Cellulosic Biofuel Potential with Heterogeneous
Biomass Suppliers: An Application to
Switchgrass-based Ethanol
John Miranowski
Professor of Economics, Iowa State University
with
Alicia Rosburg, Assistant Professor, University of Northern Iowa
Keri Jacobs, Assistant Professor, Iowa State University
Motivation
• Biofuel expansion
• U.S. RFS2 – 16 billion gallons of cellulosic biofuel by 2022
• Economics of cellulosic biofuel differs from conventional fuel and
first-generation biofuel
• Non-commoditized feedstock
• Location-specific economic trade-offs
Research Objectives
1.
Develop a long run cost model of cellulosic biofuel production with
local biomass suppliers and biofuel processors.
2.
Identify marginal costs and biorefinery scales and locations of
meeting biofuel targets (RFS2).
3.
Evaluate policy and biofuel costs of meeting RFS2 with location
differences in biomass production and processing costs.
Features of conceptual model
• Consider only long run costs prior to capital investment
• Account for economic tradeoff
• Economies in processing
• Diseconomies in feedstock procurement (e.g., transportation)
• Biomass supplies differ within and between local markets which dictate
economies of biofuel processing
• Breakeven aggregate production is driven by the long run price of crude
oil or gasoline
Application to switchgrass
• Biorefinery conversion
• Biochemical conversion of biomass to ethanol – Kazi et al. (2010)
• Conversion scale factor
• Assume processing plant runs at annual capacity
• Biomass production
• Potential land available for SG – CRD land use data (USDA)
• SG production costs and yields – Khanna et al. (2011)
• Storage and transportation cost assumptions – Rosburg & Miranowski (2011)
• Marginal opportunity cost of biomass cropland – CRP offers
Minimum ATC of SG ethanol by CRD
10
9
7
4 5 6
8
2
1
ATC
($/gallon ethanol)
3.19 - 3.25
3.26 - 3.50
3.51 - 3.75
3.76 - 4.00
4.01 - 4.60
3
Trends in cost minimizing decisions
As aggregate biofuel production expands, MC increases.
1.
Processing plant capacity decreases
2.
Biomass transportation distance and costs increase
3.
Landowner participation rate decreases because
• Biomass yields decrease
• Suitable land for SG production decreases
• Land opportunity costs increase
Estimated ethanol supply curve from switchgrass
4.6
4.4
$/gallon ethanol
4.2
4
3.8
3.6
3.4
3.2
3
0
1
2
3
4
5
6
Billion gallons per year
7
8
9
10
Market conditions to support biofuel production from SG
Production (bgy)
𝟐
𝟒. 𝟐𝟓
𝟔
𝟖
Gasoline price ($/gallon)
5.05
5.25
5.46
5.88
Oil price ($/barrel)
147
153
158
171
Gasoline price with tax credit ($/gallon)
3.54
3.74
3.95
3.47
Oil price with tax credit ($/barrel)
103
109
114
127
Note: Wholesale prices
• 2016 RFS2 cellulosic biofuel mandate of 4.25 bgy
• EIA 2012 oil price forecasts for 2022 and 2035: $129 and $145 per barrel
Conclusions
• Local production environments play an important role in
aggregate cost of cellulosic biofuel production.
• Biofuel production costs vary significantly across locations.
• Given SG land use assumptions, the cost of satisfying 2016
cellulosic biofuel mandate (4.25 bgy) is $5.25/gge.
Thank you!
Comments or questions?
Extra slides
Empirical approach
1.
Establish least-cost SG biofuel supply for each CRD and
market supply curve based on aggregation of CRD least
cost biofuel supplies.
2.
Determine aggregate MC, along with biorefinery scales
and locations, to meet RFS2 production goals.
Spatial variation in cost-minimizing decisions
Heterogeneity between and within local biomass markets
creates significant variation in the cost-minimizing decisions
𝑸
𝒓
𝑷𝑶𝒑𝒑
𝒀𝑩
𝑨𝑻𝑪
(mgy)
(miles)
($/dt)
($/gal)
52
35
18.6
3.73
9 – 117
22 – 51
4 – 58
3.19 – 4.57
Top 25% of biorefineries
86
31
12
3.38
41%
Bottom 25% of biorefineries
31
38
31
4.17
15%
% of Total
Production
All biorefineries
Average
Range
Supply curve sensitivity
Switchgrass Yield
Available biomass cropland
5.5
4.8
4.6
5
Low switchgrass yield
Baseline switchgrass yield
High switchgrass yield
$/gallon
$/gallon
4.5
4
3.5
4.4
Low dA
4.2
Baseline
High dA
4
3.8
3.6
3.4
3
3.2
2.5
0
2
4
6
8
Billion gallons per year
10
12
3
0
2
4
6
8
Billion gallons per year
10
12
14
Supply curve sensitivity
Variable transportation cost
Economies of scale
4.8
4.8
4.6
Low (t = 0.50)
Baseline (t = 0.70)
High (t = 1.00)
4.4
4.6
4.4
4.2
4
$/gallon
$/gallon
4.2
3.8
3.6
3.8
3.6
3.4
3.4
3.2
3
4
High economies (k = 0.60)
Baseline (k = 0.75)
Low economies (k = 0.90)
3.2
0
2
4
6
8
Billion gallons per year
10
12
14
3
0
2
4
6
8
Billion gallons per year
10
12
14
Supply curve sensitivity
Alternative transportation models
4.6
4.4
Baseline
Diminishing participation
Average hauling distance
4.2
$/gallon
4
3.8
3.6
3.4
3.2
3
0
2
4
6
8
Billion gallons per year
10
12