1. Department of Economics The Economics of Biofuels North Central Regional Association of Assessing Officers 34 th Annual Conference Coralville, Iowa June 17, 2009 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

2. Department of Economics Population 2008 2020 2050 (billion) World6.678World7.601World9.393 China1.330China1.431India1.808 India1.148India1.362China1.424 U.S.0.304U.S.0.336U.S.0.420 Indonesia0.238Indonesia0.268Nigeria0.357 Brazil0.192Brazil0.212Indonesia0.313 Pakistan0.168Pakistan0.204Bangladesh0.280 Bangladesh0.154Bangladesh0.190Pakistan0.278 Russia0.141Nigeria0.184Brazil0.228 Nigeria0.138Russia0.132Congo0.189 Japan0.127Mexico0.125Mexico0.148 Source: U.S. Bureau of the Census, International Data Base

3. Department of Economics Liquid Fuel Usage 200620102015202020252030 (Million Barrels Oil Equivalent per Day)(Percent of 2006 Value) United States20.795%98% 100%105% Canada2.3100% 104%109% Mexico2.171%81%90%95%100% Europe15.792% 95%96% Japan5.288%92%96%92%90% China7.2118%139%168%192%213% India2.789%115%144%159%174% Africa3.0117%120%123%127%130% Central and South America5.7116% 119%125%133% World85.0102%107%113%119%125% Source: Energy Information Administration

4. Department of Economics Crude Oil Prices Source: Energy Information Administration

5. Department of Economics Crude Oil Futures Prices Source: NYMEX

6. Department of Economics Iowa’s Alternative Energy Sources Ethanol:Over 40 plants in operation/construction Ranked 1 st in ethanol production Biodiesel:Over 15 plants in operation/construction Wind:Ranked 3 rd in wind energy production Ranked 1 st in ratio of wind/total energy

7. Department of Economics Ethanol Plant Locations Source: Ethanol Producer Magazine

8. Department of Economics Ethanol Production Based on the pace over the 1 st 2 months of 2009 Sources: Renewable Fuels Association, Energy Information Administration

9. Department of Economics Biodiesel Plant Locations Source: Biodiesel Magazine

10. Department of Economics Biodiesel Production Based on the pace over the 1 st 2 months of 2009 Sources: National Biodiesel Board, Energy Information Administration

11. Department of Economics Ethanol Margins Source: ISU, CARD

12. Department of Economics Biodiesel Margins Source: ISU, CARD

13. Department of Economics U.S. Blended Motor Gasoline Consumption Source: Energy Information Administration

14. Department of Economics Fuel Prices Source: Nebraska Energy Office Rack prices in Omaha

15. Department of Economics Fuel Futures Prices Sources: NYMEX and CBOT

16. Department of Economics Ethanol Blending Advantage

17. Department of Economics % of Gasoline Blended with Ethanol Source: Energy Information Administration

18. Department of Economics Price Movements Since 2007

19. Department of Economics Estimated Hog Returns Source: ISU Extension, Farrow-to-Finish

20. Department of Economics Estimated Cattle Returns Source: ISU Extension, Yearling Steers

21. Department of Economics Hog Returns vs. Corn Prices Sources: ISU Extension, Farrow-to-Finish; USDA-NASS

22. Department of Economics Cattle Returns vs. Corn Prices Sources: ISU Extension, Yearling Steers; USDA-NASS

23. Department of Economics Factors Leading to Higher Commodity Prices Source: USDA-ERS, Trostle, July 2008

24. Department of Economics Commodity Price Indexes Source: International Financial Statistics

25. Department of Economics Events in 2007 Droughts: Northern Europe, Ukraine, Russia, Northwest Africa, Turkey, Australia, and Argentina Increased export taxes: China, Argentina, Russia, Kazakhstan, Malaysia, and Indonesia Export restrictions: Argentina, Ukraine, India, Vietnam, Serbia, Egypt, Cambodia, Indonesia, and Kazakhstan

26. Department of Economics The Food Dollar Source: USDA-ERS

27. Department of Economics Farm to Retail Food Price Spread FoodFarm Value Share of Retail Food Price FoodFarm Value Share of Retail Food Price Eggs53Canned Corn22 Beef49Sugar27 Chicken48Wheat Flour19 Milk34Bread5 Pork31Corn Flakes4 Orange Juice33Corn Syrup3 Source: USDA-ERS, 2001

28. Department of Economics Changes in Food Price Indexes Sources: Bureau of Labor Statistics, USDA-ERS Consumer price indexesRelative importance 1 Final 2005 Final 2006 Final 2007 Final 2008 Forecast 2009 2 (Percent) All food100.02.4 4.05.53.0 - 4.0 Food away from home44.33.1 3.64.43.5 - 4.5 Food at home55.71.91.74.26.42.5 - 3.5 Meats, poultry, and fish12.22.40.83.84.22.0 - 3.0 Eggs0.7-13.74.929.214.0-5.0 - -4.0 Dairy products6.21.2-0.67.48.0-4.0 - -3.0 Fats and oils1.6-0.10.22.913.83.0 - 4.0 Fruits and vegetables8.23.74.83.86.23.0 - 4.0 Sugar and sweets2.11.23.83.15.53.0 - 4.0 Cereals and bakery7.91.51.84.410.22.5 - 3.5 Nonalcoholic beverages6.72.92.04.14.33.0 - 4.0 Other foods10.11.61.41.85.23.0 - 4.0 1 BLS estimated expenditure shares, December 2008 2 Forecasts updated May 20, 2009

29. Department of Economics Renewable Fuels Standard (RFS) Crop Year Billion Bushels 20083.57 20094.11 20104.43

30. Department of Economics Renewable Fuels Standard (RFS) 60% GHG Emission Reduction 50% GHG Emission Reduction 20% GHG Emission Reduction If construction started after Dec. 2007

31. Department of Economics Countries Pursuing Biofuels  US  Brazil  Argentina  Colombia  Paraguay  Canada  Uruguay  Mexico  Thailand  New Zealand  South Africa  South Korea  Philippines  Indonesia  Pakistan  China  India  Malaysia  Australia  Japan  EU  Russia  Not a complete list

32. Department of Economics Government Policies for Biofuels Ethanol  Ad valorem tariff of 2.5%  Import duty of $0.54 per gallon  Volumetric Ethanol Excise Tax Credit (VEETC)  $0.45 per gallon starting in 2009 Biodiesel  Biodiesel Mixture Excise Tax Credit  $1.00/0.50 per gallon Cellulosic  Cellulosic Biofuel Producer Tax Credit  $1.01 per gallon

33. Department of Economics Cellulosic Biofuel Waiver Provisions  EPA (in consultation with DOE and USDA) can reduce the cellulosic biofuel mandated volume  Waiver trigger based on EIA projections  EPA will also sell cellulosic biofuel credits  Price set at Max($0.25 per gallon, $3.00 – Average wholesale gasoline price per gallon)

34. Department of Economics Components of 2007 Energy Act  Up to $500 million per year in grants for the production of advanced biofuels (with at least an 80% reduction in GHG emissions relative to current fuels)  Up to $25 million per year in grants for R&D for biofuel production in states with low rates of biofuel production

35. Department of Economics Energy in the Farm Bill  Grants for the development and construction of advanced biofuel biorefineries, up to 30% of the cost of the project  Loans for the same, up to $250 million or 80% of the cost per project

36. Department of Economics Biomass Crop Assistance Program  To support production of crops for bioenergy and assist with collection, harvest, storage, and transportation of biomass to conversion facilities  Excluded materials  Farm program crops, animal byproducts, food waste, yard waste, algae

37. Department of Economics Biomass Crop Assistance Program  Requires producers and conversion facilities to submit proposal establishing a project area  Establishes contracts between USDA, producers, and facilities to promote project  Sets up establishment payments for perennial crops and annual payment to biomass producers

38. Department of Economics Biomass Crop Assistance Program  Payments are also authorized for biomass collection, harvest, storage, and transportation  Matching payments  $1 for each $1 per ton paid by conversion facility, up to $45 per ton, for 2 years

39. Department of Economics Draft Lifecycle GHG Reductions Source: EPA, May 2009

40. Department of Economics CARB Fuel Carbon Values Source: CA Air Resources Board, April 2009

41. Department of Economics Hay Acreage Source: USDA-NASS

42. Department of Economics CRP Expiring Contracts Source: USDA-FSA April 2009: 33.712 million acres Cap in 2010: 32 million acres

43. Department of Economics Land Availability Data from Census of Agriculture 199720022007 Land in farms 955 938 922 Total cropland 445 434 406 Harvested cropland 319 303 310 Cropland in pasture 66 61 36 Other cropland 60 71 61 Total woodland 77 76 75 Pastureland (not crop) 398 395 409 Land in other uses 34 33 32 Source: USDA-NASS

44. Department of Economics

45. Renewable Fuels Standard (RFS)

46. Department of Economics Currently Available Biomass Source: NREL, 2005

47. Department of Economics Spectrum of Biofuels Source: NREL, 2006  Grain/Sugar Ethanol  Biodiesel  Green Gasoline/Diesel  Cellulosic Ethanol  Butanol  Pyrolysis Liquids  Syngas Liquids Most Mature Least Mature

48. Department of Economics Biofuel Challenges  Production costs  Conversion, ag. production, etc.  Infrastructure barriers  Developing supply chain for biomass  Continued development of biofuel distribution system  Growth in biofuel-compatible vehicles

49. Department of Economics Biofuel Challenges  Investment risks  Higher capital costs, emerging technology  Biomass production shifts  Inducing farmers to produce new crops  Consumer understanding  About the fuels  About the tradeoffs

50. Department of Economics Thank you for your time! Any questions? My web site: http://www.econ.iastate.edu/faculty/hart/