Economics of Cellulosic Ethanol Production

Marie Walsh, Burt English, Daniel de la Torre Ugarte, Kim Jensen, Richard Nelson

SAEA Annual Meeting

Mobile, AL

February 6, 2007

Interest in Biomass• Numerous visions/initiatives have been recently

proposed to displace 20-30 percent of our transportation fuels with biomass-derived fuels within the next 20-25 years.

• Large scale production of biofuels raises numerous issues regarding feasiblility, development approach, and impacts, particularly– Food vs. fuel issues– Limits to corn and soybean use– Need for alternative technologies (i.e., cellulose)

• UT has developed a modeling framework to rigorously evaluate the potential and selected impacts.

Approach

• Dynamic model of the U.S. agricultural sector (POLYSYS)– POLYSYS contains major

crops, livestock, food and feed markets, major cropland classes

– 305 geographic regions– Anchored to 2006 USDA

baseline – Allocates land based on

relative profits

Approach

• Modify POLYSYS– Extend the baseline to 2025– Add cellulose feedstocks

• Endogenous feedstocks include corn stover, wheat straw, and switchgrass

• Exogenous feedstocks include forest logging residues, forest other removals, primary mill residues

– Add bioenergy technologies• Ethanol from corn grain and cellulose• Biodiesel from soybeans• Electricity from cellulose

Corn Stover

• Major Assumptions Include:– Continuous corn rotation– Current tillage mix with

increasing no-till over time

– Control erosion at <T– Collected as large,

round bales

Wheat Straw

• Major Assumptions Include:– Continuous wheat

rotation– Current tillage mix with

increasing no-till over time

– Control erosion at <T– Collected as large,

round bales

SwitchgrassRegion Annual Increases in Yield

Lake States 1.00 percent

Corn Belt 1.75 percent

Northeast 1.25 percent

Appalachia 2.50 percent

Southeast 3.00 percent

North Plains 1.25 percent

South Plains 1.00 percent

Forest Residues

• Combined logging residues and other removals (land clearing, pre-commercial thinnings).

• Quantities from USDA Forest Service Forest Inventory Analysis database

• Estimated collection costs using traditional forestry equipment

Forest Residue Supplies

(million dry tons)

$20/dt $30/dt $40/dt $50/dt

2005 1.01 2.27 30.66 35.06

2010 1.02 2.33 31.63 36.21

2015 1.05 2.37 32.02 36.63

2020 1.08 2.44 33.0 37.75

2025 1.12 2.52 34.0 38.88

Mill Residues

• Quantities and current uses from USDA Forest Service Forest Inventory Analysis database

• Costs based on estimated prices needed to attract mill residues from current uses

Mill Residues

(million dry tons)

$20/dt $30/dt $40/dt $50/dt

2005 1.80 23.98 45.70 50.52

2010 1.81 24.30 46.01 50.87

2015 1.87 25.05 47.50 52.53

2020 1.92 25.80 48.98 54.18

2025 1.98 26.47 50.17 55.53

Bioenergy Technologies

Conversion Costs & Yields(feedstock and co-product values not included)

Year 2005 Year 2015 Year 2025

ETOH from Corn 2.7 gal/bu$0.55/gal

2.7 gal/bu$0.55/gal

3.0 gal/bu$0.55/gal

ETOH from Cellulose 67-70 gal/dt$1.47/gal

74-80 gal/dt$0.73/gal

83-90 gal/dt$0.73/gal

Biodiesel from Soybeans 1.4 gal/bu$0.436/gal

1.4 gal/bu$0.436/gal

1.4 gal/bu$0.436/gal

Electricity from Cellulose (co-fire)

1425-1532 kwh/dt

$0.0036/kwh

1425-1532 kwh/dt

$0.0032/kwh

1425-1532 kwh/dt

$0.0032/kwh

Bioenergy/Bioproduct Demand

Demand Quantities (above baseline) Year 2006 Year 2015 Year 2025

Ethanol(billion gallons)

3.97 23.34 68.24

Biodiesel(billion gallons)

0.11 0.82 1.7

Electricity(billion kWh)

Excess feedstocks

used for co-fire

Excess feedstocks used

for co-fire

Excess feedstocks used

for co-fire

Bioproducts(billion lbs)

Not included Not included Not included

Scenario Constraints

• Bioenergy demand must be met regardless of cost

• Baseline food, feed, and export demands must be met– Forage supplies lost due to shift of pasture

acres to other crops must be met by increased hay production

Results—Feedstock Use

Year 2006 Year 2015 Year 2025

ETOH from Corn (billion bu) 1.85 3.83 4.78

ETOH from Cellulose (million dt)

Ag Residue

Switchgrass

Wood Wastes

Total = 224

95

76

53

Total = 670

245

312

113

Biodiesel from Soybeans (million bushel)

58 426 835

Electricity from Cellulose (million dt)

Ag Residue

Switchgrass

Wood Wastes

97.1

76.9

53.7

0.5

0.7

0.3

Results—Bioenergy/Bioproduct Production Costs(Feedstock Cost and Co-Product Credits Included)

Year 2006 Year 2015 Year 2025

ETOH (combined corn and cellulose)($/gal) 1.08 1.32 1.52

Biodiesel ($/gal) 0.69 1.80 2.50

Electricity ($/kwh) 0.047 0.079 0.081

Results—Changes in Crop Prices

Year 2006 Year 2015 Year 2025

Corn ($/bu) 2.28

(+0.13)

2.56

(+0.14)

3.01

(+0.75)

Soybeans ($/bu) 4.67

(+0.07)

6.52

(+0.90)

7.48

(+2.25)

Wheat ($/bu) 3.06

(+0.01)

3.86

(+0.29)

4.22

(+0.78)

Switchgrass/

Cellulose ($/dt)

20.00

(+20.00)

48.68

(+48.68)

65.07

(+65.07)

Results—Changes in Farm Income (Million Dollars)

Year 2006 Year 2015 Year 2025

Change in Crop Income(value – expenses + government payments) (crop residues included)

+303 +4,732 +19,742

Change in Income from Switchgrass

0 +4,686 +15,351

Changes in livestock sector income—Analysis still underway. Substitution of feed co-products and need for forage are important components and are not well represented in current analysis. Likely to be negative.

Distribution of Net Returns

Year 2025Year 2015

Less Than 70,000,000

70,000,001 - 250,000,000

250,000,001 - 580,000,000

580,000,001 - 1,000,000,000

Above 1,000,000,000

Results—Changes in Crop Acres (millions)Year 2006 Year 2015 Year 2025

Corn 81.0 85.5

(+1.6)

80.7

(-0.3)

Soybeans 73.8 70.3

(-2.7)

62.5

(-8.0)

Wheat 58.2 58.4

(-3.9)

52

(-10.9)

Other Major Grain Crops

33.9 31.7

(-0.4)

29.1

(-2.23)

Switchgrass 0 27.2

(+27.2)

48.8

(+48.8)

Pasture acres decline and hay acres increase to meet forage needs

Closing Comments

• Based on the assumptions in the analysis, sufficient quantities of biomass resources exist to meet significant increases in biofuel production.

• Large-scale production of biofuels will require, and result in, a paradigm shift in agriculture.