Biofuel Industry Issues

1
Biofuel Industry Issues

• Structural change and industry shake-outs
• Food, feed, and fuel tradeoffs
• Local economic growth and job tradeoffs
• Environmental and water issues

2
Biofuels Where We Are and Where We Are Going

• SMART Economic Development Conference
• Polk County Convention Complex, Des Moines, IA
• 3 May 2007
• John A. Miranowski
• Professor of Economics
• Director, Institute of Science and Society

3
Ethanol Explosion
Source Renewable Fuels Association and
preliminary CARD projections
4
Renewable Fuels Standard
Source Renewable Fuels Association and the
State of the Union Address
5
Current and Planned Iowa Corn Ethanol Plants
(11/06)
6
Current Status Ethanol
November, 2006
7
What Can Processor Pay for Corn and Break-even?

• What can processors pay for feedstock and
  breakeven?
• Corn price/bu 2.85 x ((price of gasoline0.667)
  
• tax credit octane credit) DDG price cost of
  
• capital operating cost
• Currently 4.25/bu

8
Key Assumptions Results

• 60 per gallon price of crude oil translates into
  2.07/gallon price of gasoline.
• Sensitivity to current tax credit of 0.51/gallon
• 14-15B gal constraint with conventional engine
• CARD/FAPRI Model Long run ethanol production of
  30B gallons from corn grain

9
Bio-Expansion Jobs, Environment, Market
Impacts, and Rural Amenities

• Local growth and development
• 6000 jobs attributable to biofuel in Iowa
• Job multiplier impacts 3.5 fold higher
• Future job creation impacts less than half
• Local vs. outside investment
• Structural changes and industry shake-outs are
  to be expected
• Water quality (soil and nutrient loss) and
  quantity (biofuel use)

10
Bio-Expansion Jobs, Environment, Market
Impacts, and Rural Amenities

• Air Quality and Greenhouse Gas Emissions
• Food, Feed, Fuel Tradeoffs
• Energy security

11
Iowa the Saudi Arabia of Biomass
Source U.S. DOE
12
Corn Stover vs. Switchgrass

• Corn Stover
• Harvesting, transport, and storage - 1-2/gal
• Processor offers 100/ton including 50/ton
  subsidy
• Given costs and average returns for corn, farmers
  would consider shifting to switchgrass at
• 110/ton with yield 4 tons/acre
• 82/ton with yield 6 tons/acre

HartBabcock, CARD
13
Biomass Feedstock the Answer

• Significant economic and RD challenges
• Yield and nutrient requirements
• Biomass harvesting, transport, and storage
  1-2/gal
• Opportunity cost of land
• GHG emission reductions
• Conversion process and biofuel form
• Commercial scale about 2015

14
Outlook for Biobased Products Industry

• Optimistic outlook
• Dependent on oil/gasoline prices and continuation
  of excise tax credit
• Biomass may be a significant feedstock for
  biofuel and other biobased products

15
Summary and Conclusions

• Agriculture in last half of Twentieth Century not
  sustainable - negative impact on rural economic
  growth
• Biofuels and biobased products add value and jobs
  - spurred jobs and rural economic growth
• Need caution to protect environment and
  amenities, and assure affordable food