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Pros & Cons of Counting Indirect Land Use Change Ron Plain, Ph.D. Professor of Agricultural Economics University of Missouri-Columbia

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Presentation on theme: "Pros & Cons of Counting Indirect Land Use Change Ron Plain, Ph.D. Professor of Agricultural Economics University of Missouri-Columbia"— Presentation transcript:

1 Pros & Cons of Counting Indirect Land Use Change Ron Plain, Ph.D. Professor of Agricultural Economics University of Missouri-Columbia http://web.missouri.edu/~rplain

2  “More Perspectives on Indirect Land Use Change Effects” by William K. Jaeger, Oregon State University  “Indirect Land Use: The Folly of Over- Indulgent Environmentalism?” by Mark Edelman, Iowa State University Source: Agricultural Marketing Resource Center, Renewable Energy Newsletter, Dec 09 & Jan 10 Indirect Land Use Change

3 Indirect Land Use Logic U.S. biofuels production uses a lot of corn and some veg oil that otherwise would be available for other uses (feed, food, etc) This causes crop prices to rise and world crop acreage to increase More cultivated acres means less carbon sequestration since CO2 is released when land in permanent vegetation (grass or trees) is converted to annual crops Biofuels should be “charged” for this reduced CO2 sequestration

4 Indirect Market Impacts The way that changes in supply or demand in one market effects other markets

5 Are Indirect Impacts Important? Can’t we just ignore them? The 2007 Renewable Fuels Standards Act mandates the consideration of indirect land effects

6 3 Indirect Impacts of Biofuels Fuel: Increased biofuel production will decrease fossil fuel use (not 1 to 1 relationship) Feed: Increased distillers grain production will decrease corn use (not 1 to 1 relationship) Land: Converting land from food/feed production to biofuel production in one location will cause acres to move into food/feed production elsewhere (not 1 to 1 relationship)

7 Are Indirect Impacts Important? Let’s just ignore the indirect land use impact, it’s less precise and harder to calculate One can clearly identify cars that are burning E10 ethanol rather than 100% gasoline One can clearly identify animals that are eating DDGS instead of corn and soybean meal One can never be certain which acres or even how many were brought into production because U.S. crops were used for biofuels

8 Are Indirect Impacts Important? We should ignore the indirect land use impact because it threatens the continuing expansion of the biofuels industry

9  Replace imported energy with domestic  Increase the energy supply More energy = lower energy prices  Improve the environment GHG Why does policy encourage biofuels?

10  Are biofuels part of the GHG solution? or  Are biofuels part of the GHG problem? Why the Indirect Land Use Question?

11  Which fuel type is a bigger contributor to GHG, gasoline/diesel or ethanol/biodiesel?  The answer depends on what you count Indirect Land Use Question

12 Greenhouse Gas Emissions CornBiomass Gasoline EthanolEthanol --grams of GHG/MJ of energy--  Feedstock+ 4 + 24+ 10  Refining fuel+15 + 40+ 9  Vehicle+72 + 71+ 71  Feedstock Uptake 0 - 62- 62  Sub-total+92 + 73+ 27 Source: Searchinger, et al, Science, February 29, 2008

13 Greenhouse Gas Emissions CornBiomass Gasoline EthanolEthanol --grams of GHG/MJ of energy--  Feedstock+ 4 + 24+ 10  Refining fuel+15 + 40+ 9  Vehicle+72 + 71+ 71  Feedstock Uptake 0 - 62- 62  Land use change 0 +104+111  Total+92 +177+138 Source: Searchinger, et al, Science, February 29, 2008

14  Threatens public support for biofuels  Puts at risk billions for U.S. farmers Why the Indirect Land Use Question Is Important

15 U.S. Soybean Price, 1970-11

16 U.S. Corn Price 1970-11

17 U.S. Corn Production, 1970-10 Production is increasing by 190 million bu/year

18

19 Value of U.S. Corn Crop, 1970-10

20 Value of U.S. Corn Crop 2004 2009Change -------billion dollars--------  U.S. feed12.7 19.3+ 6.7  U.S. ethanol 2.7 15.8+13.1  U.S. food, seed, other 2.8 4.8+ 2.0  Exports 3.7 7.0+ 3.3  Inventory 2.4 0.2 - 2.2  TOTAL24.3 47.2+22.9 Source: USDA/NASS

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22 U.S. Farmland Values, 1950-2009* USDA/NASS

23  The key question: How much more land will be cultivated in a world with biofuels than in a world without biofuels? Indirect Land Use Measurement

24 2007 Renewable Fuels Mandate Corn for ethanol needs to increase 220 million bushels/year

25 Corn Milled for Ethanol Forecast % corn for ethanol: 2000-01: 6% 2005-06: 14% 2007-08: 23% 2009-10: 33% 2010-11: 34% After 2014, 5.4 billion bushels per year will be used for ethanol

26  This year roughly 4.4 billion bushels of U.S. corn will be used to make ethanol. How much indirect land use does this cause? Indirect Land Use Measurement

27  30% of the corn (the non-starch portion) used to make ethanol becomes DDGS and is used as livestock feed Indirect Land Use Measurement

28  This year roughly 4.4 billion bushels of U.S. corn will be used to make ethanol.  3.1 billion bushels less feed Indirect Land Use Measurement

29  Higher crop prices lead to a less profitable and smaller livestock/poultry industry, thus not all the 70% of the corn used to make ethanol will be replaced with more feed from elsewhere Indirect Land Use Measurement

30 US Red Meat & Poultry Production, 2000-10

31 US Feed & Residual Use of Corn, 1975-10

32  This year 4.4 billion bushels of U.S. corn will be used to make ethanol.  3.1 billion bushels less feed  2.1 billion bushels of feed will be replaced Indirect Land Use Measurement

33  Higher crop prices lead to higher yields which holds down world crop acres Indirect Land Use Measurement

34 U.S. Average Corn Yield, 1970-10 Yield is increasing by 2 bu/year

35 U.S. Corn Crop Source: USDA/NASS  Average increase in corn yield 1970-062.13bu/year 2006-103.60bu/year

36  This year 4.4 billion bushels of U.S. corn will be used to make ethanol.  3.1 billion bushels less feed  2.1 billion bushels of feed will be replaced  Assuming an extra 1.5 bu/acre/year  1.6 billion bushels replaced on extra acres Indirect Land Use Measurement

37  This year 4.4 billion bushels of U.S. corn will be used to make ethanol.  3.1 billion bushels less feed  2.1 billion bushels of feed will be replaced  Assuming an extra 1.5 bu/acre/year  1.6 billion bushels replaced on extra acres  Assuming 160 bu/acre land  10 million extra cultivated acres Indirect Land Use Measurement

38  Where are these extra cultivated acres?  What were these acres used for before? Indirect Land Use Measurement

39 Source: Takle & Hofstrand, Iowa State University

40  Markets adjust – using 5 billion bushels of corn annually for ethanol has impact on land use  2 to 3 million acres of increased cultivation per billion gallons of annual ethanol production  Calculating this impact on GHG is inexact  Indirect land use shifts focus away from renewable energy Summary

41 Questions?

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