Analysis of the Impacts of a Hypothetical Scoring Systemfor Biofuel
Total Page:16
File Type:pdf, Size:1020Kb
Analysis of the Impacts of a Hypothetical Scoring System for Biofuel Pathways by Burton C. English, Jamey Menard, T. Edward Yu, & Kimberly L. Jensen Professor, Research Leader, Assistant Professor, and Professor DEPARTMENT OF AGRICULTURAL & RESOURCE ECONOMICS, THE UNIVERSITY OF TENNESSEE May 2016 Departmental Bio-Based Energy Analysis Group| February 2016 Research Series 16-001 DISCLAIMER This report was funded in part by U.S. Department of Agriculture (USDA) through cooperative agreement number RBS 15-14 and the National Institute of Food and Agriculture (NIFA) through HATCH Project TEN00444. The authors appreciate both the internal and external review of this document; however, the findings and views expressed in this study are those of the authors and may not represent those of USDA or the University of Tennessee’s Department of Agricultural and Resource Economics or the University of Tennessee’s Institute of Agriculture. Principal Authors: . Dr. Burton C. English . Mr. Jamey Menard . Dr. T. Edward Yu, and . Dr. Kimberly L. Jensen Additional copies of this report may be obtained from: Department of Agricultural and Resource Economics, 2621 Morgan Circle, Knoxville, TN 37996-4518 Contact Information: phone: (865)-974-3716 email: [email protected] Executive Summary Significant growth in renewable energy use has occurred during the past decade – driven by growth in legislation at the state level along with production tax credits and other federal subsidies. Today’s U.S. biofuel industry was shaped in part as a result of the 1970s oil embargoes and the environmental impacts of lead. In an effort to mitigate the associated environmental and fuel security concerns, federal and state subsidies were initiated to support development of the ethanol fuel industry. Use of biofuels can not only help mitigate both environmental and fuel security concerns but can substitute for gasoline and diesel contributing to better GHG performance than fossil fuels. In order to improve air quality and lower GHG emissions, the Environmental Protection Agency has developed an energy pathway approval process designed to achieve 50 – 60 percent reductions in GHGs. President Clinton established, via executive order, a bioenergy program, the Advanced Biofuel Payment Program, that provided Commodity Credit Corporation incentive payments to biofuel producers based on annual increases in the quantity of biofuel produced and focused on non-corn-starch sources. Historically, payments under the Advanced Biofuel Payment Program have not been based on the capital investment levels required to convert feedstocks to energy. Tailoring a program with payments in part based upon required capital investment levels, as well as other considerations, including environmental impacts, and could help incentivize investment in those technologies that may be more capital intensive technologies, but with greater greenhouse gas reduction benefits to attract new methods of conversion and new feedstocks. The overall goal of this study is to develop a hypothetical scoring system that might be used in allocating incentive program funds to support and expand the production of advanced biofuels. This scoring system would take into account 1) feedstock production costs, 2) conversion investment and operating costs, 3) environmental impacts (GHG reduction), 4) transportation fuel status, and 5) potential economic impacts. Hence, consideration would not only be given to costs of producing the fuel or fuel quantities, but other considerations of importance to the biofuels industry and economy. Alternative fuel pathways based upon EPA Energy Pathways criteria are developed and scores are then calculated for each pathway across several example feedstocks that incorporate the aforementioned criteria. Once scores are developed, the pathways are assigned to four Tiers based upon these scores, with four being the Tier with the highest overall scores. A five tier system was also developed. Because the hypothetical scoring system relies on investment and operating costs for each fuel and feedstock pathway, an objective of the study is to provide estimates of the capital and operating expenditures of facilities producing advanced biofuels relative to units of feedstock transformed into equivalent units of fuel. These investment and operating costs are developed based upon prior research and literature for the advanced biofuels pathways. The following fuel pathways were considered in this analysis: 1) green (jet-fuel pathway) fuel (i.e., green diesel, green gasoline, drop in fuel); 2) ethanol– cellulosic; 3) ethanol–corn and grain sorghum kernel starch in traditional corn dry mill process; 4) biodiesel; and 5) electricity through anaerobic digestion or via heat or electricity through solid fuel production. Measures were calculated to represent each of the scoring criteria. To reflect potential economic activity from the various fuel pathways, economic impacts were incorporated into the scoring system to measure both establishment and annual maintenance/harvest of feedstocks, transportation, and for the various conversion pathways to convert the feedstock to energy. The economic impacts for the conversion pathways measure the facility capital or investment and operating costs and, where available, any coproducts or credits attributed to that energy conversion pathway. To account for energy sustainability, EPA’s approved pathways for renewable fuel is used. The transportation criterion incorporates the transportation fuel goal imbedded in the Renewable Fuel Standard authorized in EISA. Each criterion was scored and using weights the criteria were summed into a single score value. i Results indicate that those fuel systems that rely on renewable biomass for a feedstock typically are scored higher than other feedstocks, receiving Tier 4 scores. Biodiesel produced with soybeans, canola, or an industrial oil producing crop with a crush facility on site receive a Tier 3 score. The purchase of oil and transformation to biodiesel nets a Tier 3 score. Producing electricity is a Tier 2 production activity based on the proposed scoring methodology. This prototype scoring system serves as an example decision aid tool. By weighting several criteria beyond costs of production and production amounts, Program 9005 could potentially be modified in the future to account for changing policy objectives and newly emerging technologies. It should be noted that the estimates used here were based upon national averages, selected locations for feedstock production used in prior studies, and/or previously published techno-economic analysis. The tool could potentially be regionalized to account for differences in regional feedstock growing, demands, and economic conditions. Furthermore, other additional criteria could potentially be incorporated for a scoring tool for biofuels incentives that considers farm incomes, types of jobs added, water use, or other rural development, sustainability, and program criteria. ii Contents Renewable Energy and Related Policies ......................................................................................... 1 Background ................................................................................................................................. 1 Advanced Biofuel Payment Program .......................................................................................... 5 Objectives and Methodology .......................................................................................................... 6 Objectives .................................................................................................................................... 6 Methodology and Data Estimates ............................................................................................... 6 Fuel Pathways ......................................................................................................................... 6 Hypothetical Scoring System Development for Biofuel Pathways ........................................ 7 Feedstock Production Technical Coefficients and Costs Development ................................. 9 Transportation Costs Estimates............................................................................................. 11 Conversion Costs Development ............................................................................................ 12 Economic Impacts Modeling ................................................................................................ 13 Sensitivity Analysis .............................................................................................................. 16 Results ........................................................................................................................................... 16 Overview of Costs ..................................................................................................................... 16 Economic Impact Estimates ...................................................................................................... 19 An Example of the Tier Scoring System .................................................................................... 21 Sensitivity Results...................................................................................................................... 21 Land Rent Sensitivity ............................................................................................................ 21 Rurality and Persistent Poverty ............................................................................................