Energy and Agriculture

1. Energy and Agriculture • Energy types, sources, and uses • Ag use of energy • Ag production of energy • Outlook

2. I. Energy types, sources, and uses Energy types: • Coal • Natural Gas • Petroleum – Crude Oil • Nuclear • Renewable

3. I. Energy types, sources, and uses

4. I. Energy types, sources, and uses

5. I. Energy types, sources, and uses Energy use in the US: • Commercial 18% • Residential 22% • Transportation 27% • Industrial 33%

6. II. Ag use of energy Uses: • Fuel • Nitrogen fertilizers • Crop drying/Ginning • Transportation

7. II. 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%

8. II. Ag use of energy

9. II. Ag use of energy

10. II. Ag use of energy Energy efficiency in ag production: • 1978: 2.5 quadrillion BTUs 12,550 BTUs / real US $ of prod. • 2002: ~1.8 quadrillion BTUs 7,600 BTUs / real US $ of prod.

11. III. Ag production of energy • 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

12. III. Ag production of energy 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 ??????

13. III. Ag production of energy 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

14. III. Ag production of energy • 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

15. III. Ag production of energy 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 ????

16. III. Ag production of energy • 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

17. III. Ag production of energy 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

18. IV. 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

19. IV. Outlook

20. IV. Outlook

21. Energy Policy Issues • Self-sufficiency • Food vs. Fuel • Technology Development (efficiency) • Environmental • Market Stability/Change • Political Pressures