John Miranowski Professor of Economics, Iowa State University with

1. Cellulosic Biofuel Potential with Heterogeneous Biomass Suppliers: An Application to Switchgrass-based Ethanol John Miranowski Professor of Economics, Iowa State University with Alicia Rosburg, Assistant Professor, University of Northern Iowa Keri Jacobs, Assistant Professor, Iowa State University

2. Motivation • Biofuel expansion • U.S. RFS2 – 16 billion gallons of cellulosic biofuel by 2022 • Economics of cellulosic biofuel differs from conventional fuel and first-generation biofuel • Non-commoditized feedstock • Location-specific economic trade-offs

3. Research Objectives • Develop a long run cost model of cellulosic biofuel production with local biomass suppliers and biofuel processors. • Identify marginal costs and biorefinery scales and locations of meeting biofuel targets (RFS2). • Evaluate policy and biofuel costs of meeting RFS2 with location differences in biomass production and processing costs.

4. Features of conceptual model • Consider only long run costs prior to capital investment • Account for economic tradeoff • Economies in processing • Diseconomies in feedstock procurement (e.g., transportation) • Biomass supplies differ within and between local markets which dictate economies of biofuel processing • Breakeven aggregate production is driven by the long run price of crude oil or gasoline

5. Application to switchgrass • Biorefinery conversion • Biochemical conversion of biomass to ethanol – Kazi et al. (2010) • Conversion scale factor • Assume processing plant runs at annual capacity • Biomass production • Potential land available for SG – CRD land use data (USDA) • SG production costs and yields – Khanna et al. (2011) • Storage and transportation cost assumptions – Rosburg & Miranowski (2011) • Marginal opportunity cost of biomass cropland – CRP offers

6. Minimum ATC of SG ethanol by CRD

7. Trends in cost minimizing decisions As aggregate biofuel production expands, MC increases. • Processing plant capacity decreases • Biomass transportation distance and costs increase • Landowner participation rate decreases because • Biomass yields decrease • Suitable land for SG production decreases • Land opportunity costs increase

8. Estimated ethanol supply curve from switchgrass

9. Market conditions to support biofuel production from SG • 2016 RFS2 cellulosic biofuel mandate of 4.25 bgy • EIA 2012 oil price forecasts for 2022 and 2035: $129 and $145 per barrel Note: Wholesale prices

10. Conclusions • Local production environments play an important role in aggregate cost of cellulosic biofuel production. • Biofuel production costs vary significantly across locations. • Given SG land use assumptions, the cost of satisfying 2016 cellulosic biofuel mandate (4.25 bgy) is $5.25/gge.

11. Thank you!Comments or questions?

12. Extra slides

13. Empirical approach • Establish least-cost SG biofuel supply for each CRD and market supply curve based on aggregation of CRD least cost biofuel supplies. • Determine aggregate MC, along with biorefinery scales and locations, to meet RFS2 production goals.

14. Spatial variation in cost-minimizing decisions Heterogeneity between and within local biomass markets creates significant variation in the cost-minimizing decisions

15. Supply curve sensitivity Switchgrass YieldAvailable biomass cropland

16. Supply curve sensitivity Variable transportation costEconomies of scale

17. Supply curve sensitivity Alternative transportation models