1. Economics of Cellulosic Ethanol Production Marie Walsh, Burt English, Daniel de la Torre Ugarte, Kim Jensen, Richard Nelson SAEA Annual Meeting Mobile, AL February 6, 2007

2. Interest in Biomass Numerous visions/initiatives have been recently proposed to displace 20-30 percent of our transportation fuels with biomass-derived fuels within the next 20-25 years. Large scale production of biofuels raises numerous issues regarding feasiblility, development approach, and impacts, particularly –Food vs. fuel issues –Limits to corn and soybean use –Need for alternative technologies (i.e., cellulose) UT has developed a modeling framework to rigorously evaluate the potential and selected impacts.

3. Approach Dynamic model of the U.S. agricultural sector (POLYSYS) –POLYSYS contains major crops, livestock, food and feed markets, major cropland classes –305 geographic regions –Anchored to 2006 USDA baseline –Allocates land based on relative profits

4. Approach Modify POLYSYS –Extend the baseline to 2025 –Add cellulose feedstocks Endogenous feedstocks include corn stover, wheat straw, and switchgrass Exogenous feedstocks include forest logging residues, forest other removals, primary mill residues –Add bioenergy technologies Ethanol from corn grain and cellulose Biodiesel from soybeans Electricity from cellulose

5. Corn Stover Major Assumptions Include: –Continuous corn rotation –Current tillage mix with increasing no-till over time –Control erosion at <T –Collected as large, round bales

6. Wheat Straw Major Assumptions Include: –Continuous wheat rotation –Current tillage mix with increasing no-till over time –Control erosion at <T –Collected as large, round bales

7. Switchgrass RegionAnnual Increases in Yield Lake States1.00 percent Corn Belt1.75 percent Northeast1.25 percent Appalachia2.50 percent Southeast3.00 percent North Plains1.25 percent South Plains1.00 percent

8. Forest Residues Combined logging residues and other removals (land clearing, pre-commercial thinnings). Quantities from USDA Forest Service Forest Inventory Analysis database Estimated collection costs using traditional forestry equipment Forest Residue Supplies (million dry tons) $20/dt$30/dt$40/dt$50/dt 20051.012.2730.6635.06 20101.022.3331.6336.21 20151.052.3732.0236.63 20201.082.4433.037.75 20251.122.5234.038.88

9. Mill Residues Quantities and current uses from USDA Forest Service Forest Inventory Analysis database Costs based on estimated prices needed to attract mill residues from current uses Mill Residues (million dry tons) $20/dt$30/dt$40/dt$50/dt 20051.8023.9845.7050.52 20101.8124.3046.0150.87 20151.8725.0547.5052.53 20201.9225.8048.9854.18 20251.9826.4750.1755.53

10. Bioenergy Technologies Conversion Costs & Yields (feedstock and co-product values not included) Year 2005Year 2015Year 2025 ETOH from Corn2.7 gal/bu $0.55/gal 2.7 gal/bu $0.55/gal 3.0 gal/bu $0.55/gal ETOH from Cellulose67-70 gal/dt $1.47/gal 74-80 gal/dt $0.73/gal 83-90 gal/dt $0.73/gal Biodiesel from Soybeans1.4 gal/bu $0.436/gal 1.4 gal/bu $0.436/gal 1.4 gal/bu $0.436/gal Electricity from Cellulose (co-fire) 1425-1532 kwh/dt $0.0036/kwh 1425-1532 kwh/dt $0.0032/kwh 1425-1532 kwh/dt $0.0032/kwh

11. Bioenergy/Bioproduct Demand Demand Quantities (above baseline) Year 2006Year 2015Year 2025 Ethanol (billion gallons) 3.9723.3468.24 Biodiesel (billion gallons) 0.110.821.7 Electricity (billion kWh) Excess feedstocks used for co-fire Bioproducts (billion lbs) Not included

12. Scenario Constraints Bioenergy demand must be met regardless of cost Baseline food, feed, and export demands must be met –Forage supplies lost due to shift of pasture acres to other crops must be met by increased hay production

13. Results—Feedstock Use Year 2006Year 2015Year 2025 ETOH from Corn (billion bu)1.853.834.78 ETOH from Cellulose (million dt) Ag Residue Switchgrass Wood Wastes Total = 224 95 76 53 Total = 670 245 312 113 Biodiesel from Soybeans (million bushel) 58426835 Electricity from Cellulose (million dt) Ag Residue Switchgrass Wood Wastes 97.1 76.9 53.7 0.5 0.7 0.3

14. Results — Bioenergy/Bioproduct Production Costs (Feedstock Cost and Co-Product Credits Included) Year 2006Year 2015Year 2025 ETOH (combined corn and cellulose)($/gal) 1.081.321.52 Biodiesel ($/gal)0.691.802.50 Electricity ($/kwh) 0.047 0.0790.081

15. Results—Changes in Crop Prices Year 2006Year 2015Year 2025 Corn ($/bu)2.28 (+0.13) 2.56 (+0.14) 3.01 (+0.75) Soybeans ($/bu)4.67 (+0.07) 6.52 (+0.90) 7.48 (+2.25) Wheat ($/bu)3.06 (+0.01) 3.86 (+0.29) 4.22 (+0.78) Switchgrass/ Cellulose ($/dt) 20.00 (+20.00) 48.68 (+48.68) 65.07 (+65.07)

16. Results—Changes in Farm Income ( Million Dollars ) Year 2006Year 2015Year 2025 Change in Crop Income (value – expenses + government payments) (crop residues included) +303+4,732+19,742 Change in Income from Switchgrass 0+4,686+15,351 Changes in livestock sector income—Analysis still underway. Substitution of feed co-products and need for forage are important components and are not well represented in current analysis. Likely to be negative.

17. Distribution of Net Returns Year 2025Year 2015

18. Results—Changes in Crop Acres (millions) Year 2006Year 2015Year 2025 Corn81.085.5 (+1.6) 80.7 (-0.3) Soybeans73.870.3 (-2.7) 62.5 (-8.0) Wheat58.258.4 (-3.9) 52 (-10.9) Other Major Grain Crops 33.931.7 (-0.4) 29.1 (-2.23) Switchgrass027.2 (+27.2) 48.8 (+48.8) Pasture acres decline and hay acres increase to meet forage needs

19. Closing Comments Based on the assumptions in the analysis, sufficient quantities of biomass resources exist to meet significant increases in biofuel production. Large-scale production of biofuels will require, and result in, a paradigm shift in agriculture.