1 / 33

Ethanol Economics

Explore the effects of ethanol production on oil dependence, food prices, gasoline costs, and greenhouse gas emissions. Learn about the energy balance, economic factors, and the relationships between ethanol and gasoline.

loe
Download Presentation

Ethanol Economics

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Ethanol Economics Mike Carnall 30 October 2007

  2. Hopes • Increased Use of Ethanol Will: • Reduce dependence on imported oil • Reduce gasoline prices • Reduce long term GHG emissions

  3. Fears & Doubts • Increased Ethanol Production Will: • Dramatically increase food prices • Corn will be diverted from food to ethanol • Cropland will be diverted from food crops to corn • Do little to reduce the price of fuel/energy • Capacity is small compared with fuel usage • Net energy gain from ethanol is small • Result in little net decline in carbon emissions • Energy yield of corn based ethanol is low • Increasing cropland and crop intensity will have adverse environmental effects

  4. Some Facts • 2006 US Corn Acreage: • 78.3 million acres planted in 2006 • 2006 US Ethanol Production: • 4.89 Billion Gallons (20.0 percent of the corn crop) • US Gasoline Consumption • 140 Billion Gallons • Ethanol as Percent of US Motor Gasoline Usage: • 3.5% volumetric • 2.3% energy basis • Ethanol has 66% of energy content of gasoline • 1.4% net energy saved • Energy replaced less energy required to produce ethanol

  5. Energy Balance • Total Energy Required to Produce 1 Gallon of Ethanol (btu): 45,802 • Ethanol Energy Content (btu/gal): 75,700 • Net: 30,528 • Ratio: 1.666 • Shapouri, USDA, 2004 - Includes credit for by products • This is a Controversial Number

  6. 0.74 Billion Btu + 29 Acres 1.0 Billion Btu Ethanol 13,210 Gal 0.61 BBtu 0.13 BBtu 1.23 Billion Btu - 0.23 BBtu Processing etc. 1.0 Billion Btu Gasoline 8,696 Gal Inputs & Outputs Source: Michael Wang, Presentation at UIUC Sustainable Bioenergy Workshop April 14, 2006

  7. Replacing a Gasoline Btu with an Ethanol Btu • Reduces: • Fossil Energy Use by 40% • (1.23 btu/btu – 0.74 btu/btu) / 1.23 btu/btu • Petroleum Energy Use by 89% • (1.23 btu/btu – 0.13 btu/btu) / 1.23 btu/btu

  8. Current Consumption • Gasoline • 140 Billion Gallons Per Year • Corn Acres Required to Replace Gasoline Energy with Ethanol • 10% - 48 million acres • 85% - 405 million acres • 100% - 476 million acres • Current Cropland Usage • 93 million acres of corn planted in 2007 • 437 million acres total US arable land

  9. 10% of Gasoline – 48 • Planted in 2007 - 93 • 25% of Gasoline – 119 • 85% of Gasoline – 405 • US Arable Land - 437 Energy based percentages Million Acres Required to Replace:

  10. US Grain Crop Planting

  11. Where to From Here? • How Much Ethanol Will be Produced? • How High Will Corn Prices Go? • How Will Food Prices Be Affected? • How Will Gasoline Prices Be Affected?

  12. Relationships

  13. Ethanol - Gasoline Relationship • Complement (volumes move together) • Lack of Flexible Fuel Vehicles (FFVs) may limit ethanol to 10% blend • With FFV bottleneck ethanol & gasoline are complements • Supplement (volumes move in opposite directions) • Below 10% blend ethanol will supplement • As more FFVs are sold ethanol will supplement rather than complement gasoline • FFVs will be more attractive where ethanol is plentiful, i.e. midwest • FFVs will use up to 85% ethanol blend

  14. Economic Factors • Effect of Policies • Mandated quantity • Higher mandate, more ethanol • Level of subsidy • Higher subsidy, more ethanol • Effect of Energy Prices • Petroleum • Gasoline: higher price, more ethanol (if FFVs available) • Diesel: higher price, less ethanol (soybeans replace corn) • Other (fertilizer, pesticides) • Higher price less ethanol

  15. Current Ethanol Policy • Mandated production • Renewable Fuels Standard (RFS) requires 4.0 Billion gallons by 2006, 7.5 Billion gallons by 2012 • California 9% in 2012, 11% in 2017, 26% in 2022 • Subsidized prices • $0.51 per gallon “blenders credit” • Some states provide additional subsidies • Tariff protection • Ad valorem tariff of 2.5% • Import duty of 54¢ per gallon (some CBERA exemptions)

  16. Corn – Energy Relationship • Corn Production is Energy Intensive • Energy costs are≈50% of total operating cost • Cost of corn is sensitive to energy prices • Higher Gasoline Price Makes Ethanol Production Profitable at Higher Corn Prices

  17. Breakeven Corn PriceNovember 2006 (from Purdue) Range of Crude Prices (2006-2007) Min $45/bbl, Max $72/bbl Ave $58/bbl Range of Corn Prices (2006-2007) Min $2.04/bsl, Max $3.96/bsls Ave $2.93/bsl Corn Breakeven @ $60 Crude Additive=$4.82/bu Subsidy=$3.96/bu Energy=$2.19/bu Source: Hurt et al, “Economics of Ethanol”, Purdue Extension, ID-339,

  18. Food – Corn – Energy Relationship • Retail food costs are dominated by processing and transport • Only about 19% of cost is farm input [US] • Higher energy prices will result in higher food prices even at constant corn prices • Increase in corn price from $2.00 to almost $4.00 has had little effect on US food prices

  19. Corn and Beef Prices Source: NCGA, “Understanding the Impact of Higher Corn Prices on Consumer Food Prices”.

  20. Back to the Questions • How Much Ethanol Will be Produced? • How High Will Corn Prices Go? • How Will Food Prices Be Affected? • How Will Gasoline Prices Be Affected?

  21. Getting Answers • Many Interactions • Oil Price • Effect on demand • Effect on supply • Policies • Other crops • Soybeans • Wheat • Import/Export

  22. Modeling • Model must include: • Effect of oil price • Planting decision (corn v soybeans v wheat …) • Livestock feeding decisions (value of byproducts) • Effect of policy parameters (subsidy, tariff etc.) • Imports/exports of corn • Imports/exports of soybeans • Availability of FFVs • Investment in ethanol stills • Response to price changes • Establish equilibrium

  23. Modeling Exercise • Determine the effect of higher oil prices • Baseline assuming current oil price forecast • Oil + $10/bbl (no FFV bottleneck) • Emerging Biofuels: Outlook of Effects on U.S. Grain, Oilseed, and Livestock Markets • Authors: • Elobeid, Fabiosa, Hayes, Babcock, Yu, Dong, Hart, Beghin • Center for Agricultural and Rural Development, Iowa State University

  24. Forecast (2016 long run equilibrium)

  25. Grain Plantings2006-2016/17 (long run equilibrium)

  26. Effect on Food PricesOIL+$10 No Ethanol – Corn price of $1.90/bushel

  27. Fossil Energy Savings (2016 long run equilibrium)

  28. Potential Effect on Gasoline Prices? • Gasoline price is a model input • Energy provided by ethanol is a small (<13%) portion of motor fuel energy • Higher ethanol production requires more corn production • Absent higher subsidies, corn production only responds to higher prices

  29. Concluding Thoughts • Cost to consumers is high • $14 Billion/yr ($47 per person) in subsidy • 1.8% increase in food cost • Reduction in petroleum demand is modest • About 12% • Environmental Effects • Effect on Less Developed Countries

  30. End of Presentation

  31. Estimated Net Energy Values Source: Michael Wang, Presentation at UIUC Sustainable Bioenergy Workshop April 14, 2006

  32. FAPRI ModelFood and Agricultural Policy Research Institute • System of linked models • Livestock • Domestic crops • World trade models for commodities • US policy cost model • US net farm income model • Developed and maintained jointly by: • Iowa State University, Ames • University of Missouri, Columbia

  33. Crude Oil Price Projection(Baseline)Refiners’ Acquisition Cost (≈NYMEX - $6.70)

More Related