It’s Food AND Fuel

Last week SustainableBusiness.com posted the story, “Bill To Extend Ethanol Tax Credit Reignites Fuel vs. Food Debate.”

They write,

A bill introduced in the US House last week would extend ethanol tax credits for another five years, to 2015. This tax credit is set to expire on December 31, 2010. If extended, the tax credits will provide the conventional ethanol industry with $30 billion over five years.

They quoted Kate McMahon, Energy Policy Campaigner at Friends of the Earth who said,

The oil and ethanol industries need no further help from the American people. This money should be invested in more cutting-edge, clean, and renewable energy that won’t cause environmental degradation and increase food prices.

Food prices? Not so fast, here are a few facts.

World population growth is projected to reach 9 billion by 2050. Demand for food, energy, resources, and agricultural productivity is expected to increase at a faster rate, due to increased demand for dietary protein, primarily in developing countries. Accordingly the challenge is to sustainably produce food, feed, fiber, and biofuel within existing land constraints.

For those concerned about food you should know that:

  • Wheat and soy production have been increasing outside the U.S. since 1970 and that U.S. biofuel production since 2000 shows no impact on these trends.
  • U.S. yields of corn have consistently outpaced the world average. Furthermore, the overall harvested acreage for corn production under the renewable fuel standard is projected to remain stable due to continued yield gains.
  • In the U.S. agriculture has become more sustainable. Since 1980 productivity has increased, even while agricultural inputs have declined.
  • The increase in sustainable agriculture extends outside the boundaries of the U.S. Agricultural productivity gains in the last 20 years worldwide have been accomplished with fewer energy and water inputs per bushel, reduced soil loss, and mitigated climate impacts.

Add all that together and then add the fact that cropland in the U.S. is concentrated in the Midwest and Plains. Other areas have biomass potential in grassland and managed forests.

So that means that there is enough room for food AND fuel.

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Corn Growers Try to Understand Indirect Land Use Change

The National Corn Growers Association’s recent “Land Use: Carbon Impacts of Corn Based Ethanol 2009” conference highlighted the confusion the issue of indirect land use change has engendered for farmers. Chuck Zimmerman of AgWired summed it up in a report from the conference:

Do you understand things like indirect land use when it comes to regulations via departments like the EPA due to the RFS? Me either. And I’ve sat in on conferences and discussions and interviews on the subject for a while now. That’s because an issue like indirect land use involves predicting the future based on certain assumptions that may or may not be valid, especially if they’re based on out of date data and information.”

Conference chairman Jamey Cline, NCGA Director Biofuels and Business Development, indicated to Zimmerman

that these issues are extremely important to agribusiness and corn growers in particular because if the CARB regs hold up, by 2012 they will effectively shut off that market to ethanol. Additionally, one presenter said that due to the proposed climate change bill and RFS, approximately 27.1 million acres would be taken out of production across the Unites States. That would have a huge impact on our economy, especially in rural areas.”

Jeanne Bernick of Farm Journal also reported from the conference:

Even the leading ag economists of our day are scratching their heads on this issue (read Land Use Change Tricky to Measure). They claim it is simply impossible to verify why land use changes occur.

“‘We are trying to measure the unmeasurable,’ says Bruce Babcock, ag economist with Iowa State University’s Center for Agriculture and Rural Development (CARD). ‘We would never really be able to verify why those acres changed production plans. Annual agricultural land use is flux, and largely variable.’

“Interpretation: No one really knows what influences land use change. Farmers make planting decisions in the U.S. and around the world based on a multitude of factors (weather, markets, weed and insect pressure), not just one factor like increased biofuels production in the U.S.”

Mike Wilson of Wallace’s Farmer astutely noted several questions raised by the conference:

Why are we setting U.S. policy based on something that may or may not take place in other countries? As speaker and Texas A&M ag economist Bruce McCarl says, ‘If we want to get out of this indirect land use debate, we simply need to have Brazil institute some greenhouse gas emissions penalty for when it develops its land.’

“What role does politics play in this? Clearly politics is the 800-pound gorilla in the room. President Obama has his people in place and a mandate from voters; he wants to get something passed regardless of the flawed logic that is now floating around in EPA’s regulatory proposal.

“Is this an Obama-driven apology to the rest of the world for eight years of George Bush unilateralism?

“Is this punishment for not agreeing to the Kyoto Protocol so many years ago?”

During the August Congressional recess, Sen. Chuck Grassley (R-Iowa) invited EPA officials Gina McCarthy, who is Assistant Administrator for the Office of Air and Radiation, and Margo Oge, who heads the Office of Transportation and Air Quality, to tour Iowa State University’s BioCentury Research Farm near Boone and the Renewable Energy Group’s 30-million gallon biodiesel plant at Newton.

Dan Looker, Business Editor of Agriculture.com, reported:

Dermot Hayes, an economist with ISU’s Center for Agriculture and Rural Development, shared research by a graduate student, Jerome Dumortier, that shows the effects of technology as crop prices rise due to demand for biofuels. Farmers are more likely to spend more on biotechnology that speeds up yield gains, Hayes said. If this effect is just 1% more than the trendline in yields [1.6% is used in EPA calculations] over 10 years, it brings the gain [carbon debt] from ethanol from 166 years to just over 30. If it’s just 2% higher, the gain from producing ethanol instead of using gasoline is immediate. In essence, there is no indirect land use effect.

After the recess, at a Senate Agriculture, Nutrition, and Forestry Committee Hearing on Sept. 3, Senators heard from Bill Couser, a fourth-generation farmer from Nevada, Iowa:

As a seed corn grower for Monsanto I have witnessed firsthand the wonderful improvements in corn and soybean genetics over the last few years. The simple fact is that yields are not only increasing, they are increasing at an increasing rate. Coupled with improved farming practices, I have no trouble believing Monsanto’s national average projection of 300 bushels per acre corn by 2030. Iowa will likely hit that mark much sooner. And we will do it with fewer inputs and less impact on soil and water than today.”

Indirect Land Use Paradigm Change

A recent analysis by Iowa State University Biofuels Economist Robert Wisner argues that requirements for biofuel production are on a collision course with greenhouse gas reduction goals. He notes that the Energy Independence and Security Act’s requirement for gradual increases in production of biofuels “was designed to provide time for technology development and industry growth.” However, he says, California’s and the EPA’s requirement for immediate reductions in greenhouse gas emissions may block the industry’s growth.

Wisner notes some of the large uncertainties in producing accurate, science-based measurements of indirect land use change emissions:

Longer-term technological changes that bring increased crop yields per acre, changes in livestock and poultry feed conversion efficiency that reduce feed needs per animal, the amount of crop residue left on soils, and other factors will affect indirect land use emissions.

When the EISA was first debated and passed, the prevailing theory was that an annual increase in corn production would be sufficient to meet the new demand created by the annual increase in biofuel production. See for instance, U.S. Corn Growers: Producing Food and Fuel from the National Corn Growers Association.

The new models being employed by California and the EPA, however, take as an assumption that the increase in biofuel demand represents a shock to the system that happens all at once. See, for instance, The Land Use Effects of Corn-Based Ethanol, by Thomas Darlington. The models change a key assumption about the effects of the Renewable Fuel Standard, coloring the conclusion drawn. Both assumptions should be open for testing as hypotheses.

EPA Ready to Release Rules for RFS

The White House Office of Management and Budget has completed its review of the EPA’s rules for the Renewable Fuel Standard, which will contain the lifecycle analysis for U.S. fuels. Reuters and the Des Moines Register have reported on the significance of the rule, though EPA has not made clear when the rule will be published in the Federal Register, beginning the comment period.

The rule, much like California’s Low Carbon Fuel Standard (CARB), will include an estimate of carbon emissions from indirect land use change attributed to biofuels. The estimates are based on economic modelling that is based on circular reasoning — the models automatically assume that biofuel feedstock production by definition causes a shift in agricultural crop production.

An analysis by John Sheehan of SheehanBoyce LLC makes the point clearly:

The CARB/GTAP and Searchinger models for land use change are, in a way, based on circular reasoning. They set up conditions such as fixed pre-biofuels land demand (in the case of GTAP) and constant yield (in the case of Searchinger), which make it almost impossible to avoid indirect land use changes.”

A previous analysis by Thomas Darlington of Air Improvement Resource Inc. raised the exact same point, saying:

The model is therefore answering the question “What are the land use changes if all the ethanol increase is shouldered in one year (in this case, 2001)?” However, we would submit that this is not the correct question to answer. The real question is how much new land is converted either domestically or internationally if the 13.25 bgy ethanol increase is phased in from 2001 through 2015?”

Both analyses make the point that indirect land use change effects can be measured more accurately by dynamic models that account for crop production yield and demand changes.

An analysis prepared by the New Fuels Alliance further points out that while CARB and EPA have extended lifecycle analysis for biofuels by including a risk assessment of their economic impacts, both agencies are relying on existing estimates of the lifecycle emissions of petroleum fuels.

Considering the magnitude of the GHG emissions associated with petroleum fuels, the calculation of the indirect GHG effects including the appropriate fate or coke, residual oil and the demand for fuel oil for crude transport would be appropriate.”

The New Fuels Alliance points out that “Road building in forested areas causes relatively small direct emissions, however the roads are often a magnet for subsequent deforesting activities, providing access to previously inaccessible land.” This is a point made earlier on this blog.

The New Fuels Alliance analysis stops short of conducting a general equilibrium analysis of the economic impact of petroleum, but points out that there is an existing model for doing so. CARB had claimed that they simply did not know how to do such an analysis for oil.

EPA should use the comment period that will begin when they publish their rule in the Federal Register to investigate better models for analyzing the indirect effects of both biofuels and oil.

Advanced Biofuels – Increasing Domestic Economic Growth and Reducing Greenhouse Gas Emissions

Last week the Members of the Energy and Commerce Subcommittee on Energy and Environment in the House of Representatives held hearings on “The American Clean Energy and Security Act of 2009” (“ACES”). ACES is a draft climate change bill including language for a renewable electricity standard, carbon capture and sequestration, a low carbon fuel standard, development of a smart electricity grid, energy efficiency, and allowances and offsets of a cap and trade program for greenhouse gas emissions and global warming pollution reduction. This legislation, if and when it is signed into federal law, will be pivotal for the environment, the US economy and international trade among other impacts. Making sure the legislation is written correctly in order to achieve its goals is an enormous task for the Committee and for Congress as a whole.

One of the panels testifying at the hearing was titled “Green Jobs and Economic Benefits” on Wednesday, April 22 and included testimony from the American Wind Energy Association, Blue Green Alliance, the Union of Concerned Scientists, the Environmental Defense Fund and the Stockholm Environment Institute. Both Republican and Democratic Representatives expressed concern over the economic impact a cap and trade regime could have on the American economy and job creation/loss, particularly at a time when our economy is not at its strongest.

A study by Bio Economic Research Associates found that direct economic output from the advanced biofuels industry, including capital investment, research and development, technology royalties, processing operations, feedstock production and biofuels distribution, is estimated to rise to $5.5 billion in 2012, reaching $17.4 billion in 2016, and $37 billion by 2022 and direct job creation from advanced biofuels production could reach 29,000 by 2012, rising to 94,000 by 2016 and 190,000 by 2022. Total job creation, accounting for economic multiplier effects, could reach 807,000 by 2022.

Ensuring that any climate legislation that is signed by President Obama is technology and feedstock neutral, provides incentives for producing the lowest carbon fuels, electricity, manufacturing processes and products to allow for technologies such as advanced biofuels, is imperative in order to achieve 1) reducing greenhouse gas emissions and 2) jump starting our economy in the next great innovative areas, clean renewable energy and manufacturing. The statistics above along with the proven greenhouse gas reduction benefits of advanced biofuels (Sandia National Laboratories found that producing 60B gallons of biofuels annually could provide annual greenhouse gas savings of 260 million tons of CO2 per year, the equivalent to 45 coal-fired power plants) clearly show that advanced biofuels can and should play an important role in our goal of significant global warming pollution reduction.

A Bad Rule Is Better Than No Rule?

California’s Air Resources Board will vote Thursday on its proposed numbers for the life cycle emissions of various fuels, included under the Low Carbon Fuel Standard.

According to a Greenwire story picked up in the New York Times, advocates of the rule believe that it will stimulate investment in advanced biofuels, since according to the staff analysis those biofuels will be preferred for use in California. But start-up advanced biofuel producers are facing considerable economic challenges in getting the industry off the ground, as described in a BusinessWeek story.

Building a viable biofuel industry requires transformation of the existing petroleum-based economy to a biobased economy. Because oil dominates the market, government intervention is required to carve out a space for alternatives. So, signals from the government will have a large influence on investments.
CARB is required to include measurement of indirect land use change in the calculation of the life cycle emissions for biofuels, even though there is considerable academic disagreement over California’s adopted method for measuring it. CARB chairwoman Mary Nichols said in the Greenwire story, “No one has offered an alternative that they say is better. The people who oppose it say, ‘We just don’t know enough and shouldn’t do anything,’ and we don’t think that’s acceptable.”

That’s not an accurate assessment of the academic or the industry point of view. A recent letter from Robert C. Brown, director of the Bioeconomy Institute at Iowa State University, points out that in terms of achieving real reductions in greenhouse gas emissions, California’s proposed law misses the mark:

The inclusion of ILUC in calculating the LCFS will have virtually no influence on the course of land use change in the developing world or the associated GHG emissions. On the other hand, the nascent biofuels industry, if saddled with the GHG emissions generated by other sectors of the world’s economy, will not be able to compete in energy markets.

“Second, a GHG policy that makes exceptions for some sectors of the economy and shifts the associated carbon burdens to other sectors is likely to encourage further growth in GHG emissions. As the Searchinger and Fargione studies revealed, burdening biofuels agriculture while exempting food agriculture could have the effect of encouraging unsustainable land stewardship in the developing world with the perverse outcome of increasing net GHG emissions around the world. All economic activity should be directly responsible for the GHG emissions emanating from them if this situation is to be avoided.”

Brown’s point is that economic impacts are included in California’s calculations for biofuels but not for other fuels or other areas of the economy that are regulated under California’s law. Further, the calculations are based on economic projections that are driven by assumptions.

Michigan State University Professor Bruce Dale recently gave several examples of how indirect effects might perversely apply to other industries or government policies. He summed up his argument by saying, “This is the logic of indirect effects analysis. The polluter does not pay. Those who actually create the additional pollution are not held accountable for their actions.”

Other researchers have proposed methods for directly measuring land use change associated with biofuels, such as Dale and Thomas Darlington of Air Improvement Resource Inc. in “Land Use Effects of U.S. Corn-Based Ethanol.”

Unintended Consequences of California’s LCFS

The LA Times today published an insightful opinion article written by Gal Luft, executive director of the Institute for the Analysis of Global Security and co-founder of the Set America Free Coalition titled “Greenhouse gas rules could fuel oil dependence” http://www.latimes.com/news/opinion/commentary/la-oe-luft16-2009apr16,0,2388173.story. One of the reasons many experts and stakeholders are following the California Air Resources Board’s (CARB) low carbon fuel standard (LCFS) process so closely is that in all likelihood other states and ultimately the federal government and Congress will use the CARB process as a blueprint for other regulations involving fuels and carbon mitigation, particularly their findings on indirect land use change (ILUC) values.

Embracing inclusion of immature ILUC values for the CARB greenhouse gas regulations in California would mean two things that will be particularly worrisome if applied at a national level.

One, ILUC penalties have implications not just for biofuels, but for all agricultural activity and, justly so, for all land use decisions. For example, residential buildings, wind farm projects, commercial real estate projects, public and community buildings are just examples of other businesses that inflict land use change from natural habitat in this country.

Two, for the land displaced in the aforementioned projects, American (California in this case) businesses will essentially be held responsible for land use decisions, and the resulting carbon emissions, of individuals and nations around the world over which they have no control. This creates a structure where the United States is positioned to shoulder the burden of, and potentially even encourage, poor land use choices in other nations by assessing their carbon emissions due to land use change to American businesses instead of encouraging sound land use practices on a local level. I would assume the greenhouse gas emissions would not be counted twice so even if other countries instituted their own carbon emission reduction policy, those land use changes, having already been allocated to businesses in the US, would not be allocated again on the local level.

Due to the likely direct affects on American businesses of all kinds, this policy formulation, which will in all probability be used as a blueprint for regulatory decisions in other states and on the federal level, deserves serious consideration and discussion to minimize economic harm and other unintended consequences. The Board’s credibility as well as the credibility of the analysis itself is at stake.

In order to ensure a sound scientific foundation for these policies and to avoid the pitfalls and unintended consequences Ms. Luft outlines in her piece, greater consensus is needed on assumptions being made in California particularly concerning indirect land use change. Legitimate fundamental disagreements over data, modeling, and other assumptions call for a period of further analysis, and a transitional policy that drives investment in land efficiency and production best practices.