Global Biofuel Expansion under Different Energy Price Environments by May Mercado Peters Paper for presentation at the Energy Conference on “The Economics of Alternative Energy Sources and Globalization: The Road Ahead,” Orlando, Florida, November 15-17,2009
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Global Biofuel Expansion under Different Energy Price Environments by May Mercado Peters Paper for presentation at the Energy Conference on “The Economics.
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Global Biofuel Expansion under Different Energy Price Environments
byMay Mercado Peters
Paper for presentation at the Energy Conference on “The Economics of Alternative Energy Sources and Globalization: The Road Ahead,”
Orlando, Florida, November 15-17,2009
Motivation• Continued biofuel expansion globally;
• Many questions arise because of the uncertainty of future petroleum prices;
• Need a flexible tool to run different scenarios; and,
• Need to capture supply and demand for key biofuel countries and major commodities.
Internationalmarkets
Domesticmarket
Transmission factorsExchange rates
Tariffs,Quotas
Crops Area
Yield
Livestock
Processing
ImportsExports
Feed
FoodBiofuelOther
Beginning Stocks
EndingsStocks
Dynamic PEATSim ModelDynamic PEATSim Model
Biofuel Component
Fully operational endogenous biofuel sector in the PEATSim model with the following built-in:
• U.S. corn-based ethanol sector with DDGs use in the livestock sector;
Table 2. Impacts of global biofuel demand shifts on major biofuel feedstocks under varying energy prices
Source: PEATSim model resultsExports for USA and Brazil, Imports for EU
Change in corn exports under varying energy prices
USA
USA
USA
BRZ
BRZ
BRZ
ARGARG
ARG
World
World
World
-40
-30
-20
-10
0
10
20
30
40
50
60
Reference Low Energy Price High Energy Price
% c
hang
e fro
m b
ase
To meet global biofuel demand increases, exports of corn increase in other countries of the world to compensate for export decline from United States.
Source: PEATSim Model Results
Change in sugar exports under varying energy prices
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
Reference Low Energy Price High Energy Price
% c
hang
e fro
m b
ase
Brazil EU Australia World
To meet global biofuel demand increases, exports of sugar increase in other countries of the world to compensate for export decline from Brazil.
Source: PEATSim Model Results
Change in rapeseed oil exports under varying energy prices
0
2
4
6
8
10
12
14
16
18
20
Reference Low Energy Price High Energy Price
% c
ha
ng
e fr
om
ba
se
Canada PEATSim ROW World
To meet global biofuel demand increases, exports of rapeseed oil in other countries of the world increase to meet increased demand from the European Union.
Source: PEATSim Model Results
Importance of
Technology
Supply curve shift needed to keep ethanol competitive with
declining energy price (30 % reduction in petroleum price)
A 37 % reduction in ethanol production cost is needed to keep ethanol use at reference scenario levels. This implied increased efficiency of U.S. ethanol production will allow it to compete with gasoline.
Ethanol Supply
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
0 5 10 15 20 25Quantity
Pri
ce
Supply (reference scenario) Supply (30% energy price dec)
37%37%
Cellulosic conversion
Fuel Break-even price
Scenarios
Reference Low-price High-price
Corn-based $4.00 $3.39 $3.24 $3.52
Petroleum $144 $112 $79 $156
• At low price or reference scenario levels, cellulosic ethanol is not competitive with petroleum-based fuels.
• If energy prices increase 30% more than expected, then cellulose, while competitive with petroleum-based fuel is still not competitive with corn-based ethanol.
Conclusions• Impact of biofuels programs on agriculture markets
is variable – Continued biofuel expansion spurred by alternative energy
programs will lead to increasing agricultural commodity prices and to changes in patterns of trade in biofuel feedstocks.
– A 30 % decline in petroleum prices (absent of mandate) would result in decline in biofuel use worldwide accompanied by a decline in feedstock and biofuel prices relative to the reference scenario. About 37 % decline in U.S. ethanol production costs is necessary to offset reduction in ethanol use due to lower petroleum prices.
– A 30 % increase in petroleum prices will accentuate impacts of biofuel expansion policies on global agricultural markets, agricultural commodity prices and the direction of biofuel feedstocks trade .
Conclusions (cont.)• Technological change could play a crucial role in
reducing the uncertainty in the outlook for biofuels expansion.
• Lowering production costs would permit biofuel to compete with petroleum based fuels in a low energy price environment.
• Developing non-food related feedstocks would reduce the impact of biofuels expansion on traditional food and feed crop prices.
• Efforts in technological innovation that focus on reducing the cost of producing ethanol by increasing feedstock conversion efficiency and increasing feedstock yields. They would offset the agricultural commodity price increases from global biofuel demand increases.