Bioenergy Crops in Illinois : Competitiveness and NonMarket Benefits

1
Bioenergy Crops in Illinois Competitiveness and
Non-Market Benefits

• Madhu Khanna and Basanta Dhungana
• Dept. of Agricultural and Consumer Economics
• University of Illinois at Urbana-Champaign

Research funded by Dudley Smith Initiative and
Illinois CFAR
2
Potential Uses of Bioenergy Crops
Electricity generation by co-firing with coal in
power plants Conversion to cellulosic ethanol
Planting
3
Economic Potential of Bioenergy Crops

• Need to compete with row crops for land
• Yield per hectare
• Costs of production
• Opportunity cost of land
• Depends on row crop prices
• Need to compete with fossil fuels/renewable fuels
• Energy content relative to fossil fuels
• Cost of conversion to usable fuel
• Price of fossil fuels and renewable fuels
• Non-market benefits of bioenergy crops/fuels
• Policy induced value of non-market benefits

4
Issues Addressed

• Profitability of growing bioenergy crops relative
  to row crops in Illinois
• Spatial variability in profitability of
  Miscanthus
• Competitiveness of bioenergy with fossil fuels
• Environmental benefits
• Carbon-dioxide emissions, sulfur-dioxide
  emissions, soil carbon sequestration
• Non-market value of environmental benefits

5
Growing Conditions for Miscanthus in Illinois
Yield of Miscanthus simulated using 30 year
climate data on solar radiation, temperature,
frost dates, precipitation, soil evaporation and
water holding capacity at 2 sq km
level Temperature most important factor in leaf
expansion with optimal water and nutrients
6
Yield/Hectare Miscanthus, Corn and Soybeans
7
Annualized Costs of Production for Switchgrass
and Miscanthus
All cost estimates are in 2003 prices. Peak dry
yield for Switchgrass in September and Miscanthus
in October is assumed to be 9.42 and 35.8 t
ha-1, respectively. Costs are discounted at a
rate of 4.
8
Annualized Cost of Production for Perennials and
Row Crops

• Low opportunity cost with Soybean price 5.1/b
  Corn price 2.05/b High cost with 50 higher
  crop prices
• Miscanthus yield 35.8 t/ha Switchgrass yield
  9.42 t/ha

9
Breakeven Farmgate Price /t Breakeven
Delivered Price /t

• Market price of Bio-energy for co-firing with
  coal for electricity generation based on heat
  content 18/t-20/t
• Minimum additional payment required is 24/t

10
(No Transcript)
11
Figures above bars represent cost of production
net of co-product credit Each pair of bars for
each feedstock represents cost of production with
corn price of 2.05/b and 3.07/b
respectively. Cost of production for corn-ethanol
is for a 40 M gallon ethanol plant in 2002-03
prices Cost of production for cellulosic-ethanol
is for a 25 M gallon ethanol plant in 2002-03
prices
12
Cost of Ethanol Production from Miscanthus in
Illinois
Spatial variability in cost of ethanol production
from Miscanthus Cost range 1.8-2/gallon at corn
price of 2.05/b
13
Environmental Benefits of Bio-energy Crops

• Soil carbon sequestration
• Conservation tillage potential for
  sequestration/ha small 0.3-0.5 MT/ha/yr
• Miscanthus/Switchgrass 3 times higher potential
  to sequester 0.94-1.4 MT/ha/yr
• Reduction in carbon emissions by displacing coal
  or gasoline as fuels
• Reduction in sulfur-dioxide emissions relative to
  coal

14
Greenhouse Gas Reduction Potential of Biofuels
Relative to Gasoline
Figures above the bars represent emissions/gallon
as a of emissions with gasoline equivalent to
one gallon of ethanol
15
Carbon emission reduction includes carbon
sequestered in soil Corn price assumed to be
2.05/b unless otherwise stated
16
Estimated are out of the total amount of carbon
emissions mitigated
17
5
Coal
5
15
15
5
15
100
18
(No Transcript)
19
Summary

• Profitability of Miscanthus varies spatially
• Depends on yields, transportation cost and
  opportunity cost of land
• Switchgrass not likely to be competitive with
  Miscanthus for electricity generation or fuel
  production
• Bioenergy from Miscanthus not fully competitive
  with coal or gasoline at current prices
• Environmental benefits need to be accounted for
• Incentives for use of bioenergy crops need to
  come from
• Environmental policies restricting/pricing CO2
  (20/t of CO2)
• Renewable energy/fuel standards
• Alternatively, incentives for growing bioenergy
  crops need to come from
• Agro-environmental policy rewarding carbon
  sequestration and reductions in soil erosion and
  in nitrate run-off
• Allowing bioenergy crop production on CRP land