small area down to energy crops at present
Why? Simple economic issue?

21. Dedicated Energy Crops

22. Assumptions for SRC/Miscanthus
16 year timeframe for the crop
Yields 14 and 9 Odt/ha yr for Miscanthus and SRC respectively
Price £25/Odt and £35/Odt ex-farm Miscanthus and SRC respectively
Discount Rate 6 per cent
Government Subsidies included (Planting Grant and Energy Crop Payment i.e. assumed grown on non-set aside land)
Contract harvested
Includes rental value of land and minimum overhead costs (~ £87 per hectare)

23. Returns and Costs of Production
Price in region of £25 to £35 per oven dried tonne
for commodity

24. Sensitivity
Our results are clearly sensitive to assumptions in Key Areas
Yield
Price
Support
Costs (esp. Land)
Discount Rate
Note: Contracts are been offered on other terms eg Lockerbie plant in Scotland

25. Miscanthus Net Margin Government support significantly influences
economics of production

26. SRC Net Margin

27. Under the standard assumptions used for our study the crops do not appear to generate positive NPV when fully costed.

28. Economics could change
New Crop therefore technology could improve
Add value – same issue as in food chain – sell energy not wood chips
Alternative sources of income – willow good way of dealing with sewage sludge
If carbon has value then changes the economics
Increased support

29. Understanding Producer Behaviour
Closer to agro-forestry than farming?
16 – 20 year timeframe
Fixed contracts – Isn’t certainty good?
Fewer alternative markets – ABARE

30. Environmental Benefits?
In part depends upon incentives: Production or GHG savings?
Potential increase in diversity
Issues with Landscape change
Now I am sure I saw some sheep on a hill somewhere

31. Conventional Crops

32. Existing Crops for Energy
In some senses have advantages over dedicated energy crops
Annual Crops
Understand Technologies
Alternative Markets
Must remember competing for similar land

33. Land Suitability Scotland: SRC
If produced map of suitability for combinable crops would look very similar
Source: W. Towers MLURI

34. Two Years Ago: Economics looked Marginal
Choice seemed between one uneconomic
land use and another

35. However marked change in last year

36. In part fueled (!) by world biofuel demand but mainly poor harvests in Australia, Europe leading to record low world stocks

37. US ethanol capacity expected to continue climbing – well ahead of target
Maize
Bn gall.
Bn l Mt
06/07
5.6
21.5 56
07/08
8.3 32 86
08/09
11.8
45.6
120
Stocks 18 yr high in 05/06
41Mt ethanol use in 05/06
UK doesn’t actually have any dedicated bioethanol plants at the moment. A number planned but high prices will cause issues – some have already been mothballed in Europe
Source: RFS/USDA/SAC

38. Sustainable?
Could argue that by increasing demand for cereals/oilseeds it is improving economic element of sustainability of farms.
However
Not certain high prices will persist
Detrimental to livestock farmers
High prices may lead to conflicts between economic/environmental aspects of farming
Intensive, Extensive, Set-Aside

39. Intensity Fertiliser use doesn’t appear very sensitive to price
However, increased fungicide applications could be more viable
Source Simon Oxley SAC

40. Extensive Margin
Around 50,000 hectares in Scotland out of arable since 2001
In addition set-aside removal
10 to 5%
5 to 10%

41. Sustainable
In terms of overall sustainability methods of production can have marked impact on energy and GHG emissions.
Zero till versus ploughing for example
Also potential to encourage unsustainable methods of production
Shortened rotations

42. Some Wider Issues Higher agricultural prices:
Benefit developing countries that are exporters
May make it easier to push through further agricultural policy reform in developed countries – potential longer term benefits
Food vs Fuel Debate
Potentially increase risk to global food supply and hence global food security
Food Poverty still an issue in West?
Particularly impact on food importers

43. Conclusions: Does it help Sustainable Farming Agenda
Bioenergy production does offer potential environmental gains in terms of energy use and GHG emissions which might justify support - BUT
Does depend upon method of production
Economics currently in favour of wheat/oilseeds with fewer gains? (but might change with second generation)

44. Conclusions
Current high prices do improve economic viability for some producers - Major issues when begin to distort – crops vs livestock, maize vs soya, food vs fuel
At the national level does present challenges for wider policy aims for sustainable agriculture – biodiversity, water quality, agri-environmental schemes, local food

45. Acknowledgement
This presentation forms part of the on-going work on Sustainable Farming Systems funded by the Scottish Government Rural and Environment Research and Analysis Directorate (RERAD)