Sustainable Farming: Role of Bio-energy Production

1. Sustainable Farming: Role of Bio-energy Production Alan Renwick SAC CECS Seminar 5th October 2007

2. Talk Outline • Sustainable Development Agenda • Final Energy • Economics, Energy and GHG Balances • Dedicated Energy Crops • Economic and Environmental Implications • Conventional Crops Used for Energy • Economic and Environmental Implications • Further Issues

3. UK Sustainable Development Agenda • "to enable all people throughout the world to satisfy their basic needs and enjoy a better quality of life without compromising the quality of life of future generations"

4. UK Principles of Sustainable Development

5. Forward Strategy For Scottish Agriculture • 'We want a prosperous and sustainable farming industry, one of Scotland's success stories, which benefits all the people of Scotland. It should be: • focused on producing food and other products for the market; • a major driver in sustaining rural development, helping rural communities prosper; • a leading player in the protection and enhancement of the environment; • a major contributor to key objectives on animal health and welfare and human health and well-being; • keen to embrace change and market opportunities.

6. Why Interest in Energy Crops at Farm Level? • Farm Incomes • Period of low returns from traditional enterprises • Period of low returns from traditional markets for commodities • Common Agricultural Policy Reform • Support for Energy Crops arising from wider concerns about Global Warming and energy security • Push for sustainable farming

7. Some Key Questions • What do we mean by bio-energy production • Does it make economic sense? • Are there environmental benefits? • Will farmers adopt energy crops

8. Will concentrate on crops for bio-energy production both conventional and non-conventional • Other forms of bioenergy – anaerobic digestion e • Other non-food use of crops – raises many similar issues

9. Energy Crops and Conversion Technology

10. Economics of Final Energy

11. Heat and Electricity Source SAC/University of Cambridge (2005)

12. Biofuels Source SAC/University of Cambridge Source SAC/University of Cambridge (2005)

13. Carbon and Energy Balances

14. Energy Requirements Source SAC/University of Cambridge Source SAC/University of Cambridge (2005)

15. GHG Emissions Source SAC/University of Cambridge Source SAC/University of Cambridge (2005)

16. Economics of production of final energy is marginal at best (without support) • Energy and Carbon Savings could suggest environmental benefits associated with production of renewable fuels • At what cost?

17. Cost of Carbon Abated: Best Case Scenarios Caution: our estimates only Others may vary considerably Source SAC/University of Cambridge Source SAC/University of Cambridge (2005)

18. Support Measures • Government Support • Energy Crop Payment (45 Euro hectare) • Planting Grants (£1000/£900) • Capital Grants • Producer Group Grants • Renewable Obligation Certificates (ROC’s) • Tax Relief - Biofuels • Road Traffic Fuel Obligation

19. Dedicated Energy Crops • Can they contribute to sustainable farming systems? • Economics • Environment • Social

20. Dedicated Energy Crops • A number of policies in place that may be seen to support production of energy crops either directly or indirectly • However, only a very small area down to energy crops at present • Why? Simple economic issue?

21. Dedicated Energy Crops

22. Assumptions for SRC/Miscanthus • 16 year timeframe for the crop • Yields 14 and 9 Odt/ha yr for Miscanthus and SRC respectively • Price £25/Odt and £35/Odt ex-farm Miscanthus and SRC respectively • Discount Rate 6 per cent • Government Subsidies included (Planting Grant and Energy Crop Payment i.e. assumed grown on non-set aside land) • Contract harvested • Includes rental value of land and minimum overhead costs (~ £87 per hectare)

23. Returns and Costs of Production Price in region of £25 to £35 per oven dried tonne for commodity

24. Sensitivity • Our results are clearly sensitive to assumptions in Key Areas • Yield • Price • Support • Costs (esp. Land) • Discount Rate • Note: Contracts are been offered on other terms eg Lockerbie plant in Scotland

25. Miscanthus Net Margin Government support significantly influences economics of production

26. SRC Net Margin

27. Under the standard assumptions used for our study the crops do not appear to generate positive NPV when fully costed.

28. Economics could change • New Crop therefore technology could improve • Add value – same issue as in food chain – sell energy not wood chips • Alternative sources of income – willow good way of dealing with sewage sludge • If carbon has value then changes the economics • Increased support

29. Understanding Producer Behaviour • Closer to agro-forestry than farming? • 16 – 20 year timeframe • Fixed contracts – Isn’t certainty good? • Fewer alternative markets – ABARE

30. Environmental Benefits? • In part depends upon incentives: Production or GHG savings? • Potential increase in diversity • Issues with Landscape change Now I am sure I saw some sheep on a hill somewhere

31. Conventional Crops

32. Existing Crops for Energy • In some senses have advantages over dedicated energy crops • Annual Crops • Understand Technologies • Alternative Markets • Must remember competing for similar land

33. Land Suitability Scotland: SRC • If produced map of suitability for combinable crops would look very similar Source: W. Towers MLURI

34. Two Years Ago: Economics looked Marginal Choice seemed between one uneconomic land use and another

35. However marked change in last year

36. In part fueled (!) by world biofuel demand but mainly poor harvests in Australia, Europe leading to record low world stocks

37. US ethanol capacity expected to continue climbing – well ahead of target UK doesn’t actually have any dedicated bioethanol plants at the moment. A number planned but high prices will cause issues – some have already been mothballed in Europe Source: RFS/USDA/SAC

38. Sustainable? • Could argue that by increasing demand for cereals/oilseeds it is improving economic element of sustainability of farms. • However • Not certain high prices will persist • Detrimental to livestock farmers • High prices may lead to conflicts between economic/environmental aspects of farming • Intensive, Extensive, Set-Aside

39. Intensity • Fertiliser use doesn’t appear very sensitive to price • However, increased fungicide applications could be more viable Source Simon Oxley SAC

40. Extensive Margin • Around 50,000 hectares in Scotland out of arable since 2001 • In addition set-aside removal 10 to 5% 5 to 10%

41. Sustainable • In terms of overall sustainability methods of production can have marked impact on energy and GHG emissions. • Zero till versus ploughing for example • Also potential to encourage unsustainable methods of production • Shortened rotations

42. Some Wider Issues Higher agricultural prices: • Benefit developing countries that are exporters • May make it easier to push through further agricultural policy reform in developed countries – potential longer term benefits • Food vs Fuel Debate • Potentially increase risk to global food supply and hence global food security • Food Poverty still an issue in West? • Particularly impact on food importers

43. Conclusions: Does it help Sustainable Farming Agenda • Bioenergy production does offer potential environmental gains in terms of energy use and GHG emissions which might justify support - BUT • Does depend upon method of production • Economics currently in favour of wheat/oilseeds with fewer gains? (but might change with second generation)

44. Conclusions • Current high prices do improve economic viability for some producers - Major issues when begin to distort – crops vs livestock, maize vs soya, food vs fuel • At the national level does present challenges for wider policy aims for sustainable agriculture – biodiversity, water quality, agri-environmental schemes, local food

45. Acknowledgement This presentation forms part of the on-going work on Sustainable Farming Systems funded by the Scottish Government Rural and Environment Research and Analysis Directorate (RERAD)