The Sustainability of Cellulosic Biofuels

Economic Factors Affecting the Competitiveness of Cellulosic Biofuels

Madhu KhannaDepartment of Agricultural and Consumer EconomicsDepartment of Agricultural and Consumer Economics

University of Illinois

Promising Options for Bioenergy from Cropland: Crop Residues and Perennial Grassesp p

• Corn Stover: – Readily available feedstock with no diversion of cropland– Potential to produce 10 billion gallons per year of

ethanolethanol

• Perennial grasses: Switchgrass and Miscanthusg g– Adaptable to wide range of growing conditions including

marginal lands– Low input requirements– Compatible with row crop production

R i i l i i h• Require conventional equipment; winter harvests

Factors Influencing Competitiveness: Crop Yields• Corn Stover: 3 7 tons/ha delivered in Midwest• Corn Stover: 3-7 tons/ha delivered in Midwest• Switchgrass: 5-7 tons/ha delivered yield in Midwest; 12-17 tons/ha in

southern US• Miscanthus: 17-25 tons/ha delivered yield in Midwest

Crop Yields Affect the Efficiency with which L d i U ili d f E G iLand is Utilized for Energy Generation

Gallons of Ethanol per Hectare

2500

1500

2000

0

500

1000

0corn corn stover corn +corn stover switchgrass miscanthus

Factors Influencing Competitiveness: Costs of Production

C t f P d ti f Mi th ($/H t )Costs of Production of Miscanthus ($/Hectare)$ 142 per metric ton

L d 36%

Fertilizer a2%

Preharvest Machinery

1%Other 6%

Harvesting and

Land 36% 1%

Storage42%

Transport13%

Land costs: $5/bu corn; $12/bu soybeans

Factors Influencing Competitiveness: Costs of Production

C t f P d ti f Mi th ($/H t )C t f P d ti f Mi th ($/H t )Costs of Production of Miscanthus ($/Hectare)$ 142 per metric ton

Costs of Production of Miscanthus ($/Hectare)$ 168 per metric ton

Preharvest

L d 36%

Fertilizer a2%

Preharvest Machinery

1%Other 6%

L d

Other5%

Fertilizer2%

PreharvestMachinery

1%

Harvesting and

Land 36% 1% Harvestingand Storage

35%

Land46%

Storage42%

Transport13%

35%Transport

11%

Land costs: $7/bu corn; $15/bu soybeans

Spatial Variability in Yields

• Miscanthus yields lower in northern and central Illinois• Corn and corn stover yields lower in southern Illinois• Corn and corn stover yields lower in southern Illinois• Higher costs of land and higher costs of production of bioenergy crops

in northern and central Illinois

Costs of Cellulosic Feedstocks

Miscanthus Costs $/metric tonCorn Stover Costs $/metric ton Switchgrass Costs $/metric ton

Potential for Celluosic Biofuels without Diverting Cropland: 2.5 billion gallons annually in Illinoisp g y

Ethanol from Corn Stover Ethanol from Miscanthus on CRP Acres

• 1.6 billion gallons annually from corn stover on existing corn acres1.6 billion gallons annually from corn stover on existing corn acres• 0.9 billion gallons annually from Miscanthus on current 1 M CRP

acres

Cost of Biofuels Per Gallon$

Feedstock Refiner

$ per gallon ethanol

(net of co-prod ct

Greenhouse Gas

Emissions relati e toFeedstock

costRefinery

Costproduct value)

relative to gasoline

C Eth l 1 66 0 78 2 00 75%Corn Ethanol 1.66 0.78 2.00 75%

Corn Stover 0.86 1.46 2.20 18%

Miscanthus 1.41 1.46 2.75 11%

Switchgrass 2.90 1.46 4.24 43%

Bi f l diff i th i t f d ti dBiofuels differ in their costs of production and carbon footprint

Ethanol Price Linked to Gasoline Price

$3 0

$3.5n

$2.0

$2.5

$3.0

$ pe

r ga

llon

$1.5J 07 F 07 M 07 A 07 M 07 J 07 J 07 A 07 S 07 O 07 N 07 D 07 J 08 F 08 M 08 A 08 M 08

Gasoline Ethanol Energy Equivalent Ethanol Price+ 51 c subsidy

Corn Price Linked to Crude Oil Price

120140

6080

100120

de ($

/bbl

)

Energy basis

Energy + subsidy

02040

Cru

d

1.5 2.5 3.5 4.5 5.5 6.5Corn ($/bu)

Tyner and Taheripour (2008)

Ethanol Price Linked to Gasoline Price

$3 0

$3.5n

$2.0

$2.5

$3.0

$ pe

r ga

llon

h i f il i h l i d fi bili i$1.5J 07 F 07 M 07 A 07 M 07 J 07 J 07 A 07 S 07 O 07 N 07 D 07 J 08 F 08 M 08 A 08 M 08

Gasoline Ethanol Energy Equivalent Ethanol Price+ 51 c subsidy

• As the price of oil increases, ethanol price and profitability increases• Corn prices get bid up to the maximum level refineries can afford to

pay

Corn Price Linked to Crude Oil Price

120140

p y• Ethanol subsidy raises corn prices even higher

6080

100120

de ($

/bbl

)

Energy basis

Energy + subsidy

02040

Cru

d

1.5 2.5 3.5 4.5 5.5 6.5Corn ($/bu)

Tyner and Taheripour (2008)

Market Price of Biomass Linked to Crude Oil Price and Biofuel Policy

300

$ per metric ton of biomass

200250

300Energy-based MarketPrice of Biomass

E b d M k t

100150

200 Energy based MarketPrice + $1.01/gallonSubsidyCarbon based tax

Miscanthus

50

100

100 105 110 115 120 125 130 135 140 145 150$

credit for Miscanthus

Carbon based taxcredit for Switchgrass

Corn Stover

Corn Stover$ per barrel of Crude Oil credit for Switchgrass

$1/gallon biofuel subsidy implicitly values carbonreduction by biofuels at more than $100/ton of CO2Tax credit based on carbon footprint of a biofuel would encourage less carbon-intensive biofuelsUnintended effects of tax credits

Summary and Policy Implications• Yield of perennial grasses an important determinant of

competitiveness – Spatial differences in competitiveness suggest a mix of biofuelsSpatial differences in competitiveness suggest a mix of biofuels

likely to be viable

• Use of crop residues and CRP land for perennial grasses• Use of crop residues and CRP land for perennial grasses can mitigate the competition for land for food

• Mandates for cellulosic biofuels could raise fuel prices considerably in the absence of technology breakthroughs

• Preferable to use carbon-based subsidies/taxes to provide appropriate incentives for cellulosic biofuels and align energy policy and climate policy

AcknowledgementsAcknowledgementsUIUC collaborators: Hayri Onal, Basanta Dhungana, Xiaoguang ChenXiaoguang Chen External Collaborator: John Clifton-Brown

Funding provided by