Renewable
Fuel Standard
POTENTIAL ECONOMIC AND
ENVIRONMENTAL EFFECTS OF
U.S. Biofuel Policy
Committee on Economic and Environmental Impacts of Increasing Biofuels Production
Board on Agriculture and Natural Resources
Division on Earth and Life Studies
Board on Energy and Environmental Systems
Division on Engineering and Physical Sciences
NATIONAL RESEARCH COUNCIL
OF THE NATIONAL ACADEMIES
THE NATIONAL ACADEMIES PRESS
Washington, D.C.
www.nap.edu
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NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance.
This study was funded by the Department of Treasury under Award TOS-09-051. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project.
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THE NATIONAL ACADEMIES
Advisers to the Nation on Science, Engineering, and Medicine
The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences.
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The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council.
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COMMITTEE ON ECONOMIC AND ENVIRONMENTAL IMPACTS OF INCREASING BIOFUELS PRODUCTION
LESTER B. LAVE, Chair (until May 9, 2011), IOM,1 Carnegie Mellon University, Pittsburgh, Pennsylvania
INGRID (INDY) C. BURKE, Cochair (from May 9, 2011), University of Wyoming, Laramie
WALLACE E. TYNER, Cochair (from May 9, 2011), Purdue University, West Lafayette, Indiana
VIRGINIA H. DALE, Oak Ridge National Laboratory, Tennessee
KATHLEEN E. HALVORSEN, Michigan Technological University, Houghton
JASON D. HILL, University of Minnesota, St. Paul
STEPHEN R. KAFFKA, University of California, Davis
KIRK C. KLASING, University of California, Davis
STEPHEN J. MCGOVERN, PetroTech Consultants, Mantua, New Jersey
JOHN A. MIRANOWSKI, Iowa State University, Ames
ARISTIDES (ARI) PATRINOS, Synthetic Genomics, Inc., La Jolla, California
JERALD L. SCHNOOR, NAE,2 University of Iowa, Iowa City
DAVID B. SCHWEIKHARDT, Michigan State University, East Lansing
THERESA L. SELFA, State University of New York – College of Environmental Science and Forestry, Syracuse
BRENT L. SOHNGEN, Ohio State University, Columbus
J. ANDRES SORIA, University of Alaska, Fairbanks
Project Staff
KARA N. LANEY, Study Codirector
EVONNE P.Y. TANG, Study Codirector
KAMWETI MUTU, Research Associate
KAREN L. IMHOF, Administrative Coordinator
ROBIN A. SCHOEN, Director, Board on Agriculture and Natural Resources
JAMES ZUCCHETTO, Director, Board on Energy and Environmental Systems
Editor
PAULA TARNAPOL WHITACRE, Full Circle Communications, LLC
1Institute of Medicine.
2National Academy of Engineering.
BOARD ON AGRICULTURE AND NATURAL RESOURCES
NORMAN R. SCOTT, Chair, NAE,1 Cornell University, Ithaca, New York
PEGGY F. BARLETT, Emory University, Atlanta, Georgia
HAROLD L. BERGMAN, University of Wyoming, Laramie
RICHARD A. DIXON, NAS,2 Samuel Roberts Noble Foundation, Ardmore, Oklahoma
DANIEL M. DOOLEY, University of California, Oakland
JOAN H. EISEMANN, North Carolina State University, Raleigh
GARY F. HARTNELL, Monsanto Company, St. Louis, Missouri
GENE HUGOSON, Global Initiatives for Food Systems Leadership, St. Paul, Minnesota
MOLLY M. JAHN, University of Wisconsin, Madison
ROBBIN S. JOHNSON, Cargill Foundation, Wayzata, Minnesota
A.G. KAWAMURA, Solutions from the Land, Washington, DC
JULIA L. KORNEGAY, North Carolina State University, Raleigh
KIRK C. KLASING, University of California, Davis
VICTOR L. LECHTENBERG, Purdue University, West Lafayette, Indiana
JUNE BOWMAN NASRALLAH, NAS,2 Cornell University, Ithaca, New York
PHILIP E. NELSON, Purdue University, West Lafayette, Indiana
KEITH PITTS, Marrone Bio Innovations, Davis, California
CHARLES W. RICE, Kansas State University, Manhattan
HAL SALWASSER, Oregon State University, Corvallis
ROGER A. SEDJO, Resources for the Future, Washington, DC
KATHLEEN SEGERSON, University of Connecticut, Storrs
MERCEDES VAZQUEZ-AÑON, Novus International, Inc., St. Charles, Missouri
Staff
ROBIN A. SCHOEN, Director
CAMILLA YANDOC ABLES, Program Officer
RUTH S. ARIETI, Research Associate
KAREN L. IMHOF, Administrative Coordinator
KARA N. LANEY, Program Officer
AUSTIN J. LEWIS, Senior Program Officer
JANET M. MULLIGAN, Senior Program Associate for Research
KATHLEEN REIMER, Senior Program Assistant
EVONNE P.Y. TANG, Senior Program Officer
PEGGY TSAI, Program Officer
1National Academy of Engineering.
2National Academy of Sciences.
BOARD ON ENERGY AND ENVIRONMENTAL SYSTEMS
ANDREW BROWN, JR., Chair, NAE,1 Delphi Corporation, Troy, Michigan
RAKESH AGRAWAL, NAE,1 Purdue University, West Lafayette, Indiana
WILLIAM BANHOLZER, NAE,1 The Dow Chemical Company, Midland, Michigan
MARILYN BROWN, Georgia Institute of Technology, Atlanta
MICHAEL CORRADINI, NAE,1 University of Wisconsin, Madison
PAUL A. DECOTIS, New York State Energy R&D Authority, Albany, New York
CHRISTINE EHLIG-ECONOMIDES, NAE,1 Texas A&M University, College Station
SHERRI GOODMAN, CNA, Alexandria, Virginia
NARAIN HINGORANI, NAE,1 Independent Consultant, Los Altos Hills, California
ROBERT J. HUGGETT, Independent Consultant, Seaford, Virginia
DEBBIE A. NIEMEIER, University of California, Davis
DANIEL NOCERA, NAS,2 Massachusetts Institute of Technology, Cambridge
MICHAEL OPPENHEIMER, Princeton University, New Jersey
DAN REICHER, Stanford University, California
BERNARD ROBERTSON, NAE,1 Daimler-Chrysler (retired), Bloomfield Hills, Michigan
ALISON SILVERSTEIN, Consultant, Pflugerville, Texas
MARK H. THIEMENS, NAS,2 University of California, San Diego
RICHARD WHITE, Oppenheimer & Company, New York City
Staff
JAMES ZUCCHETTO, Director
K. JOHN HOLMES, Associate Director
DANA CAINES, Financial Associate
ALAN CRANE, Senior Program Officer
JONNA HAMILTON, Program Officer
LANITA JONES, Administrative Coordinator
ALICE WILLIAMS, Senior Program Assistant
MADELINE WOODRUFF, Senior Program Officer
JONATHAN YANGER, Senior Project Assistant
1National Academy of Engineering.
2National Academy of Sciences.
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In Memoriam
Lester B. Lave
(1939-2011)
The committee dedicates this report to Dr. Lester Lave, chair for the majority of the duration of the study until his passing. Dr. Lave was a supremely accomplished scholar and educator, who conducted work of international significance and dedicated much of his time to National Research Council and Institute of Medicine studies. Dr. Lave was an inspirational leader. He framed complex questions in tractable ways, stimulated productive discussion on critical topics, listened carefully, and provided a strong hand to focus the committee’s work. This report and each member of the committee benefited from his commitment to excellence.
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Preface
Prediction is very difficult, especially if it’s about the future.
—Niels Bohr
In the United States, we have come to depend upon plentiful and inexpensive energy to support our economy and lifestyles. In recent years, many questions have been raised regarding the sustainability of our current pattern of high consumption of nonrenewable energy and its environmental consequences. Further, because the United States imports about 55 percent of the nation’s consumption of crude oil, there are additional concerns about the security of supply. Hence, efforts are being made to find alternatives to our current pathway, including greater energy efficiency and use of energy sources that could lower greenhouse-gas (GHG) emissions such as nuclear and renewable sources, including solar, wind, geothermal, and biofuels. This study focuses on biofuels and evaluates the economic and environmental consequences of increasing biofuel production. The statement of task asked this committee to provide “a qualitative and quantitative description of biofuels currently produced and projected to be produced by 2022 in the United States under different policy scenarios….”
The United States has a long history with biofuels. Recent interest began in the late 1970s with the passage of the National Energy Conservation Policy Act of 1978, which established the first biofuel subsidy, applied in one form or another to corn-grain ethanol since then. The corn-grain ethanol industry grew slowly from the early 1980s to around 2003. From 2003 to 2007, ethanol production grew rapidly as methyl tertiary butyl ether was phased out as a gasoline oxygenate and replaced by ethanol. Interest in providing other incentives for biofuels increased also because of rising oil prices from 2004 and beyond. The Energy Independence and Security Act of 2007 established a new and much larger Renewable Fuel Standard and set in motion the drive toward 35 billion gallons of ethanol-equivalent biofuels plus 1 billion gallons of biodiesel by 2022. This National Research Council committee was asked to evaluate the consequences of such a policy; the nation is on a course charted to achieve a substantial increase in biofuels, and there are challenging and important questions about the economic and environmental consequences of continuing on this path.
The committee brings together expertise on the many dimensions of the topic. In addition, we called upon numerous experts to provide their perspectives, research conclusions, and insight. Yet, with all the expertise available to us, our clearest conclusion is that there is very high uncertainty in the impacts we were trying to estimate. The uncertainties include essentially all of the drivers of biofuel production and consumption and the complex interactions among those drivers: future crude oil prices, feedstock costs and availability, technological advances in conversion efficiencies, land-use change, government policy, and more. The U.S. Department of Energy projects crude oil price in 2022 to range between $52 and $191 per barrel (in 2008 dollars), a huge range. There are no commercial cellulosic biofuel refineries in the United States today. Consequently, we do not know much about growing, harvesting, and storing such feedstocks at scale. We do not know how well the conversion technologies will work nor what they will cost. We do not have generally agreed upon estimates of the environmental or GHG impacts of most biofuels. We do not know how landowners will alter their production strategies. The bottom line is that it simply was not possible to come up with clear quantitative answers to many of the questions. What we tried to do instead is to delineate the sources of the uncertainty, describe what factors are important in understanding the nature of the uncertainty, and provide ranges or conditions under which impacts might play out.
Under these conditions, scientists often use models to help understand what future conditions might be like. In this study, we examined many of the issues using the best models available. Our results by definition carry the assumptions and inherent uncertainties in these models, but we believe they represent the best science and scientific judgment available.
We also examined the potential impacts of various policy alternatives as requested in the statement of work. Biofuels are at the intersection of energy, agricultural, and environmental policies, and policies in each of these areas can be complex. The magnitude of biofuel policy impacts depends on the economic conditions in which the policy plays out, and that economic environment (such as growth of gross domestic product and oil price) is highly uncertain. Of necessity, we made the best assumptions we could and evaluated impacts contingent upon those assumptions.
Biofuels are complicated. Biofuels are controversial. There are very strong advocates for and political supporters of biofuels. There are equally strong sentiments against biofuels. Our deliberations as a committee focused on the scientific aspects of biofuel production—social, natural, and technological. Our hope is that the scientific evaluation sheds some light on the heat of the debate, as we have delineated the issues and consequences as we see them, together with all the inherent uncertainty.
Ingrid C. Burke
Wallace E. Tyner
Cochairs, Committee on Economic and Environmental
Effects of Increasing Biofuels Production
Acknowledgments
This report is a product of the cooperation and contribution of many people. The members of the committee thank all the speakers who provided briefings to the committee. (Appendix C contains a list of presentations to the committee.) Members also wish to express gratitude to Nathan Parker, University of California, Davis, and Alicia Rosburg, Iowa State University, who provided input to the committee.
This report has been reviewed in draft form by persons chosen for their diverse perspectives and technical expertise in accordance with procedures approved by the National Research Council’s Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards of objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We wish to thank the following individuals for their review of this report:
Robert P. Anex, University of Wisconsin, Madison
Dan L. Cunningham, University of Georgia
William E. Easterling, Pennsylvania State University
R. Cesar Izaurralde, Joint Global Change Research Institute and University of Maryland
James R. Katzer, ExxonMobil (retired)
Eric F. Lambin, Stanford University and University of Louvain
Bruce Lippke, University of Washington
Heather MacLean, University of Toronto
K. Ramesh Reddy, University of Florida
John Reilly, Massachusetts Institute of Technology
James C. Stevens, Dow Chemical Company
Scott Swinton, Michigan State University
William Ward, Clemson University
Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations, nor did they see the final draft of the report before its release. The review of this report was overseen by Dr. Thomas E. Graedel, Yale University, appointed by the Division on Earth and Life Studies, and Dr. M. Granger Morgan, Carnegie Mellon University, appointed by the NRC’s Report Review Committee. They were responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution.
Contents
Other Feedstocks and Processing Technologies in Development
3 PROJECTED SUPPLY OF CELLULOSIC BIOMASS
Potential Supply of Biofuel Feedstock and Location of Biorefineries
Uncertainties about Cellulosic Feedstock Production and Supply
4 THE ECONOMICS AND ECONOMIC EFFECTS OF BIOFUEL PRODUCTION
Estimating the Potential Price of Cellulosic Biomass
Primary Market and Production Effects of U.S. Biofuel Policy
Effects of Biofuel Production on the Balance of Trade
Budget, Welfare, and Social Value Effects of RFS2
Effects of Adjustments to and Interactions with U.S. Biofuel Policy
5 ENVIRONMENTAL EFFECTS AND TRADEOFFS OF BIOFUELS
Life-Cycle Approach for Assessing Environmental Effects: An Overview
Water Quantity and Consumptive Water Use
Regional and Local Environmental Assessments
Uncertainties about Environmental Effects of Biofuel Production
Opportunities to Minimize Negative Environmental Effects
C PRESENTATIONS TO THE COMMITTEE
E SELECT ACRONYMS AND ABBREVIATIONS
G PETROLEUM-BASED FUEL ECONOMICS
H ETHANOL BIOREFINERIES IN OPERATION OR UNDER CONSTRUCTION IN THE UNITED STATES IN 2010
I BIODIESEL REFINERIES IN THE UNITED STATES IN 2010
J ECONOMIC MODELS USED TO ASSESS THE EFFECTS OF BIOFUEL PRODUCTION IN THE UNITED STATES
K BIOBREAK MODEL: ASSUMPTIONS FOR WILLINGNESS TO ACCEPT
List of Tables, Figures, and Boxes
TABLES
1-1 History of U.S. Ethanol and Biofuel Legislation
1-2 Equivalence Values Assigned to Renewable Fuels
2-2 Ethanol Production from the Iogen Demonstration Facility in Ottawa, Canada, 2005-2010
2-3 Companies That Have Secured Funding for Demonstration of Nonfood-Based Biofuel Refineries
3-1 Comparison of Assumptions in Biomass Supply Analyses
3-4 Comparison of Models Used to Estimate Biomass Production by Region and Biorefinery Locations
4-1 BioBreak Simulated Mean WTP, WTA, and Difference per Dry Ton Without Policy Incentives
4-2 BioBreak Simulated WTA Value Without Policy Incentives by Percentile
4-3 Summary of Economics of Biofuel Conversion
4-4 Estimates of Effect of Biofuel Production on Agricultural Commodity Prices, 2007-2009
4-5 Energy Subsidies as Percentage of Consumer Spending on That Source
4-6 Selected Federal Programs to Reduce Production Costs of Cellulosic Biofuel Refineries
4-7 Growth Characteristics of Alternative Timber Types
5-1 Fertilizer Use for Corn and Soybean Production in the United States
5-5 Average Percent Change in Tailpipe Emissions Compared to a Reference Fuel Containing No Ethanol
5-6 Nationwide Emission Inventories for 2022 for the Renewable Fuel Standard (RFS) and RFS2
5-7 Net Change in Flow-Normalized Nitrate Concentration and Flux Between 1980 and 2008
5-9 Compositional Analysis of Two Ethanol Plant Discharges Adapted from NRC 2008
5-11 Inputs Used for Life-Cycle Analysis of Biofuel Consumptive Water Use in Different Studies
6-2 Life-Cycle Greenhouse-Gas (GHG) Reduction Thresholds Specified in RFS2
FIGURES
2-1 Distribution of planted corn acres in the United States in 2008
2-2 Processing steps for converting corn grain to ethanol
2-3 U.S. corn production and use as fuel ethanol from 1980 to 2009
2-5 Location of ethanol biorefineries in the United States as of September 2010
2-6 Distribution of planted soybean acres in the United States in 2008
2-7 Process flow of biodiesel production
2-8 Biodiesel refineries in the United States (2008)
2-11 Projected annual average harvestable yield of M. × giganteus in the third year after planting
2-12 Net primary forest productivity in the conterminous United States
2-13 Forestland in the conterminous United States by ownership category
2-14 Model of a lignocellulosic-based ethanol biochemical refinery
2-15 Thermochemical conversion pathways and products
2-16 Schematic diagram of a thermochemical conversion refinery to produce ethanol
3-1 Biofuel supply and fuel pathways estimated from the National Biorefinery Siting Model
3-2 Biomass supply curves estimated by the National Biorefinery Siting Model
3-5 Locations of cellulosic facilities projected by the EPA Transport Tool
4-1 Biomass supplier WTA per dry ton projected by BioBreak model
4-2 Gap between supplier WTA and processor WTP projected by BioBreak model
4-3 Components of trees and their use and value in markets
4-6 Breakdown of biomass conversion costs
4-7 Allocation and use of U.S. cropland from 1965 to 2006
4-8 Harvested acres of corn for grains, soybean (all), wheat, and hay (all) from 1965 to 2009
4-9 Real prices for corn, soybean, and wheat from 1965 to 2010 crop year
4-10 U.S. corn-grain production from 1965 to 2010 crop year
4-11 U.S. soybean and wheat (all) production from 1965 to 2010 crop year
4-12 U.S. domestic consumption of corn, soybean, and wheat from 1965 to 2010 crop year
4-13 U.S. net exports of corn, soybean, and wheat from 1965 to 2010 crop year
4-14 Annual yields for corn grain, soybean, and wheat from 1965 to 2010 crop year
4-15 Trends in real international prices of key cereals: 1960 to May 2008
4-19 Industrial wood output in the United States
4-20 Net imports of wood into the United States (Imports – exports)
4-22 Effect of the Volumetric Ethanol Excise Tax Credit on price and quantity of ethanol
4-25 Growth of growing stock biomass
5-1 Historical trend in corn-grain ethanol biorefinery energy use
5-8 U.S. irrigation corn for grain
5-11 Conceptual framework for comparing tradeoffs of ecosystem services under different land uses
5-12 Average 2004-2006 saturated thickness for the High Plains Aquifer in Kansas
BOXES
S-1 Definitions of Renewable Fuels in RFS2
4-1 Calculating Willingness to Pay (WTP)
4-2 Calculating Willingness to Accept (WTA)
4-3 Gap in Forest Residue Demand and Supply
4-4 Biomass Crop Assistance Program
4-5 State and Federal Subsidy Expenditures on Energy in Texas
4-6 Comparison of Southern Pine and Hybrid Poplar in Producing Timber and Biomass on Similar Sites
5-2 Methodological Assumptions Affecting GHG LCA Analyses
5-3 Sustainability Concerns Associated with Using Forest Resources to Meet RFS2