Sustainable Farming: Role of Bio-energy Production

Alan Renwick

SACCECS Seminar

5th October 2007

Talk Outline

• Sustainable Development Agenda

• Final Energy

– Economics, Energy and GHG Balances

• Dedicated Energy Crops

– Economic and Environmental Implications

• Conventional Crops Used for Energy

– Economic and Environmental Implications

• Further Issues

UK Sustainable Development Agenda

• "to enable all people throughout the world to satisfy their basic needs and enjoy a better quality of life without compromising the quality of life of future generations"

UK Principles of Sustainable Development

Forward Strategy For Scottish Agriculture

• 'We want a prosperous and sustainable farming industry, one of Scotland's success stories, which benefits all the people of Scotland. It should be:– focused on producing food and other products for the

market; – a major driver in sustaining rural development, helping

rural communities prosper; – a leading player in the protection and enhancement of

the environment; – a major contributor to key objectives on animal health

and welfare and human health and well-being; – keen to embrace change and market opportunities.

Why Interest in Energy Crops at Farm Level?

• Farm Incomes– Period of low returns from traditional

enterprises – Period of low returns from traditional markets

for commodities • Common Agricultural Policy Reform• Support for Energy Crops arising from wider

concerns about Global Warming and energy security

• Push for sustainable farming

Some Key Questions

• What do we mean by bio-energy production

• Does it make economic sense?

• Are there environmental benefits?

• Will farmers adopt energy crops

• Will concentrate on crops for bio-energy production both conventional and non-conventional

• Other forms of bioenergy – anaerobic digestion e

• Other non-food use of crops – raises many similar issues

Energy Crops and Conversion TechnologyCrop Technology Fuel Type

Miscanthus Combustion for: Heat; Combined Heat andPower; or for Power Generation

Solid

SRC Combustion for: Heat; Combined Heat andPower; or for Power Generation

Solid

Whole-CropCereals

Combustion for: Heat; Combined Heat andPower; or for Power Generation

Solid

Straw Combustion for: Heat; Combined Heat andPower; or for Power Generation

Solid

Wheat Fermentation followed by Distillation ofTransport Fuel (bioethanol)

Liquid

Sugar Beet Fermentation followed by Distillation ofTransport Fuel (bioethanol)

Liquid

Oilseed Rape Extraction of Oil, followed by Esterificationto Rapeseed Methyl Ester (biodiesel)

Liquid

Oilseed Rape Un-esterified oil used directly in refinery LiquidStraw Ethanol following enzyme de-lignification Liquid

Economics of Final Energy

Heat and Electricity

Production Costs for Heat and Electricity Productionfrom Combustion of Biomass

0 1 2 3 4 5 6 7 8 9

p/kWth for heat-only plants or p/kWhe for electricity or CHP plants

Low High

Cost of Electricity, p/kWe

Cost of Heat p/kWth

Heat from Wheat Straw

Heat from Miscanthus

Heat from Willow SRC

Electricity from Wheat Straw

Electricity from Miscanthus

Electricity from Willow SRC

CHP from Wheat Straw

CHP from Miscanthus

CHP from Willow SRC

Source SAC/University of Cambridge (2005)

Biofuels

Production Costs for Liquid Biofuels

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

£/gasoline/diesel-equivalent litre

Low High

Biodiesel from Rapeseed

Ethanol from Wheat Straw

Ethanol from Sugar Beet

Ethanol from Wheat

Source SAC/University of CambridgeSource SAC/University of Cambridge (2005)

Carbon and Energy Balances

Fuel Fossil Energy Requirement

GJf/ GJ

GHG Emissions (kg CO2eq/GJ)

Gasoline 1.14 85.8

Diesel 1.16 87.4

NG (EU-mix) 1.06 61

Electricity (UK-mix) 3.08* 160

Energy Requirements

Fossil Energy Requirements per Unit of Energy Output

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Rapeseed oil from oilseed rape

Ethanol from Wheat

Ethanol from Sugar Beet

Ethanol from W heat Straw

Biodiesel from Rapeseed

Electricity from W heat Straw

Electricity from Miscanthus

Electricity from W illow SRC

Heat from W heat Straw

Heat from Miscanthus

Heat from W illow SRC

CHP from W heat Straw

CH P from Miscanthus

CHP from W illow SRC

Fossil Energy Requirement (GJ fuel/ GJ output)

Low High

Source SAC/University of CambridgeSource SAC/University of Cambridge (2005)

GHG Emissions

Greenhouse Gas Emissions per Unit of Energy Output

0 10 20 30 40 50 60 70 80 90

Rapeseed oil from oilseed rape

Ethanol from Wheat

Ethanol from Sugar Beet

Ethanol from Wheat Straw

Biodiese l from Rapeseed

Electricity from Wheat Straw

Electricity from M iscanthus

Electricity from Willow SRC

Heat from Wheat Straw

Heat from M iscanthus

Heat from Willow SRC

CHP from Wheat Straw

CHP from M iscanthus

CHP from Willow SRC

kgCO2eq./GJ

Low High

Source SAC/University of CambridgeSource SAC/University of Cambridge (2005)

• Economics of production of final energy is marginal at best (without support)

• Energy and Carbon Savings could suggest environmental benefits associated with production of renewable fuels

• At what cost?

Cost of Carbon Abated: Best Case Scenarios

332

374

206

-117

-61

-200

-100

0

100

200

300

400

Wheat Ethanol Sugar BeetEthanol

Rapeseed Miscanthus Heat Willow SRC Heat

£/t

Carbon Emissions Abatement Cost Defra Social Cost

Source SAC/University of CambridgeSource SAC/University of Cambridge (2005)

Caution: our estimates onlyOthers may vary considerably

Support Measures

• Government Support

– Energy Crop Payment (45 Euro hectare)

– Planting Grants (£1000/£900)

– Capital Grants

– Producer Group Grants

– Renewable Obligation Certificates (ROC’s)

– Tax Relief - Biofuels

– Road Traffic Fuel Obligation

Dedicated Energy Crops

• Can they contribute to sustainable farming systems?

– Economics

– Environment

– Social

Dedicated Energy Crops

• A number of policies in place that may be seen to support production of energy crops either directly or indirectly

• However, only a very small area down to energy crops at present

• Why? Simple economic issue?

Dedicated Energy Crops

Assumptions for SRC/Miscanthus

• 16 year timeframe for the crop• Yields 14 and 9 Odt/ha yr for Miscanthus and SRC

respectively• Price £25/Odt and £35/Odt ex-farm Miscanthus and SRC

respectively• Discount Rate 6 per cent • Government Subsidies included (Planting Grant and

Energy Crop Payment i.e. assumed grown on non-set aside land)

• Contract harvested• Includes rental value of land and minimum overhead

costs (~ £87 per hectare)

Returns and Costs of Production

Crop GM NM Cost £/ha £/ha £/odt

SRC - Willow 97 -163 66Miscanthus 75 -171 46

Price in region of £25 to £35 per oven dried tonne for commodity

Sensitivity

• Our results are clearly sensitive to assumptions in Key Areas – Yield – Price– Support– Costs (esp. Land) – Discount Rate

• Note: Contracts are been offered on other terms eg Lockerbie plant in Scotland

Miscanthus Net Margin

(2004 £/ha) Standard(Incl.

Subsidies)

SubsidiesExcluded

Yields of18

odt/ha/yr

PlantingCostsLower

LandCharges

ExcludedNPV @ 8% -1746 -2923 -1105 -978 -226AEV @ 8% -183 -306 -116 -102 -24

NPV @ 6% -1829 -3041 -1093 -1061 -126AEV @ 6% -171 -284 -102 -99 -12

NPV @ 3.5% -1960 -3226 -1074 -1192 30AEV @ 3.5% -157 -258 -86 -95 2

Government support significantly influences economics of production

SRC Net Margin

(2004 £/ha) Standard(Incl.

Subsidies)

SubsidiesExcluded

Yieldsof 12

odt/ha/yr

Price of£25 /odt(ex-farm)

PlantingCostsLower

LandCharges

ExcludedNPV @ 8% -1614 -2901 -1045 -2326 -1321 40AEV @ 8% -169 -303 -109 -243 -138 4NPV @ 6% -1750 -3071 -1091 -2574 -1456 103AEV @ 6% -163 -287 -102 -240 -136 10

NPV @ 3.5% -1962 -3337 -1161 -2963 -1668 204AEV @ 3.5% -157 -267 -93 -237 -133 16

• Under the standard assumptions used for our study the crops do not appear to generate positive NPV when fully costed.

Economics could change

• New Crop therefore technology could improve

• Add value – same issue as in food chain – sell energy not wood chips

• Alternative sources of income – willow good way of dealing with sewage sludge

• If carbon has value then changes the economics

• Increased support

Understanding Producer Behaviour

• Closer to agro-forestry than farming?

• 16 – 20 year timeframe

• Fixed contracts – Isn’t certainty good?

• Fewer alternative markets – ABARE

Environmental Benefits?

• In part depends upon incentives: Production or GHG savings?

• Potential increase in diversity

• Issues with Landscape change

Now I am sure I saw some sheep on

a hill somewhere

Conventional Crops

Existing Crops for Energy

• In some senses have advantages over dedicated energy crops

– Annual Crops

– Understand Technologies

– Alternative Markets

• Must remember competing for similar land

Land Suitability Scotland: SRC

• If produced map of suitability for combinable crops would look very similar

Source: W. Towers MLURI

Two Years Ago: Economics looked Marginal

Winter Wheat

Sugar Beet Oilseed Rape

Gross Margin (excluding subsidies) 301 541 305Net Margin (excluding subsidies) -216 24 -212

Variable Production costs (costs/ t yield) 32 14 61Fixed Production costs (£/t) 65 10 143 including Land Charges of (£/t) 18 3 39Tot. Production Cost (Tot. costs/ t yield) 97 24 204

RevenuesWinter Wheat Sugar Beet OSR

Price £/tonne 69.5 24.0¹ 145.2Yield, tonnes 7.93 52.9 3.6

Choice seemed between one uneconomic land use and another

However marked change in last year

Feed Wheat Price

0.0 20.0 40.0 60.0 80.0

100.0 120.0 140.0 160.0 180.0

1998

1998

1999

1999

1999

2000

2000

2001

2001

2002

2002

2003

2003

2004

2004

2005

2005

2005

2006

2006

2007

£/t

price

0102030405060708090

100110120

0 20 40 60 80 100

Per cent of Production

Cost £/t

onne

Average Total Cost Excluding Land

• In part fueled (!) by world biofuel demand but mainly poor harvests in Australia, Europe leading to record low world stocks

Source: RFS/USDA/SAC

US ethanol capacity expected to continue climbing – well ahead of target

Ethanol Maize

Bn gall. Bn l Mt

06/07 5.6 21.5 56

07/08 8.3 32 86

08/09 11.8 45.6 120

UK doesn’t actually have any dedicated bioethanol plants at the moment. A number planned but high prices will cause issues – some have already been mothballed in Europe

Sustainable?

• Could argue that by increasing demand for cereals/oilseeds it is improving economic element of sustainability of farms.

• However

– Not certain high prices will persist

– Detrimental to livestock farmers

– High prices may lead to conflicts between economic/environmental aspects of farming

• Intensive, Extensive, Set-Aside

Intensity

30

60

90

120150

180

210

240

N k

g/ha

0

20

40

60 80

100

120

140

£/t

Nitrogen Feed Price

5

6

7

8

9

10

No fungicide

2 sprays

3 sprays

4 sprays

Yie

ld t

/ha

0

100

200

300

400

500

600

700

Mar

gin

ove

r fu

ng

icid

e co

st£/

ha

T/ha Margin at £175/t Margin at £125/t Margin at £75/t

• Fertiliser use doesn’t appear very sensitive to price

• However, increased fungicide applications could be more viable

Source Simon Oxley SAC

Extensive Margin

• Around 50,000 hectares in Scotland out of arable since 2001

• In addition set-aside removal

Set-aside area and prices

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007

Year

Set-

asid

e (

ha)

0

20

40

60

80

100

120

140

160

180

£/t

on

ne

Set-aside areaPrice of malting barley

5 to 10%10 to 5%

Sustainable

• In terms of overall sustainability methods of production can have marked impact on energy and GHG emissions.

– Zero till versus ploughing for example

• Also potential to encourage unsustainable methods of production

– Shortened rotations

Some Wider Issues

Higher agricultural prices:

– Benefit developing countries that are exporters

– May make it easier to push through further agricultural policy reform in developed countries – potential longer term benefits

• Food vs Fuel Debate

– Potentially increase risk to global food supply and hence global food security

– Food Poverty still an issue in West?

– Particularly impact on food importers

Conclusions: Does it help Sustainable Farming Agenda

• Bioenergy production does offer potential environmental gains in terms of energy use and GHG emissions which might justify support - BUT

– Does depend upon method of production

– Economics currently in favour of wheat/oilseeds with fewer gains? (but might change with second generation)

Conclusions

• Current high prices do improve economic viability for some producers - Major issues when begin to distort – crops vs livestock, maize vs soya, food vs fuel

• At the national level does present challenges for wider policy aims for sustainable agriculture – biodiversity, water quality, agri-environmental schemes, local food

Acknowledgement

This presentation forms part of the on-going work on Sustainable Farming Systems funded by the

Scottish Government Rural and Environment Research and Analysis Directorate (RERAD)