Energy and AgricultureEnergy and Agriculture

I. Energy types, sources, and usesII. Ag use of energyIII. Ag production of energyIV. Outlook

I. Energy types, sources, and uses

Energy types:• Coal• Natural Gas• Petroleum – Crude Oil• Nuclear• Renewable

U.S. Energy Production

05,000,000

10,000,00015,000,00020,000,00025,000,00030,000,000

1949

1953

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1965

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1973

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1981

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2001

Bil

BT

Us

Coal Nat. Gas Oil Renew able Nuclear

I. Energy types, sources, and uses

U.S. Energy Use, Production, and Imports

020000400006000080000

100000120000

1973

1975

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1979

1981

1983

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1993

1995

1997

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2003

Tril

lion

BT

Us

Production Imports Consumption

I. Energy types, sources, and uses

I. Energy types, sources, and uses

Energy use in the US:• Commercial 18%• Residential 22%• Transportation 27%• Industrial 33%

II. Ag use of energyII. Ag use of energy

Uses:• Fuel• Nitrogen fertilizers• Crop drying/Ginning• Transportation

II. Ag use of energyII. Ag use of energy

• Proportion of expenses that are fuel and energy related?– From about 20% for dryland wheat to 70% for

irrigated rice

• Forecast impact of higher energy prices in 2005 on expected farm income:– Rice -81%– Feedgrains -31%– Cotton -29%– Wheat -7%– Beef cattle -10%– Dairy -3.5%

Diesel Fuel Prices: Nominal and Real

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Real (2005=1) Price

Nominal Price

Projections

II. II. Ag use of energyAg use of energy

II. II. Ag use of energyAg use of energy

Henry Hub Natural Gas, Annual Ave. Price

0.000

1.000

2.000

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4.000

5.000

6.000

1990 1995 2000 2005

US

$ /

MM

BT

U

II. II. Ag use of energyAg use of energy

Energy efficiency in ag production:

• 1978: 2.5 quadrillion BTUs12,550 BTUs / real US $ of

prod.

• 2002: ~1.8 quadrillion BTUs7,600 BTUs / real US $ of

prod.

III. Ag production of III. Ag production of energyenergy

• Ethanol– Feedstocks– Fossil energy inputs– Net energy controversy

• Biodiesel– Feedstocks

• Wind– Dependability of wind resource– Space for towers and access roads

• Most energy produced by ag is clean and renewable• Some environmental concerns, however

III. Ag production of III. Ag production of energyenergy

Ethanol production capacity (gallons / year):• US (current): 4.7 billion• US (current + under construction): 6.4 billion• Brazil (2004): 4.0 billion• China (2004): 1.0 billion

Biodiesel production capacity:• US (current, dedicated): 0.2 billion• 1.5 billion in Houston ??????

III. Ag production of III. Ag production of energyenergy

Policy:• Decrease dependence on energy imports• Promote clean and renewable energy sources

Policy instruments:• Renewable Fuel Standard• Excise tax credits• Tariffs on imports• Caribbean Basin Initiative• Ultra-Low Sulfur Diesel Requirements• Conservation Reserve Program• Federal Production Tax Credit, rapid capital depreciation

(wind)• State programs• MTBE bans

III. Ag production of III. Ag production of energyenergy

• Renewable Fuel Standard (RFS) in 2005 Energy Bill– Amount of RF that must be used– FTC to study market power issues– 4 billion gallons in 2006– 7.5 billion gallons by 2012– Review and increase later– Biomass requirements

• RFS flexibility provisions– Waivers for economic or environmental harm– Tradable credits– Annual averaging

III. Ag production of III. Ag production of energyenergy

Federal excise tax reductions:• Ethanol: 51¢ / gallon• Biodiesel (virgin oil): $1 / gallon• Biodiesel (yellow grease): 50¢ / gallon

• Ethanol credit good through 2010• Biodiesel credit good through ????

III. Ag production of III. Ag production of energyenergy

• Tariffs on imports of ethanol: 54¢ / gallon

• Caribbean Basin Initiative:– Duty-free imports up to 7% of previous

year’s consumption– Duty-free imports on the next 35 million

gallons comprised of >= 30% indigenous commodities

– Duty-free imports on additional gallons comprised of >= 50% indigenous commodities

• Brazil

III. Ag production of III. Ag production of energyenergy

Ultra-low Sulfur Diesel (ULSD):• Staring in July 2006, only 15 ppm (down from 200+

ppm) of sulfur allowed in 80% of on-road diesel fuel• Lubricity concerns => increased use of biodiesel?

Conservation Reserve Program:• Biomass pilot projects – switchgrass, hybrid poplar,

willows

Federal Production Tax Credit (wind):• 1.9¢ / kWH on the first 10 years’ production• Through Dec. 2007

IV. OutlookIV. Outlook

• Crude Oil– Tight world oil market – esp. light sweet – Declining production rates in many

producing countries– Growth in developing economies– Inelastic demand

• Natural gas– Storm damage– Declining N. American production?– High prices likely to continue

IV. OutlookIV. Outlook

West Texas Intermediate Crude Oil, Monthly

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IV. OutlookIV. Outlook

Henry Hub Natural Gas, Monthly

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1995 1997 1999 2001 2003 2005 2007 2009 2011

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Energy Policy Issues

• Self-sufficiency– Food vs. Fuel– Technology Development (efficiency)

• Environmental

• Market Stability/Change

• Political Pressures