Biofuels for Aviation

Office of the Chief Economist
Office of Energy Policy and New Uses

Summary Remarks
Economics and Policy Session
Biofuels for Aviation Summit

Moderator: Harry S. Baumes, Ph. D.
Associate Director
Office of Energy Policy and New Uses

September 2, 2009


Office of the Chief Economist
Office of Energy Policy and New Uses

Carbon and Greenhouse
Gases
•

Greenhouse Gases

Associate Professor, Cornell
•
University
Senior Analyst, Dept. of
Energy

–

•

Neilsen Conklin, Ph.D.
–

•

Professor, University of
Missouri
Co-Director of FAPRI-MU
President, Farm
Foundation

Gregory Graff, P.h. D.
– Assistant Professor,
Colorado State University

Joe Outlaw, Ph. D.
–

William Meyers, Ph. D.
–

Zia Haq
–

Food versus Fuel and
Greenhouse Gases
•

Brent Gloy, Ph. D.
–

•

Sustainability and

•

Wally Tyner, Ph. D.
–

•

Professor, Texas A&M
University
Professor,Purdue
University

F. Larry Leistritz, P.h. D.
–

Distinguished Professor,
North Dakota State
University


Office of the Chief Economist
Office of Energy Policy and New Uses

Questions
Carbon and Greenhouse Gases
•Will current legislation on controlling carbon/greenhouse gases be effective? How will it
impact the biofuels industry?
•What are the economic factors determining land use and how are they changing?
Sustainability
•What are the non technical factors to be considered in deciding between oil, starch or
cellulose based systems for aviation fuels production?
•What kinds of production, delivery and processing systems are sustainable?
•How do economists define sustainability?
Food versus Fuel
•What are the food/fuel issues for aviation biofuel production?
•What government policies (federal and state) can accelerate biofuel for aviation
production and combat food/fuel issues?
•How can the Air Force contribute to developments in technology, organization and
policy that would accelerate aviation biofuels development?


Office of the Chief Economist
Office of Energy Policy and New Uses

Carbon and Greenhouse Gases
•

Contrast Past Growth Biofuels with Second Generations
Feedstocks/Biofuels (alternative fuels)
– Producers of Feedstocks and Biofuels must make profit or be incentivized to
produce
– First Generation Fuels and Feedstocks
•

•
•
•

Economics supported growth: cheap corn and high energy costs
Proven Technology – knew how to make ethanol and biodiesel on commercial scale
Policy Supported Growth – EPACT 2005 and EISA 2007
Financial Sector willing to provide capital for investment

– Second Generation Cellulosic
• Economic environment not as favorable: lower energy cost and higher commodity
prices, fluctuating commodity prices, financial crisis and recession
• Technology is not proven, not tested on commercial scale
• Policy is uncertain or wavering, GHG emissions and climate concerns
• Financial sector not willing to provide capital in the current environment


Office of the Chief Economist
Office of Energy Policy and New Uses

Carbon and Greenhouse Gases
• Carbon and Greenhouse Gases
– Too narrow scope there are at least 7 GHG, reducing one may create
problems with others
– Formally we are trying to incorporate externalities that were not or may
not have been considered in the decision making process
– Identify both environmental costs and benefits to produce feedstocks
and biofuels, and markets are either thin or do not exist for these
externalities

• Life Cycle Analysis, Indirect Land Use, and GHG
– LCA results sensitive to assumptions and methodology

• Technology Change
– Affects feedstock production, conversion and economics of market
– Disemenation and adoption cultural practices, conversion, supply chain
and end use markets


Office of the Chief Economist
Office of Energy Policy and New Uses

Sustainability
•

Economists Like to Allocate Resources to Alternative Uses
– Market efficient allocation system – markets can (given sufficient
time) determine feedstocks and alternative fuels (regional differences
likely). Make a product for a “cost” and sell that product for a “price”
– Environmental goods and services – not well defined and markets not
well developed or non-existent
– Need to internalize all benefits/costs to make investment decision
– Manage Risk – role for government in these enviromental goods and
services markets?

•

Questions to consider with regard to sustainability – RISK MGMT
– What is it we want to sustain?
– How long do we want to sustain it?

– With what level of certainty do we want to sustain it?


Office of the Chief Economist
Office of Energy Policy and New Uses

Sustainability
•

Integrated Systems Approach Required
– Renewable Energy, Climate and Sustainability all spoken in the same
sentence – need to consider jointly or simultaneously
– Regionally – different or multiple feedstocks perhaps mulitple
alternative fuels (demand or end use considerations)


Office of the Chief Economist
Office of Energy Policy and New Uses

Food versus Fuel
•

Hot Spot or Hot Topic – There will be others
– Land – used to produce biomass that can be used for transportation
fuel production. EISA places constraints on that production: land that
can be used and meeting GHG threshholds.
– Land use – need to understand international adjustment
– Third general feedstock/fuel: Algae – needs water could be a “hot
spot” issue
– Food versus fuel issues not well understood by most. USDA invested

resources to try and address consumers concerns and lack of
understanding


Office of the Chief Economist
Office of Energy Policy and New Uses

Food versus Fuel
• Competition for land
– Traditional use for crop production and transportation fuels production
– NEW USES: Biomass required for heat and power and land being used
to create carbon offsets
– Second and third generation fuels expected to have low food price
impact

• Policies need to accelerate biofuels for aviation industry
– Technology – government can help by funding research and
development
– Market Prices are volatile – policy can be used to stabilize prices or
reduce fluctuations
– Government policy supporting or impacting industry – uncertainty
needs to be minimized


Office of the Chief Economist
Office of Energy Policy and New Uses

Conclusions
•

Outreach and Education
– Consumers need to understand the complexities of food
(commodities), biofuels production, land use and economy
interactions

•

Air Force might consider
– Funding a second generation facility to supply jet biofuel
– Vertical integration approach – feedstock production to end use by air
force and commercial aviation industry
– New models in approach: partnerships with private sector, local
municipalities/farmers/companies


Office of the Chief Economist
Office of Energy Policy and New Uses

THANK
YOU!
Contact Information: Harry S. Baumes

202-401-0497