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Biofuel Policies of the United States

Biofuel Policies of the United States. The Role of the Tax Credits for Biodiesel Marcel Adenäuer (Bonn University) Seth Meyer (FAO) Pierre Charlebois (Consultant). Facts regarding US biofuels. Ethanol production will require slightly more than 40% of American coarse grain production

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Biofuel Policies of the United States

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  1. Biofuel Policies of the United States The Role of the Tax Credits for Biodiesel Marcel Adenäuer (Bonn University) Seth Meyer (FAO) Pierre Charlebois (Consultant)

  2. Facts regarding US biofuels • Ethanol production will require slightly more than 40% of American coarse grain production • But production of DDG returning in the feed market will represent around 13% of the coarse grain production • The USA is expected to produce almost half of global ethanol production • Their influence in the biodiesel market is much more limited • But: Biodiesel counts as advanced biofuel

  3. US ethanol Mandates 2022 12 bnl 15 bnl 60 bnl 16 bnl 1.2 bnl

  4. Other support measures • Blender tax credit – expired for Ethanol supposed to expire for Biodiesel in 2014 • State specific Level tax support • Small ad valorem tariff on ethanol • Low carbon fuel standard in California

  5. US biofuels in AGLINK/COSIMO • Global endogenous coverage of biofuels and the model is policy specific for both biofuels • The different feedstocks used are also well represented • DDGS are represented as returning to maize, but in the new feed system (2014) they will compete with all feeding stuff (e.g. soybean meal)

  6. When the tax credit expires • For ethanol the knowledge of the expiring in 2013 led to a huge use of the rollover possibility. Parts of the 2013 RINS were produced already in 2012. • Same thing is assumed to happen for biodiesel this year leading to a peak in biodiesel production

  7. Stochastic Analysis • 2 Scenarios • 500 draws on yields for Wheat, Maize, Rice and Oilseeds from historic distribution as shocks to the model • Scenario TAX1: • Blender’s tax credit for Biodiesel (27 $) only in 2013 (as in current legislation) • Scenario TAX2: • Blender’s tax credit for Biodiesel in 2013 - 2022

  8. US biodiesel producer price distribution • US biodiesel prices on average 13 $ higher in TAX2 • Distribution flatter in TAX2 –> less volatility in Tax1 • General: Higher upwards risk for prices than downwards • Tax1 = tax credit only in 2013 • Tax2 = tax credit 2013-2022 • mean: normal line • median: dotted line • q1/q3 percentiles: dashed lines

  9. World biodiesel price distribution • Given the low importance of the USA on the biodiesel world market, the distributions of the world biodiesel price are less distinct. The tendency is the same as in the US, but on a lower level • Tax1 = tax credit only in 2013 • Tax2 = tax credit 2013-2022 • mean: normal line • median: dotted line • q1/q3 percentiles: dashed lines

  10. US biodiesel consumption distribution • Without the Tax credit, the biodiesel mandate is binding for many more draws than in TAX2 • Average consumption 0.8 bnl higher Mandate • Tax1 = tax credit only in 2013 • Tax2 = tax credit 2013-2022 • mean: normal line • median: dotted line • q1/q3 percentiles: dashed lines

  11. US biodiesel consumption deviations

  12. US biodiesel devoted to the advanced mandate

  13. The other side of the medal: US Ethanol imports from Brazil • About 1.1 bnl less imports necessary • Tax1 = tax credit only in 2013 • Tax2 = tax credit 2013-2022

  14. US vegetable oil producer price distribution • Tax1 = tax credit only in 2013 • Tax2 = tax credit 2013-2022 • mean: normal line • median: dotted line • q1/q3 percentiles: dashed lines • The influence of higher biodiesel producer prices on the major biodiesel feed stock vegetable oil is smaller compare to biodiesel prices. • Distributions less asymmetric

  15. US soy bean producer price distribution • Tax1 = tax credit only in 2013 • Tax2 = tax credit 2013-2022 • mean: normal line • median: dotted line • q1/q3 percentiles: dashed lines • The influence of higher biodiesel producer prices on soy beans is small. • Almost no difference in both distributions

  16. It’s vegetable oil imports that react

  17. Conclusions • The blender’s credit for biodiesel reduces the probability that the biodiesel mandate is binding considerably • Effects on the vegetable oil market are comparable low • Cross effects to US ethanol sector low but • Devotion of biodiesel to fill the other advanced gap is higher => more competitive against Sugar cane based Ethanol from Brazil

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