Economic Competitiveness of Bioenergy Production and Effects on Agriculture of the Southern Region

Journal of Agricultural and Applied Economics, Aug 2006 by English, Burton C, De La Torre Ugarte, Daniel G, Walsh, Marie E, Hellwinkel, Chad, Menard, Jamey

The economic competitiveness of biobased industries is discussed by comparing the South relative to other regions of the United States and biomass as a feedstock source relative to fossil fuels such as coal and petroleum. An estimate of the biomass resource base is provided. Estimated changes in the agricultural sector over time resulting from the development of a large-scale biobased industry are reported, and a study on the potential to produce electricity from biomass compared with coal in the southern United States is reviewed. A biobased industry can increase net farm income and enhance economic development and job creation.

Key Words: biobased industries, biomass, cofire, energy, ethanol, lignocellulosic

JEL Classifications: Q42, Q41, R15, Q11

Use of biomass feedstocks for transportation fuels, bioproducts, and power are increasingly being viewed as opportunities to enhance energy security, provide environmental benefits, and increase economic development, particularly in rural areas. Several studies have addressed various aspects of these issues (California Energy Commission; De La Torre Ugarte et al. 2003; Delucchi; English, Menard, and de la Torre Ugarte; English et al.; House et al.; Mann and Spath 2001a,b; McLaughlin et al.; Perlack et al.; Petrulis, Sommer, and Hines; Shapouri, Duffield, and Wang; Sheeban, Paustian, and Walsh; Sheehan et al.; Systems Applications International Inc.; Urbanchuk; USDOE-EIA 2001a,b; USDA-OCE 2000, 2002; Walsh et al. 2003; Wang, Saricks, and Santini).

Renewable energy from biomass can be categorized into two areas: biopower and biofuels. In The Energy Policy Act passed in 2005, for power, the term "renewable energy" means electric energy generated from solar, wind, biomass, landfill gas, ocean (including tidal, wave, current, and thermal), geothermal, municipal solid waste, or new hydroelectric generation capacity achieved from increased efficiency or additions of new capacity at an existing hydroelectric project. For fuel, a Renewable Fuels Standard was established that focused on ethanol and biodiesel developed from feedstocks such as oil from plants and animal wastes, including poultry fats and poultry wastes and other waste materials, and municipal solid waste and sludges and oils derived from wastewater and on ethanol from corn, sugar cane, and lignocellulosic feedstocks. Lignocellulosic feedstocks include any portion of a plant or coproduct resulting from energy conversion. This would include crops, trees, forest residues, and agricultural residues not specifically grown for food.

The Energy Policy Act of 2005 provides numerous opportunities that encourage the expansion of producing energy from renewable sources. The Act created a renewable energy research budget of $632 million for fiscal year (FY) 2007, $743 million for FY 2008, and $852 million for FY 2009. Broken out, bioenergy research has $213 million for FY 2007, $251 million for FY 2008, and $274 million for FY 2009. In addition, the Act specifically provides for

* extending the tax credit to companies that produce power from renewable sources;

* establishing a 7.5 billion gallon Renewable Fuels Standard (RFS) that would add billions of gallons of ethanol, biodiesel, and other renewables to the nations fuel supply by 2012;

* updating the small ethanol producer definition to 60 million gallons and extend the biodiesel tax credit through 2008;

* establishing a 30% tax credit up to $30,000 for the cost of installing clean fuel refueling equipment, such as an E85 fuel pump; and

* creating a new tax credit known as clean renewable energy bonds.

The Act also promotes the use of renewable energy sources with tax credits for wind, solar, and biomass energy, including the first tax credit for residential solar energy systems.

The ability to respond to incentives and regulations contained in the Energy Policy Act of 2005 and others under consideration will vary substantially by geographic region and will be a function of the natural resource endowments of each region. This paper examines three recent studies that evaluate the ability of the southern United States to produce bioenergy and bioproducts. For the purposes of this paper, the southern United States includes Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia.

The economic competitiveness of biobased industries is discussed in terms of both a comparison of the South relative to other regions of the United States and a comparison of biomass as a feedstock source relative to fossil fuels such as coal and petroleum. The first study includes an estimate of the biomass resource base and incorporates current year estimates of forest residue, mill residue, urban wood waste, corn stover and wheat straw (agricultural crop residues), and dedicated energy crop supplies. This analysis is based on recent updates to a database initially developed in the mid 1990s (Walsh et al. 2000.). It is expected that supply will change over time as technology, value of other opportunities, and pressure on existing resources and inputs change. The second analysis, partially funded through the U.S. Department of Agriculture (USDA) National Research Initiatives program and conducted at a national level with the use of POLYSYS (De La Torre Ugarte, Ray, and Tiller), examines changes in the agricultural sector over time resulting from the development of a large-scale biobased industry. The final analysis evaluates the potential to produce electricity from biomass compared with coal in the southern United States.