Food and Energy Security:How to Balance in a Growing World? Simla Tokgoz International Food Policy Research Institute U.S. - Japan Research Institute February 25, 2013 Washington, DC
Outline Integration of agricultural and energy markets How does this transformation affect food and nutrition security? US renewable energy and biofuels policy environment
Agricultural Growth and Food SecuritySupply side constraints Demand dynamics Climate change Population: 9 billion people in 2050 Water and land Income growth: scarcity Africa, not just Asia and Latin America Science and technology policy Urbanization Investment in agricultural research Biofuels sector growth
Sources of Supply Growth Intensification • Yield Growth • Cropping Intensity Extensification • Arable land expansion Expansion of irrigated production All require public intervention and investment Complicated by climate change and its long-term effects
Sources of Demand Growth Population growth Income growth and urbanization • Dietary pattern changes Biofuels sector expansion • First generation biofuels All of these trends in an environment of higher energy demand and higher energy prices
GLOBAL ENERGY TRENDS
Global Energy Trends Global energy consumption rises with China, India, and Middle East accounting for a significant part of this increase. OECD energy demand barely increases, with a shift toward natural gas and renewable energy. Recent rebound in US oil and gas production continues with US becoming a major producer (switch to a net exporter from a net importer in the future) Source: IEA World Energy Outlook 2012
Global Energy Trends We observe steady increase in hydropower and rapid expansion of wind and solar power. Consumption of biomass for power generation and biofuels grows. Energy access still a significant problem • Despite progress, nearly 1.3 billion remain without access to electricity and 2.6 billion do not have access to clean cooking facilities. Source: IEA World Energy Outlook 2012
Global Energy Trends Energy and Water Water needs for energy production are set to grow at twice the rate of energy demand. Water is growing in importance as a criterion for assessing the viability of energy projects, as population and economic growth intensify competition for water resources. Energy-Agriculture-Water nexus is now gaining more attention. Source: IEA World Energy Outlook 2012
Global Energy Trends Renewable Energy In 2010, 1,684 million ton oil equivalent of renewable energy was used, making up 13% of global primary energy demand. Between 2000 and 2010, share of traditional biomass out of total renewable energy fell from 50% to 45%. At the same time, the share of biofuels (used in transport) increased. Electricity generation from wind and solar grew. Source: IEA World Energy Outlook 2012
World total energy consumption by region Current Policies Scenario 14,000 12,000Million Ton Equivalent 10,000 8,000 6,000 4,000 2,000 0 1990 2010 2015 2020 2030 2035 OECD (Americas) OECD (Europe) OECD (Asia Oceania) E Europe/Eurasia Non-OECD Asia Africa Latin America Middle East Source: IEA World Energy Outlook 2012
World total final energy consumption Current Policies Scenario 14,000 12,000Million Ton Oil Equivalent 10,000 8,000 6,000 4,000 2,000 0 1990 2010 2015 2020 2030 2035 Coal Oil Gas Electricity Heat Bioenergy&Other Renewables Source: IEA World Energy Outlook 2012
World biofuels and renewable energy consumption Current Policies Scenario 1,600 1,400Million Ton Oil Equivalent 1,200 1,000 800 600 400 200 0 1990 2010 2015 2020 2030 2035 Industry Transport Buildings Source: IEA World Energy Outlook 2012
ENERGY AND AGRICULTURE
Energy and Agriculture World energy prices have increased rapidly in recent years. Agriculture has become more energy intensive: • Diesel fuel and gasoline used for tillage, planting, transportation, and harvesting • Electricity, LP, gas, and natural gas used in irrigation; operation of livestock, poultry, and dairy facilities; on-farm processing and storage of perishable commodities
How do rising energy prices affect agriculture? Push up the cost of producing, transporting and processing agricultural commodities Divert increasing amounts of agricultural land to the production of biomass-based renewable energy Direct increase in the price of fertilizers and pesticides manufactured from fossil fuels
Energy Prices and Agricultural Input Prices 450 90 400 80 350 70 300 60 $ per Barrel$ per MT 250 50 200 40 150 30 100 20 50 10 0 0 1982 1986 1990 1994 1998 2002 2006 2010 Urea (Eastern Europe) Crude Oil WTI Source: World Bank
Feedstocks used for Ethanol Corn: US, China, EU, Canada, Turkey Sugar cane: Brazil, Colombia, Thailand, Mexico Molasses: Argentina, India, Pakistan, Indonesia, Philippines Wheat: China, EU, Canada, Australia, Turkey Cassava: China, EU Barley: EU Sugar beet: EU , Turkey Sorghum: Australia, Philippines
Feedstocks used for Biodiesel Soybean oil: US, Argentina, EU, Brazil Rapeseed Oil: EU, Canada, US Palm Oil: EU, Malaysia, Indonesia Sunflower Oil: EU Animal Fats: EU, US, Canada Recycled Vegetable Oil: Argentina, EU
Feedstock demand Sugarcane in Ethanol Production in Brazil 350,000 300,000Thousand Metric Tons 250,000 200,000 150,000 100,000 50,000 - 1991 1994 1997 2000 2003 2006 2009 2012 Source: UNICA
Feedstock demand Grains in Ethanol Production 25,000 20,000Thousand Metric Tons 15,000 10,000 5,000 0 2006 2007 2008 2009 2010 2011 2012 China EU Canada Source: US Foreign Agricultural Service
Feedstock demand Corn in Ethanol Production in the U.S. 140,000 120,000Thousand Metric Tons 100,000 80,000 60,000 40,000 20,000 - 1980 1985 1990 1995 2000 2005 2010 Source: US Department of Agriculture
Feedstock demand Vegetable Oils in Biodiesel Production 12,000 10,000Thousand Metric Tons 8,000 6,000 4,000 2,000 0 2006 2007 2008 2009 2010 2011 2012 2013 EU Source: US Foreign Agricultural Service
Feedstock demand Vegetable Oils in Biodiesel Production 10,000 9,000 8,000Thousand Metric Tons 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2006 2007 2008 2009 2010 2011 2012 US Argentina Canada Indonesia Malaysia Brazil Source: US Foreign Agricultural Service
World Food and Crude Oil Prices 160 250 140 200 120 Food Price Index 100 150Crude Oil Price 80 60 100 40 50 20 0 0 Crude Oil Price Food Price Index Source: US DOE and FAO
FOOD AND NUTRITION SECURITY
Food and Nutrition Security World Food Summit of 1996 defined food security as existing “when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life” FAO’s definition encompasses four key dimensions: food availability and accessibility, stability of food supply, access to food, and utilization of food.
Food and Nutrition Security Drivers Urbanization Population NaturalLong Resource ClimateTerm Change ConstraintsDrivers Income Growth- Distribution Trade PolicyShortTermDrivers Stocks - Infrastructure& Hoarding Energy Prices Market Access Demand Drivers Supply Drivers
Food and nutrition security (country level) Transportation costs & market accessCrop and Biofuel Energy marketslivestock markets markets (LG, diesel, gasoline, natural gas, electricity) Land use, crop choice, Fertilizer and management market practices
RENEWABLE ENERGY IN US
US total final energy consumption Current Policies Scenario 1,800 1,600 1,400Million Ton Oil Equivalent 1,200 1,000 800 600 400 200 0 1990 2010 2015 2020 2030 2035 Coal Oil Gas Electricity Heat Bioenergy&Other Renewables Source: IEA World Energy Outlook 2012
US biofuels and renewable energy consumption Current Policies Scenario 160 140Million Ton Oil Equivalent 120 100 80 60 40 20 0 1990 2010 2015 2020 2030 2035 Industry Transport Buildings Source: IEA World Energy Outlook 2012
Renewable Energy in US Federal and state level policies push renewable energy Renewable portfolio standards (for electricity) exists in many states RFS of 2005 and 2007 mandates 36 billion gallons of biofuels to be blended into transportation fuel by 2022. EPA approved E15 in 2012.
Renewable Energy in US Biodiesel income tax credit and mixture excise tax credit of $1 per gallon extended till end of 2013. Second generation biofuel producer tax credit $1.01 per gallon (cellulosic ethanol) extended till end of 2013. Solar tax credits are set to expire in 2016. Ethanol import tariffs and tax credit for blending were removed in late 2011. Clean Energy Standard Act of 2012 considered by US Congress - electricity from renewable sources
Renewable Energy in US Implementation EPA denied requests for a waiver of the RFS for conventional ethanol • Request was due to cited impacts of the 2012 drought on crops EPA issued waivers that substantially reduced the cellulosic biofuels obligation under the RFS for 2010, 2011, and 2012. Renewable Identification Number (RIN) markets are regulated by EPA RIN is a serial number assigned to a batch of biofuel for the purpose of tracking its production, use, and trading.
Renewable Energy in US Second Generation Biomass Crop Assistance Program • financial assistance to landowners and operators that establish, produce, and deliver biomass feedstock crops for advanced biofuel production facilities Biorefinery Assistance Program • loan guarantees for the development, construction, and retrofitting of commercial-scale biorefineries that produce advanced biofuels Bioenergy Program for Advanced Biofuels • eligible producers of advanced biofuels, or fuels derived from renewable biomass other than corn kernel starch, may receive payments to support expanded production of advanced biofuels
Renewable Fuel Standard Volumes by Year 40 35 30Billion Gallons 25 20 15 10 5 0 2008 2010 2012 2014 2016 2018 2020 2022 Conventional ethanol Cellulosic Biomass-based Diesel Other Advanced Fuels
Are Second Generation Biofuels An Answer? US Cellulosic Ethanol Production 2,000 1,800 1,600 1,400Million Gallons 1,200 1,000 800 600 400 200 0 2010 2011 2012 2013 2014 EIA Projection Implied Mandate Source: US DOE EIA Annual Energy Outlook 2013
Conclusions Higher demand will increase pressure on limited natural resources: land, water, environmental preservation, and biodiversity. Strengthened linkage between energy and agricultural markets (globally and locally) • through expansion of biofuels sector (first generation) • through higher input costs to agricultural production Volatility in energy markets is transferred to agricultural markets and influences food security of developing countries.
Challenges and Opportunities The “food-versus-fuel” trade-off increases if: • Innovations and technology investments in crop productivity are slow. • Reliance is placed on conventional feedstock conversion technologies to meet future blending requirements (or displacement) of fossil fuels with biofuels. Improvements in biofuel conversion and crop productivity improvements reduce trade-offs. R&D funds allocated to second generation biofuels or other renewable energy options would ease “food- versus-fuel” trade-off in the long-run.
Biofuel Policy Implications Adopting a low-carbon fuel standard (like the California policy, versus the existing national RFS) would shift ethanol production away from grains and towards other lower-carbon feedstocks. Indirect land use change is an additional environmental consequence that policy needs to factor in (especially from a climate mitigation perspective). • There is uncertainty over the magnitude of iLUC attributions to biofuels – but still many agree that it’s non-zero and significant in many cases.
Investment Policy Implications Higher agricultural prices can be overcome if resources are diverted to efforts aimed at • Crop productivity growth • Investment in irrigation This requires renewal of the attention paid to • Agricultural research and technology • Extension services • Rural infrastructure