L ONG T ERM G LOBAL B IOFUEL P ROJECTIONS W ITH A GRICULTURAL R ESOURCE U SE UNDER D IFFERENT O IL P...
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Transcript of L ONG T ERM G LOBAL B IOFUEL P ROJECTIONS W ITH A GRICULTURAL R ESOURCE U SE UNDER D IFFERENT O IL P...
![Page 1: L ONG T ERM G LOBAL B IOFUEL P ROJECTIONS W ITH A GRICULTURAL R ESOURCE U SE UNDER D IFFERENT O IL P RICE S CENARIOS John Miranowski Professor of Economics,](https://reader033.fdocuments.in/reader033/viewer/2022051214/56649eff5503460f94c13fa8/html5/thumbnails/1.jpg)
LONG TERM GLOBAL BIOFUEL PROJECTIONS WITH AGRICULTURAL RESOURCE USE UNDER
DIFFERENT OIL PRICE SCENARIOS
John MiranowskiProfessor of Economics, Iowa State University
with
Alicia Rosburg, Assistant Professor, University of Northern Iowa
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Introduction
• Sabbatical opportunity at FAO (2011)• “LONG TERM GLOBAL BIOFUEL PROJECTIONS WITH
AGRICULTURAL RESOURCE USE TO 2080”
• What would long term global market model tell us to expect?• Given feedstock demand for energy content, crude oil price will
drive biofuel or parity price for foreseeable future.
• Renewable energy programs have limited long term (LT) impact (US-RFS & EU-RED) – “Fossil fuel attacks on mandates, subsidies, put renewables at risk.” (DSM Register, June 18, 2012). Fracking NG, Oil
• Implications for resource use are more complicated but technology and productivity growth will limit LUC and other input use.
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Rationale and Framework of Analysis
• “Important resource problems are LT issues.” T.W. Schultz
• If biofuel is small component of energy market, the demand for biofuel is perfectly elastic for a given oil price
• Energy content of feedstock is demanded by biofuel processor. The processor can only pay an amount equal to energy value of biofuel, plus co-product value, less cost of feedstock conversion.
• The minimum amount the feedstock producer will accept to deliver feedstock reflects production, harvest, storage, transport, and opportunity costs.
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Rationale and Framework of Analysis
• Parity price graphs relate maximum price the biofuel process can pay for feedstock given alternative oil price scenarios.
• In the LT, the price of oil puts both floor and ceiling on commodity and biomass feedstock prices.
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Figure 1. Breakeven sugarcane price (PD) – BEFS Peru(Commercial/smallholder coastal)
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Figure 1 (cont). Breakeven sugarcane price (PD) – BEFS Tanzania(BEFS Tanzania – Scenario 1)
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Figure 2. Price gap (PS – PD)(Maize only)
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Rationale and Framework of Analysis
• In LT, inputs are variable and substitutable. Short term market shocks and responses not issue.
• Government biofuel incentives and mandates put upward pressure on food and feedstock prices, but not LT phenomena.
• Technological change and productivity growth lower unit costs and competitive markets lead to lower profit margins and sectoral adjustment. Improved resource use efficiency - LUC,N.
• Agricultural commodities follow the traditional market paradigm of declining LT real prices.
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Figure 3. Select real commodity prices, 1965 – 2010
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
20
10
$/b
u
20
10
$/b
bl
Commodity Prices
Crude Oil Corn
Soybean Wheat
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Long Term Biofuel Breakeven Model
• Determines maximum LT breakeven price the processor can pay for feedstock given oil price scenarios and biofuel conversion costs.
• Determines minimum LT breakeven price producer is willing to accept given feedstock production, harvest, storage, transportation, and opportunity costs.
• Budgeting model with step-wise LT supply curve.
• Gap between producers’ willingness to accept and processors’ willingness to pay indicates when LT biofuel market does not meet necessary sustainability condition.
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Background Studies and Database
• We assume three LT crude oil price scenarios - $60, $100, and $140/bbl
• Schmidhuber papers, various years.
• FAO BEFS Reports - Peru, Tanzania, Thailand
• IEA Biofuels Study, 2011
• Kazi, et al, 2011
• ALTF Report, 2009, NRC Report, 2011, Rosburg and Miranowski, 2011
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Figure 4. Price gap per gallon (PS – PD)
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Figure 4 (cont). Price gap per gallon (PS – PD)
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LT Breakeven Is Not Only Sustainability Consideration
• Competitive biorefineries are large scale plants requiring continuous throughput of high-density, dependable feedstock supplies.
• Countries and regions need price elastic feedstock with excess supplies. Otherwise, any supply disruptions may force biofuel plant shutdowns. Small-scale options?
• LT productivity growth in feedstock production and conversion to biofuel.
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Figure 5. Price gap (PS – PD), current minus future values with productivity growth at $100/bbl oil
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Figure 5 (cont). Price gap (PS – PD), current minus future values with productivity growth at $100/bbl oil
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Summary and Conclusions
• First generation biofuel ($100/bbl oil) largely competes because of government intervention (except sugar). Other feedstock are possibilities with high LT oil price ($140/bbl). NG
• If LT oil price is high and tropical countries can expand feedstock supplies to sufficient quantities, they may become competitive biofuel suppliers.
• Productivity growth in feedstock production and conversion may have important implications for biofuel. Continue research!
• Anticipate LT global cropland base will not expand because limited biofuel expansion and productivity growth.
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Feedstock Costs and Price Gaps for Biofuels
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Figure . Processor breakeven feedstock prices @ $100/bbl oil
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Figure . Feedstock cost per gallon (PS reported)
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Figure . Price gap per gallon @ $100/bbl oil, (PS – PD)
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Figure 4. Price gap per gallon (PS – PD)