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 This study was undertaken to examine the impacts of expanded levels of ethanol and biodiesel production and to provide a better understanding of the potential economic and agricultural impacts of this expansion.
The study results indicate that producing 60 billion gallons of ethanol and 1.6 billion gallons of biodiesel from renewable resources by the year 2030 is projected to result in the development of a new industrial complex with nearly 35 million acres planted to dedicated energy crops.
This industrial complex is estimated to have an economic impact in excess of $350 billion within the U.S., creating 2.4 million additional jobs, many in Rural America. Not only can U.S. agriculture meet the nation’s food and feed demand, but it has sufficient resources to produce significant quantities of biofuels. Bioenergy allows for a potential winwin- win scenario for energy security, agriculture, and rural economic development.
Using POLYSYS, an agricultural simulation model developed at the University of Tennessee, and IMPLAN, an input output model, this report assesses the potential impacts of increasing production of ethanol and bio-diesel beyond current market levels and the levels specified in the recently enacted renewable fuel standard. Specifically, the objective of the study is to analyze the impacts on agriculture and the economy from increased ethanol (starch and cellulosic) production. The levels of production analyzed are 10, 30, and 60 billion gallons of ethanol by 2010, 2020 and 2030, respectively.
In addition, sensitivity to the timing of cellulosic to ethanol commercial introduction and impacts cellulosic introduction has on the corn to ethanol industry are projected. The study also includes an assessment of the impacts of producing 1 billion gallons of biodiesel production by 2012.
For the agricultural sector, this new demand for agricultural cropland and crops implies an additional $11 billion of net farm income by 2030, and savings of more than $5 billion dollars in government payments in that year. Overall for the period 2007 to 2030, the estimated accumulated gains in net farm income are over $210 billion.
Between 2007 and 2012, corn grain is the primary feedstock for ethanol production at a little more than 12 billion gallons per year resulting in an increase in corn price of about $0.90/bushel in 2010. Cellulosic ethanol is assumed to be commercially viable in 2012 and initially wood from forest residues and mill wastes are used. By 2014, dedicated energy crops are utilized and become the primary cellulosic feedstock by 2017. Crop residues in the form of wheat straw and corn stover become significant feedstocks after 2020.
In order to meet the specified goals, if cellulosic ethanol is not commercially viable until 2015, 20 billion gallons of ethanol will need to come from corn. This results in the price of corn increasing to $4.65/bushel. This high corn price is likely prohibitive to attainment of the ethanol goal.
By 2030, agricultural exports are reduced by $3 billion, with most of the reduction occurring in the soybean market. However, in that same year, ethanol is projected to displace more than 20 percent of domestic gasoline consumption, potentially reducing oil imports by $52 billion dollars. For the entire period through 2030, the displacement would be 10.48 billion barrels of oil, and a potential import reduction of $629 billion dollars. (Executive Summary)
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Study Report By
Daniel De La Torre Ugarte, Burton English, Kim Jensen, Chad Hellwinckel, Jamey
Menard, and Brad Wilson*
December 2006
* Associate Professor, Professor, Professor, Research Associate, Research Associate and Programmer/Analyst respectively. Department of Agricultural Economics, 310 Morgan Hall, 2621 Morgan Circle, The University of Tennessee, Knoxville, TN 37996, ph. 865-974-5005.
Study funded in part by the Governors’ Ethanol Coalition and the National Commission on Energy Policy.
Study Highlights:
Achievement of 60 billion gallons of ethanol and 1.6 billion gallons of biodiesel per year:
• Can be achieved without using CRP lands,
• Will be fostered by research increasing agricultural productivity and commercialization of cellulosics to ethanol,
• Is projected to result in a cumulative increase in net farm income over the 2007-2030 period of $210 billion,
• Is estimated to impact the nation’s economy by $350 billion and 2.4 million jobs, with much of these impacts occurring in the nation’s rural economies,
• Will provide for displacement of more than 20% of the gasoline by 2030; potentially reducing oil imports by $52 billion, and
• Can result in cumulative displacement of 10.48 billion barrels of oil, and a potential import reduction of $629 billion through 2030.
Table of Contents
I. Introduction ................................................................................................................................ 8
II. Objective ................................................................................................................................. 10
III. Methodology.......................................................................................................................... 11
3.1. Biofuels Goals.................................................................................................................... 12
3.2. Conversion Technologies .......................................................................................... 14
3.2.1 Modeling Methodology ................................................................................................ 14
3.2.2 Outlook for a cellulose-to-ethanol industry.................................................................. 14
3.2.2.1 Enzymatic Breakdown .......................................................................................... 15
3.2.2.2 Gasification........................................................................................................... 16
3.3. POLYSYS......................................................................................................................... 17
3.3.1. Crop Supply Module.................................................................................................... 19
3.3.2. Crop Demand Module ................................................................................................. 20
3.3.3. Livestock Module ........................................................................................................ 21
3.3.4. Biomass Feedstock Sources......................................................................................... 21
3.3.4.1. Dedicated Energy Crop........................................................................................ 21
3.3.4.2. Crop Residues ...................................................................................................... 22
3.3.4.3. Wood Residues .................................................................................................... 22
3.3.4.4. Yellow Grease and Tallow................................................................................... 23
3.3.5. Optimal Feedstock Allocation ..................................................................................... 23
3.3.6. Conversion Costs and Coefficients.............................................................................. 25
3.4. PII / IMPLAN .................................................................................................................... 25
3.4.1. IMPLAN...................................................................................................................... 25
3.4.2. POLYSYS/IMPLAN Integrator (PII).......................................................................... 27
3.4.2.1. Impacts to the Agricultural Sector ....................................................................... 28
3.4.2.2. Impacts to the Renewable Energy Sector ............................................................ 28
3.4.2.3. Impacts That Occur As A Result Of Interstate Commerce.................................. 28
3.5. Key Study Assumptions..................................................................................................... 28
3.5.1. Dedicated Energy Crops Yield .................................................................................... 29
3.5.2. Adoption of No-till Practices....................................................................................... 30
3.5.3. Augment the Landbase ................................................................................................ 31
3.5.4. Yields of Traditional Commodities ............................................................................. 31
3.6. Scenarios........................................................................................................................... 32
3.6.1. Scenario 1: Ethanol 60 Billion gallons (ETH60)......................................................... 32
3.6.2. Scenario 2: Corn Grain for Ethanol Adjustment (ETH60CA) .................................... 33
3.6.3. Scenario 3: Delay in the Cellulose-to-Ethanol Technology to 2015 (ETH60CADC) 33
IV. Results 33
4.1. Agricultural Sector Impacts ............................................................................................... 33
4.2. Bioenergy Production and Fuels Imports Reduction......................................................... 34
4.3. Feedstock Utilization ........................................................................................................ 35
4.4. Changes in Land Use ......................................................................................................... 38
4.5. Price Impacts..................................................................................................................... 40
4.6. Biofuels Cost...................................................................................................................... 41
4.7. Exports ............................................................................................................................... 43
4.8. Regional Impacts: Feedstock and Net Returns .................................................................. 44
4.9. Livestock Sector ................................................................................................................ 46
4.10. Corn Utilization ............................................................................................................... 48
4.11. Government Payments and Net Farm Income................................................................. 50
4.12. Impacts on the Nation’s Economy................................................................................... 52
4.13. Impacts in the Ethanol Energy Conversion Sector .......................................................... 54
4.14 Tax Implications of producing 60 Billion Ethanol Gallons.............................................. 55
4.15. Summary of Key Findings............................................................................................... 56
V. Conclusions............................................................................................................................. 58
VI. References............................................................................................................................. 60
APPENDIX A: Renewable Conversion Technologies —Expenditures In IMPLAN .................. 66
APPENDIX B: 2006 USDA Baseline Extended to 2030 (USDAExt)......................................... 82
APPENDIX C: Definitions, Data Sources for numbers generated in IMPLAN’s Tax
Impact Report, and Results........................................................................................ 86
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