Liberalization of Trade in Biofuels : Implications for GHG Emissions and Social Welfare

1. Liberalization of Trade in Biofuels: Implications for GHG Emissions and Social Welfare Xiaoguang Chen MadhuKhanna HayriÖnal University of Illinois at Urbana-Champaign

2. Motivations for Biofuels • Energy Security • Reducing dependence on foreign oil • Rising oil prices • Greenhouse Gas Mitigation • Larger potential for reduction in GHG emissions relative to gasoline • Rural Economy Development

3. Energy Independence and Security Act, 2007 Mandates: 36 B gallons to be produced annually by 2022 • Of this, 21 B gallons to come from advanced biofuels that reduce greenhouse gas emissions by at least 50%

4. Some Options for Second-Generation Biofuels • Crop and Forest Residues: Corn stover, wheat straw • Dedicated energy crops: Perennial grasses • Miscanthus, Switchgrass Miscanthus Switchgrass

5. Food Conservation and Energy Act of 2008 • Reduced tax credit for corn ethanol to $0.45/gallon • Provides subsidy of $1.01/gallon for cellulosic ethanol • Assistance for cellulosic biorefineries, R&D • Biomass Crop Assistance Program: • $45/ton for collection, harvesting, storage and transportation of cellulosic feedstocks for 2 years • 75% cost share for establishment costs

6. Biofuel Trade Policy • A 2.5% ad valorem tariff and a per unit tariff of $0.54 per gallon against Brazilian sugarcane ethanol • Duty-free ethanol from Caribbean Countries with quantity quota • Duty-free ethanol restricted to no more than 7% of U.S. ethanol consumption

7. Research Questions • Implications of expanding biofuel production under biofuel policies • For land use, crop production, food and fuel prices and GHG emissions • Costs to the economy, for consumer and producers in agricultural and fuel markets • Economically viable mix of feedstocks and resulting spatial pattern of land use • Simulated yields of Miscanthus and Switchgrass • Availability of land for food and fuel crops

8. Impact of A Mandate $ US Gasoline Demand $ $ Rest of World Gasoline Supply to the US US Gasoline Supply P0 PM US Demand for Gasoline Import US VMT Demand Miles Gasoline Gasoline Panel a: Vehicle Miles Panel c: Gasoline Trade Panel b: Domestic Gasoline US Ethanol Supply Rest of World Ethanol Supply to the US $ $ US Ethanol Demand PwM No Intervention Mandate Pw0 US Demand for Ethanol Import Corn ethanol Sugarcane ethanol Panel d: Domestic Ethanol Panel e: Ethanol Trade

9. Impact of A Mandate and A Subsidy $ US Gasoline Demand $ Ethanol Rest of World Gasoline Supply to the US US Gasoline Supply P0 PM US Demand for Gasoline Import US VMT Demand Miles Gasoline Gasoline Panel a: Vehicle Miles Panel c: Gasoline Trade Panel b: Domestic Gasoline US Ethanol Supply Rest of World Ethanol Supply to the US $ $ US Ethanol Demand Subsidy and Mandate PwM No Intervention PwMS Mandate Pw0 US Demand for Ethanol Import Corn ethanol Sugarcane ethanol Panel d: Domestic Ethanol Panel e: Ethanol Trade

10. Impact of A Mandate with Subsidies and Tariff $ US Gasoline Demand $ Ethanol Rest of World Gasoline Supply to the US US Gasoline Supply PMS US Demand for Gasoline Import US VMT Demand Miles Gasoline Gasoline Panel a: Vehicle Miles Panel c: Gasoline Trade Panel b: Domestic Gasoline US Ethanol Supply Rest of World Ethanol Supply to the US $ $ US Ethanol Demand PwMST PwMS t Pw* Subsidy and Mandate US Demand for Ethanol Import Subsidy, Mandate and Tariff Corn ethanol Sugarcane ethanol Panel d: Domestic Ethanol Panel e: Ethanol Trade

11. Dynamic Land Use Model and Data Biofuel and Environmental Policy Analysis Model (BEPAM) • Multi-market; Dynamic; Spatial; Partial Equilibrium • Multi-markets in agricultural sector: several crops, sugar, livestock, DDGs • Fuel sector with corn ethanol, cellulosic ethanol, imported gasoline and ethanol • Food and fuel prices, demand for cropland determined within model • 16 year planning period (2007-2022); 10-year rolling horizon; annual time scale Data • Simulated yields of bioenergy crops: miscanthus and switchgrass • CRD-level data on productivity, returns to various activities • CRD-level life-cycle analysis • Cropland expansion based on crop price expectation from the conversion of marginal land (idle cropland and cropland pasture) • Yield changes for major crops

12. Yield of Miscanthus and Switchgrass Miscanthus Corn Yields

14. Life Cycle GHG Emissions of Biofuels

15. Key Results

16. Fuel Consumption and the Mixes of Biofuels

17. Food and Fuel Prices

18. Cropland Allocation

19. Spatial Distribution of Cellulosic Feedstocks under Mandate Alone in 2022 Corn Stover Wheat Straw Switchgrass Miscanthus

20. Spatial Distribution of Cellulosic Feedstocks under Mandate and Subsidies in 2022 Corn Stover Wheat Straw Switchgrass Miscanthus

21. GHG Emissions and Social Welfare

22. Conclusions • A diverse mix of cellulosic feedstocks likely to be used to meet the RFS • Heavy reliance on miscanthus • The RFS provides the assurance needed for industry to invest in cellulosic biofuels • But biofuel mandates and tax credits may not necessarily be good climate policy • Imposing tariffs decreases ethanol imports and increase GHG emissions and social welfare • Small effects on agricultural and fuel sectors