An Evaluation of the Economic and Environmental Impacts of the Corn Grain Ethanol Industry on the Agricultural Sector

1
An Evaluation of the Economic and Environmental
Impacts of the Corn Grain Ethanol Industry on the
Agricultural Sector
James A. Larson, Burton C. English, and Daniel
G. De La Torre Ugarte
Western Agricultural Economics Association Annual
Meeting, Big Sky, MT, June 25-27, 2008
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Problem

• The Energy Independence and Security Act of 2007
  mandates production 36 billion gallons per year
  (BGY) of ethanol to by 2022, with 21 BGY from
  feedstocks other than corn.
• Notwithstanding, production of ethanol from corn
  grain is expected to rise significantly over the
  next decade in response to legislative mandates
  and tight energy market supply and demand
  conditions.
• Changes in crop mix and production practices with
  increased corn production have the potential to
  impact land resources in different locals across
  the U.S.
• For example, soil erosion is the major pathway by
  which sediment, nutrients, and pesticide residues
  reach surface water.

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Objective

• To analyze the impacts on the agricultural sector
  as a result of increasing corn ethanol
  production.
• To evaluate changes in fertilizer expenditures,
  herbicide expenditures, gross soil erosion and
  sedimentation, and carbon sequestration.

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Analytical Tool

• POLYSYS
• 305 crop production regions (ASDs)
• National livestock production
• National demand market (Elasticity Driven)
• (Sum of Production Domestic Supply)
• Energy market is goal driven
• Solutions compared to a USDA Baseline

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Cropland Base
2002 Agricultural Census
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POLYSYS Model
Economic Module
Environmental Module
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Extended Economic Baseline

• 2007 USDA Baseline (2007 to 2016)
• Ethanol use at 12 BGY by 2016.
• Crop yield increases for traditional crops.
• No changes in current tillage practices.
• Corn grain was the assumed feedstock for ethanol
  production through the year 2016.
• Conversion efficiency for corn ethanol grows to
  3.0 gallons/bushel.

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Ethanol Scenarios

• Changes in selected economic and environmental
  indicators from the baseline were evaluated for
• 8.6 BGY of ethanol by 2016,
• 14 BGY of ethanol by 2016,
• 16 BGY of ethanol by 2016, and
• 18 BGY of ethanol by 2016.
• Results from these four scenarios were compared
  with the 12 BGY baseline scenario to illustrate
  how various ethanol industry output expansion
  paths might influence the agricultural sector.

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Environmental Submodule

• Change in Land Use
• Change in Input Expenditures
• Fertilizer application changes estimated based on
  changes in expenditures in N,P,K (Fert).
• Herbicides and insecticides application changes
  estimated based on changes in expenditures on
  herbicide and insecticides for the 8 major crops.
• Change in Soil Erosion
• Estimated using NRCS ASD region KLSR and P
  estimates combined with an estimated C factor
  (incorporating tillage) based on 1997 NRI data
• Changes in land use by POLYSYS region.
• Impact on Sedimentation
• Made using erosion estimates converted to 99
  river basins and coupled with sediment delivery
  and deposit ratios used in MOSS II along with
  Ribaudos 1985 cost of erosion study with costs
  indexed to 2007.

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Environmental Submodule

• Changes in carbon sequestration
• Carbon emissions for each ethanol scenario were
  calculated using methods and estimated
  coefficients from the carbon lifecycle literature
  (West and Marland, 2002, Marland et al., 2003).
• The estimated coefficients and the quantities of
  fuel and inputs in the budgets in POLYSYS were
  used to calculate total carbon emissions for each
  crop in each ASD.
• In addition, the carbon sequestered in
  agricultural soils for each crop and tillage
  practice was estimated using methods outlined by
  West et al. (2008).

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Ethanol Production Paths
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Change in Land Use from the 12 BGY USDA Baseline
Scenario under the 18BGY Scenario
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Change in Land Use from the 8.6 BGY Scenario
under the 18 BGY Scenario.
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Change in Crop Area from the USDA Baseline 12 BGY
to 18 BGY Scenario 2016
Corn
Cotton
Soybeans
Wheat
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Change in Crop Area from the 8.6 BGY to 18 BGY
Scenario 2016
Corn
Cotton
Soybeans
Wheat
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Change in Herbicide Expenditures for Selected
Scenarios Compared to the 12 BGY USDA Baseline
Scenario
8.6 BGY 14 BGY 16 BGY
18 BGY
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Herbicide Use Regional Changes

• Changes between 18 BGY and 12 BGY USDA Baseline
  Scenarios
• Changes between 18 BGY and 8.6 BGY Scenarios

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Change in Fertilizer Expenditures for Selected
Scenarios Compared to the 12 BGY USDA Baseline
Scenario
8.6 BGY 14 BGY 16 BGY
18 BGY
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Fertilizer Use Regional Changes

• Changes between 18 BGY and 12 BGY USDA Baseline
  Scenarios
• Changes between 18 BGY and 8.6 BGY Scenarios

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Erosion Regional Changes

• Changes between 18 BGY and 12 BGY USDA Baseline
  Scenarios
• Changes between 18 BGY and 8.6 BGY Scenarios

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Change in Carbon Emissions for Selected Scenarios
Compared to the 8.6 BGY Scenario
18 BGY 16 BGY 14 BGY 12 BGY
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Carbon Emissions Regional Changes

• Changes between 18 BGY and 12 BGY USDA Baseline
  Scenarios
• Changes between 18 BGY and 8.6 BGY Scenarios

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Implications

• The production of feedstock for biofuels using
  corn as the feedstock will result in increased
  erosion, chemical and fertilizer use unless the
  methods used to produce corn are dramatically
  altered.
• Investment in research in agricultural production
  and conversion technology, is required to reduce
  projected environmental impacts.
• Increased yields, increased input efficiency, and
  increased use of no-tillage production practices
  would reduce impacts of this projected
  bioeconomy.
• Acceleration of introduction of
  cellulose-to-ethanol path would likely ease
  environmental impacts.

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Implications

• What will happen when CRP land becomes available
  to crop?
• incentives to biofuels industry should be
  consistent with availability of environmental
  sustainable crop and conversion technologies.