Environmental Valuation & Cost-Benefit News

Link: http://www.pewclimate.org/docUploads/BiofuelsFINAL.pdf

Executive Summary:
As the United States seeks to reduce greenhouse gas (GHG) emissions from motor vehicles and to lessen its dependence on imported oil, biofuels are gaining increasing attention as one possible solution. This paper offers an introduction to the current state of play for biofuels: the technologies used in their production, their GHG emissions, and associated policy issues.

The amount of emission reductions that can be achieved through the use of biofuels varies widely, depending on choices made at each step from feedstock selection and production through final fuel use.

Technologies exist today to produce a wide variety of biofuels from a wide range of feedstocks. However, currently commercial options are limited to ethanol made from cornstarch or sugarcane, and biodiesel made from soybean or palm oil seeds. Current research and development focuses on lowering biofuel costs, GHG emissions, and land and water resource needs, and on improving compatibility with fuel distribution systems and vehicle engines. Policy priorities should be aligned with these R&D objectives as well as with other policies addressing climate, agriculture, forestlands and international trade.

The critical issue when considering the climate benefits of biofuels is each fuel’s GHG profile—not whether it is “renewable” or “fossil-fuel”-based. Also, vehicle efficiency is especially important for biofuels because less overall fuel demand means less competition with other uses for land and biomass. Therefore, policies to encourage further development and use of biofuels for climate-related purposes should focus on their GHG profiles and on increased vehicle efficiency. In addition to climate change and energy security, the opportunity to support the agricultural sector is an extremely important and powerful motivation for pursuing biofuels worldwide. However, any benefits to the agricultural sector must be weighed against impacts on food prices and land use, both of which are also major international concerns.
...
State of Play: Biofuel Production Costs and Biomass Availability

Biofuels usually are more expensive to produce than petroleum-based fuels. The exceptions are Brazilian sugarcane-based ethanol and biodiesel produced from waste greases and oils. In fact, most biofuel produced in both Europe and the United States has only been competitive in the market due to subsidies, with biodiesel needing larger per-gallon subsidies than ethanol. Current petroleum prices are, however, altering this dynamic.

The costs of biofuels relative to petroleum products change not only as petroleum prices change but also as feedstock, natural gas, and by-product prices change. For biodiesel, the most important factor is feedstock cost, which accounts for 80 percent of production costs, whereas in the case of ethanol each of these factors can play a significant role.

Corn and sugarcane ethanol costs.
When corn is available at $2.60 per bushel and natural gas at $5.70 per gigajoule, U.S. ethanol production costs are about $1.20 per gallon of ethanol, or $1.82 per gallon on a gasoline-equivalent basis (gge), a cost that includes a $0.40 per gallon credit from sale of co-products (Paustian et al., 2006). Adding a 12-percent return on investment raises the cost to $1.33 per gallon of ethanol ($2.20 per gge). Every $1.00 per bushel rise in the price of corn increases the production cost of ethanol by $0.35 per gallon. Since 2006, the spot market price for corn has regularly exceeded $4.00 per bushel (Caesar et al., 2007). At that price, ethanol production cost, including a return on investment, is about $2.77 per gge (Rotman, 2008; Eidman, 2008). Given these costs, U.S. cornstarch ethanol is competitive with gasoline (i.e., would not need a subsidy to compete in the market) when refiner acquisition cost13 is in the $66 per barrel to $91 per barrel range for corn prices in the $2.60 to $4.00 range.

Brazil produces sugarcane-based ethanol at costs significantly below those of cornstarch-based ethanol—and, indeed, at lower costs than any other biofuel worldwide. The estimated cost of the Brazilian biofuel is $0.85 to $1.40 per gge (IEA, 2004; Fagundes de Almeida, et al., 2007). This makes Brazil’s product at least 30 percent less expensive than U.S. ethanol from cornstarch (Davis and Etter, 2007). Indonesia and Malaysia also can produce biofuels at costs substantially below U.S. costs (Kaltner et al., 2005). However, the United States—along with Australia and countries in the European Union—imposes tariffs or import duties that reduce the competitiveness of imported biofuels. Where low-cost imported biofuels have lower GHG footprints than domestic biofuels, these import fees both increase consumer costs and reduce biofuels’ potential to contribute to emission reduction goals (Doornbosch and Steenblik, 2007; GTZ, 2006; Paustian et al., 2006).

Biomass supply and costs.
There are large uncertainties in estimates of the amount of energy that could be supplied by biomass both domestically and globally. Estimates of the amount of global energy that could be supplied by biomass in 2050 range from 40 to more than 1,000 exajoules (EJ).14 To put these numbers in perspective, 40 EJ is close to current global biomass-derived energy (10 percent of global energy demand). On the other hand, 1,000 EJ conceivably could be enough to meet total 2050 energy demand (UNDP, 2000; GTZ, 2006). Factors that contribute to this wide range of estimates include uncertainty about future crop yields and prices, water availability, and competition for land.

Contents:
-Executive Summary
-State of Play: Current and Emerging Biofuel Pathways 2
-State of Play: Biofuel Production Costs and Biomass Availability 7
-State of Play: Biofuel GHG Footprints 10
-GHG Emissions from Feedstock Production 11
-Non-GHG Biofuel Impacts 15
-State of Play: Policy and Legislative Issues 16
- Conclusion 18
- Appendix 19
-Bibliography 20
-Endnotes 23

by Naomi Peña
Pew Center on Global Climate Change www.pewclimate.org
http://www.pewclimate.org/docUploads/BiofuelsFINAL.pdf
White Paper; June, 2008
The Pew Center on Global Climate Change was established in 1998 in order to bring a cooperative approach to the debate on global climate change. The Pew Center continues to inform the debate by publishing reports in the areas of policy (domestic and international), economics, environment, and solutions.
2101 Wilson Boulevard; Suite 550; Arlington, VA 22201 USA; Telephone: 703.516.4146