The Economics of Environmental Issues: The Impact of Biofuels

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1 Federal Agriculture Research Center Institute of Farm Economics The Economics of Environmental Issues: The Impact of Biofuels World Dairy Summit 27 Dr. Yelto Zimmer Dublin, October 2 nd 27

2 Content 1. The Bio Energy Boom 2. and the Reduction of Greenhouse Gases 3. and Food Production 4. Conclusions Zimmer / / 2

3 1. The Bio Energy Boom Zimmer / / 3

4 US Ethanol Production 3. 8 mio bushel Corn (mio bushel) Ethanol (bill. gal) 5% US gasoline 25 % US corn billion gal Source: ksgrains.com (27) Zimmer / / 4

5 EU Biodiesel Production t Deutschland Italien UK Frankreich Spanien Rest EU Source: UFOP (26) Zimmer / / 5

6 German Market for Vegetable Oils Food Oil Technical Oil Biodiesel Production 1. t /4 24/5 25/6 26/7 Source: ZMP (27) Zimmer / / 6

7 Biogas Production in Germany MWh Number of Biogas Plants Electric Power (in MWh) Source: BMU (27) Zimmer / / 7

8 Reimbursement for Renewable Power 2 16 ct/kwh Power from Biogas Wind Power Water Power Used Wood konv. Power Source: BMU (26) Zimmer / / 8

9 Biogas: Policy creates a massive Incentive /ha The Example Biogas (Corn) Assumptions: 5 t FM yield 33 % DM content 3,5 ct/ KWh value 18 ct/kwh price 23 /t FM cost corn silage acreage payment Cost corn silage Subsidy (Reimbursement) Source: Own calculations, LWK NRW (26) Zimmer / / 9

10 EU Intentions for Ethanol Consumption EU goal 21: substitute 1 % of gasoline ( 13 % due to lesser energy content) EU gasoline consumption (25): 12 Mio. t 13 % 15.6 Mio. m 3 ethanol 15.6 Mio m 3 ethanol 4 Mio. t wheat For comparison: 125 Mio. t EU wheat production 3 % (25 Mio. t EU grain production 15 %) Zimmer / / 1

11 EU Intentions for Biodiesel Consumption EU goal 21: substitute 1 % of diesel ( 11 % due to lesser energy content) EU diesel consumption (23): 16 Mio. t 11 % 18 Mio. t biodiesel 18 Mio. t biodiesel 4 Mio. t rapeseed For comparison: 15,3 Mio. t EU Rapeseed production 26 % (21 Mio. t EU oilseed production 19 %) Zimmer / / 11

12 2. and Reduction of Greenhouse Gases Zimmer / / 12

13 CO 2 Mitigation Cost 5 4 Heating Power & Cogeneration Biofuels /t CO2äq Wood Chips Heating Grain Heating Biogas (Manure Cogeneration) Biogas (Silage Cogeneration) Wood Chips (Cogeneration) Straw Co Combustion Biodiesel Ethanol (Wheat) CO2 Exchange Source: Own calculations; EEX (26) Zimmer / / 13

14 3. and Food Production Zimmer / / 14

15 Ethanol and Grain Production Grain usage for Ethanol increases from 72 mio t to 18 mio t. Is that much? Yes : Increase equals 2 % of global grain production or 18 % of global grain trade. no : To produce +36 mio t requires +1 mio ha. Global arable land is 1.5 billion ha. Zimmer / / 15

16 US Corn Market: History & Future Market US $/t Dec '7 Mar '8 May '8 Jul '8 Source: USDA (26), CBOT (27), own calculation Sep '8 Dec '8 Mar '9 May '9 Jul '9 Dec '9 Mar '1 Jul '1 Dec '1 Zimmer / / 16

17 High Commodity Prices make Pasture Usage more profitable Opportunity cost for arable land Opportunity cost for pasture land /ha 6 /ha Wheat 12 /t Wheat 2 /t Wheat 12 /t Wheat 2 /t Zimmer / / 17

18 EU Oil Cake Market Relevance of DDGS Mio t Rapsseed Soyimports Production Exports Imports DDGS Source: Töpfer International (26), own calculations. Zimmer / / 18

19 Bioenergy: The right Strategy for Agriculture? Use in kwh Expenditures in kwh/year / month Food Energy Food Energy Sources: FAO, Countryprofile Germany (Wert 21 23), BMWI Struktur Endenergieverbrauchs Deutschland, Statistisches Bundesamt Bevölkerungsentwicklung 25 Zimmer / / 19

20 Cost of Production (Barley & Corn US$/t) Total cash cost Total depreciation cost Total opportunity cost Total opportunity cost Market receipts CA4MJ DE3OW HU11TC PL12NWP_AVAV PL153NWP_LAV PL1788NWP_LTOP RUS7BS SA5OVB SE51SG_LAV UK255Suff_AVAV UK44Suff_LAV AR23BA BR13MT HU11TC US35ND US7IA US9ND Zimmer / / 2

21 4. Conclusions Zimmer / / 21

22 Conclusions 1. EU and US policy is driving biofuel and bioenergy production. 2. Mitigation of CO 2 Emissions is extremely expensive with current bioenergy policy. 3. Bioenergy policy leads to higher commodity prices & local competition for land (Biogas). 4. Milk prices will stay high but with higher (opportunity) cost unless: Pasture can be used as feedstock. Zimmer / / 22

23 Know How is our Business Thank you for your interest Dr. Yelto Zimmer Head of agri benchmark Cash Crop Team Institute for Farm Economics Federal Agricultural Research Center Bundesallee 5, Braunschweig Telefon: Telefax: e mail: yelto.zimmer@fal.de Internet: Zimmer / / 23

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