Analysis of US Renewable Fuels Policies Using a Modified MARKAL Model

1. Analysis of US Renewable Fuels Policies Using a Modified MARKAL Model Kemal Sarica, Wallace E. Tyner Purdue University June 20, 2011 34th IAEE International Conference

2. Outline • Scope • Model and Modifications • Land in biomass supply chain • Biomass supply for corn and cellulose • Update in biochemical cellulosic ethanol tech. • Thermochemical process technology • Dispenser technologies (differentiating E10 and other ethanol blends) • Scenarios • Results

3. Scope • Evaluate the impacts and costs of prospective US biofuels with • competitive energy system infrastructure, • a more realistic approach considering key factors of production, • alternative technologies for liquid fuel production

4. Model • Use of the US EPA MARKAL model • Model is a bottom up energy systems model that makes use of a detailed representation of energy technologies. • This paper concentrates on Renewable Fuel Standard (RFS), biofuel subsidies, and alternative technologies to reach the targets specified.

5. U.S. Renewable Fuel Standard

6. Model

7. Model Modifications - Biomass • Biomass is different from other energy sources in MARKAL. Use of land for biomass production itself interferes with the ongoing biomass production for crops and other activities. • You do not have to sacrifice production of oil to produce uranium or vice versa. • The current RES of US EPA MARKAL model or any national or international MARKAL model only crudely reflects this reality.

8. Model Modifications • US EPA MARKAL has been modified • to introduce the complete supply chain of biomass production including land • We have added ethanol from corn, and ethanol and bio-gasoline from corn stover, miscanthus and switchgrass • Land data comes from the Agro Ecological Zone classification system used in GTAP.

9. Model Modifications

10. Model Modifications Corn and corn stover • Corn production and corn stover production are coupled. • Model can decide the level of stover production in conjunction with the corn grain production. • We assume constant yield for corn production in the current version as there is no additional corn demand in MARKAL.

11. Model Modifications – Land Supply for MARKAL • We have developed a stepped land supply function for land supply from GTAP simulations. • With higher commodity prices comes higher land rent, ceterus paribus. • Land rent is related to commodity prices and commodity prices have some link to the proportion of land used to supply ethanol plants.

12. Model Modifications – Cellulosic Ethanol • Updated the cellulosic biofuel production technologies. • Data from the 2009 National Academies study • Two options based on time frame representing low and medium improvement. • Corn stover, miscanthus and switchgrass are the feedstocks

13. Model Modifications Descriptive parameters of the biochemical ethanol techs introduced to the model

14. Model Modifications - Hydrocarbons • Introduced two thermochemical technologies for processing of biomass into the US EPA MARKAL model. • First one is the use of coal with biomass with carbon sequestration and storage (CCS) technology, • which is promising since it makes the use of cheap coal resources with biomass and removes the excess carbon emissions.

15. Model Modifications - Hydrocarbons • Second is the direct use of biomass throughout the thermochemical process without CCS. • Both designs offers zero carbon emissions using a lifecycle approach • Selected designs are competitive alternatives to the cellulosic ethanol production choices for RFS targets

16. Model Modifications Descriptive parameters of the thermochemical technologies introduced to the model

17. Model Modifications Dispenser • Ethanol blends up to 10% (E10) compatible with current infrastructure. • E15 and higher blends require separate dispenser and storage. • US EPA MARKAL model modified to capture required investments for distributing the blends higher than E10.

18. Scenarios • No government intervention (no RFS & subsidy) • Biofuels with RFS targets. • Subsidy based on current legislation (volumetric). Subsidy for the corn ethanol $0.45/gallon, & the cellulose biofuel (regardless of what biofuel) $1.01/gal.

19. Scenarios (cont’d) 4. Subsidy based on energy content. Cellulosic ethanol has a subsidy of $0.67, whereas cellulosic bio-gasoline is at $1.01/gal. Corn ethanol remains at $0.45/gal. 5. The fifth scenario is a combination of the RFS and the energy equivalent subsidy (2 and 4).

20. Results (Needed Subsidies to Achieve Corn Ethanol Targets)

21. Results(Needed subsidies to achieve cellulosic fuel targets)

22. Results(Total system cost increase per gallon of RFS fuel)

23. Conclusions • Without subsidy or mandate: • Corn ethanol will be produced as long as blend wall permits till 2020. • By 2020 cellulosic ethanol will be dominant in ethanol production if forecasted technologies are realized. • No energy crop production and related land use • Stover use up to 90 mil. tons. • Thermochemical fuel production does not seem to be an attractive option.

24. Conclusions • Under mandated RFS scenarios, • Cellulosic ethanol production is suppressed due to total ethanol prod. hitting blend wall. • Due to blend wall,thermochemical cellulosic fuel production dominates biochemical supply chain. • Energy crop production 130 – 140 mil. tons is expected coupled with 120 mil. tons stover use. • Expected land needed is 18 – 22 mil. hectares depending on tech. used.(less w/ coal/biomass tech.) • Related average land rent may go up to 140 $/hectare and 55 $/hectare for cropland pasture and pasture, respectively.

25. Conclusions Under subsidy scenarios, • Under volumetric subsidy scenarios, • Corn ethanol production will considerably fall by 2020, due competition with cellulosic ethanol. • Cellulosic fuel production is dominated by biochemical technologies compared to thermochemical with a 3:2 ratio w/o coal/biomass. • Thermochemical fuel production w/o coal/biomass option is around 4.5 BG. (12 BG w/ coal/biomass). • Coal/biomass thermochemical pathway increases production of total cellulosic fuel (12 to 17 BG) and cellulosic ethanol (2BG) falls.

26. Conclusions Under subsidy scenarios, • Under energy content subsidy scenarios, • Corn ethanol production is higher compared to volumetric subsidy due to lower support to cellulosic ethanol (12 BG). • Cellulosic ethanol production drops down to 1 BG from 2 BG if coal/biomass thermochemical pathway is available. • Cellulosic fuel production through thermochemical pathway varies from 8 to 13 BG depending on coal/biomass technology availability.

27. Conclusions • Land use pattern / area changes considerably based on subsidy regime and available technologies. • For the RFS cases, existence of coal/biomass thermochemical technology reduces land requirement for cellulosic fuel due to complimentary nature with corn ethanol. • Volumetric subsidy will suppress corn ethanol related land use.

28. Conclusions • Volumetric subsidy uses the most pasture and cropland pasture • The required subsidy costs vary widely depending on whether or not the coal/biomass technology is enabled. • Coal combined thermochemical pathway with biomass is cheaper than biomass alone (about $1/gal. gasoline equivalent). • The standard MARKAL results can be considerably enhanced by combining richer information on the land supply data into MARKAL.

29. Conclusions • In the future, we look forward to • refining the analysis, • improving the technology data • Migration from AEO 2008 to AEO 2011 • Switching from EPA single region to BNL national and then international, to see international consequences, and • improving the land supply for the different feedstocks (GTAP 2004 Database).

30. Thank you!Questions and Comments

31. Results (Corn Ethanol- Quantity)

32. Results (Cellulosic Eth. - Quantity)

33. Results (Thermochemical Fuel. - Quantity)

34. Results (Total Cellulosic Biofuel)

35. Results(Total system cost increase per gallon of corn ethanol)

36. Results(Total system cost increase per gallon of RFS related fuel)

37. Results(Total system cost increase per gallon of cellulosic fuel)