Sustainable Farming: Role of Bio-energy Production

1
Sustainable Farming Role of Bio-energy Production

• Alan Renwick
• SAC

CECS Seminar 5th October 2007
2
Talk Outline

• Sustainable Development Agenda
• Final Energy
• Economics, Energy and GHG Balances
• Dedicated Energy Crops
• Economic and Environmental Implications
• Conventional Crops Used for Energy
• Economic and Environmental Implications
• Further Issues

3
UK Sustainable Development Agenda

• "to enable all people throughout the world to
  satisfy their basic needs and enjoy a better
  quality of life without compromising the quality
  of life of future generations"

4
UK Principles of Sustainable Development
5
Forward Strategy For Scottish Agriculture

• 'We want a prosperous and sustainable farming
  industry, one of Scotland's success stories,
  which benefits all the people of Scotland. It
  should be
• focused on producing food and other products for
  the market
• a major driver in sustaining rural development,
  helping rural communities prosper
• a leading player in the protection and
  enhancement of the environment
• a major contributor to key objectives on animal
  health and welfare and human health and
  well-being
• keen to embrace change and market opportunities.

6
Why Interest in Energy Crops at Farm Level?

• Farm Incomes
• Period of low returns from traditional
  enterprises
• Period of low returns from traditional markets
  for commodities
• Common Agricultural Policy Reform
• Support for Energy Crops arising from wider
  concerns about Global Warming and energy security
• Push for sustainable farming

7
Some Key Questions

• What do we mean by bio-energy production
• Does it make economic sense?
• Are there environmental benefits?
• Will farmers adopt energy crops

8

• Will concentrate on crops for bio-energy
  production both conventional and non-conventional
• Other forms of bioenergy anaerobic digestion e
• Other non-food use of crops raises many similar
  issues

9
Energy Crops and Conversion Technology
10
Economics of Final Energy
11
Heat and Electricity
Source SAC/University of Cambridge (2005)
12
Biofuels
Source SAC/University of Cambridge
Source SAC/University of Cambridge (2005)
13
Carbon and Energy Balances
14
Energy Requirements
Source SAC/University of Cambridge
Source SAC/University of Cambridge (2005)
15
GHG Emissions
Source SAC/University of Cambridge
Source SAC/University of Cambridge (2005)
16

• Economics of production of final energy is
  marginal at best (without support)
• Energy and Carbon Savings could suggest
  environmental benefits associated with production
  of renewable fuels
• At what cost?

17
Cost of Carbon Abated Best Case Scenarios
Caution our estimates only Others may vary
considerably
Source SAC/University of Cambridge
Source SAC/University of Cambridge (2005)
18
Support Measures

• Government Support
• Energy Crop Payment (45 Euro hectare)
• Planting Grants (1000/900)
• Capital Grants
• Producer Group Grants
• Renewable Obligation Certificates (ROCs)
• Tax Relief - Biofuels
• Road Traffic Fuel Obligation

19
Dedicated Energy Crops

• Can they contribute to sustainable farming
  systems?
• Economics
• Environment
• Social

20
Dedicated Energy Crops

• A number of policies in place that may be seen to
  support production of energy crops either
  directly or indirectly
• However, only a very small area down to energy
  crops at present
• Why? Simple economic issue?

21
Dedicated Energy Crops
22
Assumptions for SRC/Miscanthus

• 16 year timeframe for the crop
• Yields 14 and 9 Odt/ha yr for Miscanthus and SRC
  respectively
• Price 25/Odt and 35/Odt ex-farm Miscanthus and
  SRC respectively
• Discount Rate 6 per cent
• Government Subsidies included (Planting Grant and
  Energy Crop Payment i.e. assumed grown on non-set
  aside land)
• Contract harvested
• Includes rental value of land and minimum
  overhead costs ( 87 per hectare)

23
Returns and Costs of Production
Price in region of 25 to 35 per oven dried
tonne for commodity
24
Sensitivity

• Our results are clearly sensitive to assumptions
  in Key Areas
• Yield
• Price
• Support
• Costs (esp. Land)
• Discount Rate
• Note Contracts are been offered on other terms
  eg Lockerbie plant in Scotland

25
Miscanthus Net Margin
Government support significantly influences
economics of production
26
SRC Net Margin
27

• Under the standard assumptions used for our study
  the crops do not appear to generate positive NPV
  when fully costed.

28
Economics could change

• New Crop therefore technology could improve
• Add value same issue as in food chain sell
  energy not wood chips
• Alternative sources of income willow good way
  of dealing with sewage sludge
• If carbon has value then changes the economics
• Increased support

29
Understanding Producer Behaviour

• Closer to agro-forestry than farming?
• 16 20 year timeframe
• Fixed contracts Isnt certainty good?
• Fewer alternative markets ABARE

30
Environmental Benefits?

• In part depends upon incentives Production or
  GHG savings?
• Potential increase in diversity
• Issues with Landscape change

Now I am sure I saw some sheep on a hill somewhere
31
Conventional Crops
32
Existing Crops for Energy

• In some senses have advantages over dedicated
  energy crops
• Annual Crops
• Understand Technologies
• Alternative Markets
• Must remember competing for similar land

33
Land Suitability Scotland SRC

• If produced map of suitability for combinable
  crops would look very similar

Source W. Towers MLURI
34
Two Years Ago Economics looked Marginal
Choice seemed between one uneconomic land use
and another
35
However marked change in last year
36

• In part fueled (!) by world biofuel demand but
  mainly poor harvests in Australia, Europe leading
  to record low world stocks

37
US ethanol capacity expected to continue climbing
well ahead of target
Ethanol Ethanol Maize
Bn gall. Bn l Mt
06/07 5.6 21.5 56
07/08 8.3 32 86
08/09 11.8 45.6 120
UK doesnt actually have any dedicated bioethanol
plants at the moment. A number planned but high
prices will cause issues some have already been
mothballed in Europe
Source RFS/USDA/SAC
38
Sustainable?

• Could argue that by increasing demand for
  cereals/oilseeds it is improving economic element
  of sustainability of farms.
• However
• Not certain high prices will persist
• Detrimental to livestock farmers
• High prices may lead to conflicts between
  economic/environmental aspects of farming
• Intensive, Extensive, Set-Aside

39
Intensity

• Fertiliser use doesnt appear very sensitive to
  price

• However, increased fungicide applications could
  be more viable

Source Simon Oxley SAC
40
Extensive Margin

• Around 50,000 hectares in Scotland out of arable
  since 2001
• In addition set-aside removal

10 to 5
5 to 10
41
Sustainable

• In terms of overall sustainability methods of
  production can have marked impact on energy and
  GHG emissions.
• Zero till versus ploughing for example
• Also potential to encourage unsustainable methods
  of production
• Shortened rotations

42
Some Wider Issues

• Higher agricultural prices
• Benefit developing countries that are exporters
• May make it easier to push through further
  agricultural policy reform in developed countries
  potential longer term benefits
• Food vs Fuel Debate
• Potentially increase risk to global food supply
  and hence global food security
• Food Poverty still an issue in West?
• Particularly impact on food importers

43
Conclusions Does it help Sustainable Farming
Agenda

• Bioenergy production does offer potential
  environmental gains in terms of energy use and
  GHG emissions which might justify support - BUT
• Does depend upon method of production
• Economics currently in favour of wheat/oilseeds
  with fewer gains? (but might change with second
  generation)

44
Conclusions

• Current high prices do improve economic viability
  for some producers - Major issues when begin to
  distort crops vs livestock, maize vs soya, food
  vs fuel
• At the national level does present challenges for
  wider policy aims for sustainable agriculture
  biodiversity, water quality, agri-environmental
  schemes, local food

45

• Acknowledgement
• This presentation forms part of the on-going work
  on Sustainable Farming Systems funded by the
  Scottish Government Rural and Environment
  Research and Analysis Directorate (RERAD)

46
(No Transcript)