Western Agricultural Economics Association Annual Meeting, Big Sky, MT, June 25-27, 2008

1. An Evaluation of the Economic and Environmental Impacts of the Corn Grain Ethanol Industry on the Agricultural Sector James A. Larson, Burton C. English, and Daniel G. De La Torre Ugarte Western Agricultural Economics Association Annual Meeting, Big Sky, MT, June 25-27, 2008

2. Problem • The Energy Independence and Security Act of 2007 mandates production 36 billion gallons per year (BGY) of ethanol to by 2022, with 21 BGY from feedstocks other than corn. • Notwithstanding, production of ethanol from corn grain is expected to rise significantly over the next decade in response to legislative mandates and tight energy market supply and demand conditions. • Changes in crop mix and production practices with increased corn production have the potential to impact land resources in different locals across the U.S. • For example, soil erosion is the major pathway by which sediment, nutrients, and pesticide residues reach surface water.

3. Objective • To analyze the impacts on the agricultural sector as a result of increasing corn ethanol production. • To evaluate changes in fertilizer expenditures, herbicide expenditures, gross soil erosion and sedimentation, and carbon sequestration.

4. Analytical Tool • POLYSYS: • 305 crop production regions (ASD’s) • National livestock production • National demand market (Elasticity Driven) • (Sum of Production = Domestic Supply) • Energy market is goal driven • Solutions compared to a USDA Baseline

5. Cropland Base 2002 Agricultural Census

6. POLYSYS Model Economic Module Environmental Module

7. Extended Economic Baseline • 2007 USDA Baseline (2007 to 2016): • Ethanol use at 12 BGY by 2016. • Crop yield increases for traditional crops. • No changes in current tillage practices. • Corn grain was the assumed feedstock for ethanol production through the year 2016. • Conversion efficiency for corn ethanol grows to 3.0 gallons/bushel.

8. Ethanol Scenarios • Changes in selected economic and environmental indicators from the baseline were evaluated for: • 8.6 BGY of ethanol by 2016, • 14 BGY of ethanol by 2016, • 16 BGY of ethanol by 2016, and • 18 BGY of ethanol by 2016. • Results from these four scenarios were compared with the 12 BGY baseline scenario to illustrate how various ethanol industry output expansion paths might influence the agricultural sector.

9. Environmental Submodule • Change in Land Use • Change in Input Expenditures • Fertilizer application changes estimated based on changes in expenditures in N,P,K (Fert). • Herbicides and insecticides application changes estimated based on changes in expenditures on herbicide and insecticides for the 8 major crops. • Change in Soil Erosion • Estimated using NRCS ASD region KLSR and P estimates combined with an estimated C factor (incorporating tillage) based on 1997 NRI data • Changes in land use by POLYSYS region. • Impact on Sedimentation • Made using erosion estimates converted to 99 river basin’s and coupled with sediment delivery and deposit ratios used in MOSS II along with Ribaudo’s 1985 cost of erosion study with costs indexed to 2007.

10. Environmental Submodule • Changes in carbon sequestration • Carbon emissions for each ethanol scenario were calculated using methods and estimated coefficients from the carbon lifecycle literature (West and Marland, 2002, Marland et al., 2003). • The estimated coefficients and the quantities of fuel and inputs in the budgets in POLYSYS were used to calculate total carbon emissions for each crop in each ASD. • In addition, the carbon sequestered in agricultural soils for each crop and tillage practice was estimated using methods outlined by West et al. (2008).

11. Ethanol Production Paths

12. Change in Land Use from the 12 BGY USDA Baseline Scenario under the 18BGY Scenario

13. Change in Land Use from the 8.6 BGY Scenario under the 18 BGY Scenario.

14. Change in Crop Area from the USDA Baseline 12 BGY to 18 BGY Scenario 2016 Corn Cotton Soybeans Wheat

15. Change in Crop Area from the 8.6 BGY to 18 BGY Scenario 2016 Corn Cotton Soybeans Wheat

16. Change in Herbicide Expenditures for Selected Scenarios Compared to the 12 BGY USDA Baseline Scenario 8.6 BGY 14 BGY 16 BGY 18 BGY

17. Herbicide Use: Regional Changes • Changes between 18 BGY and 12 BGY USDA Baseline Scenarios • Changes between 18 BGY and 8.6 BGY Scenarios

18. Change in Fertilizer Expenditures for Selected Scenarios Compared to the 12 BGY USDA Baseline Scenario 8.6 BGY 14 BGY 16 BGY 18 BGY

19. Fertilizer Use: Regional Changes • Changes between 18 BGY and 12 BGY USDA Baseline Scenarios • Changes between 18 BGY and 8.6 BGY Scenarios

20. Erosion: Regional Changes • Changes between 18 BGY and 12 BGY USDA Baseline Scenarios • Changes between 18 BGY and 8.6 BGY Scenarios

21. Change in Carbon Emissions for Selected Scenarios Compared to the 8.6 BGY Scenario 18 BGY 16 BGY 14 BGY 12 BGY

22. Carbon Emissions: Regional Changes • Changes between 18 BGY and 12 BGY USDA Baseline Scenarios • Changes between 18 BGY and 8.6 BGY Scenarios

23. Implications • The production of feedstock for biofuels using corn as the feedstock will result in increased erosion, chemical and fertilizer use unless the methods used to produce corn are dramatically altered. • Investment in research in agricultural production and conversion technology, is required to reduce projected environmental impacts. • Increased yields, increased input efficiency, and increased use of no-tillage production practices would reduce impacts of this projected bioeconomy. • Acceleration of introduction of cellulose-to-ethanol path would likely ease environmental impacts.

24. Implications • What will happen when CRP land becomes available to crop? • incentives to biofuels industry should be consistent with availability of environmental sustainable crop and conversion technologies.