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Economic impact of biofuels domestic demand in Spain

Fernández‐Tirado, Francisca*; Parra‐López, Carlos 

Agricultural Economy and Sociology Area. Research and Training Institute for Agriculture and 

Fisheries (IFAPA). Ministry of Agriculture and Fisheries. Junta de Andalucía. Spain 

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INDEX

1. Introduction

2. Previous studies

3. The input-output methodology

• Theoretical development

• Sources of data

4. Results

• Permanent Impacts

• Temporary Impacts

5. Conclusions

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Bioethanol is mainly produced by fermentation of raw

materials rich in sugar or cereals. It is used in petrol

engines.

Biodiesel is mainly obtained from oil seeds. It is used in diesel engines.

Biofuels are any fuel derived from biomass. The term covers solid biomass, liquid fuels and various biogases

Liquid biofuels are those biofuels that have potential for application in current internal combustion engines (diesel and

otto).

1.- Introduction

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Corn

Wheat

Barley

1.- Introduction

Raw materials used to produce bioethanol

Sugar Cane

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Rape Sunflower

Soy

Oil Palm

1.- Introduction

Raw materials used to produce biodiesel

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1.- INTRODUCCIÓN

Directive 2003/30/EC Minimum percentages(Transport )

5.75% by 2010

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Economic impact

Input-outputanalysis

Indicators: Increased production,

multiplier effect

Increased demand

The assessment of the environmental, economic and social impacts of fostering biofuels is needed

The Member States are to establish national action plans

1.- Introduction

Directive 2009/28/ECMinimum percentages(Transport )

10% by 2020

The aim of this study is to estimate the impact of domestic demand of biofuels (biodiesel and bioethanol) in the Spanish economy

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2.- Previous studies

•To date, studies that quantify the economic impact of liquid biofuels in Spainhave not been published

•Input-output analysis that quantify the economic impacts of others sources ofrenewable energies have been carried out by CIEMAT (Centre for Energy, Environment and Technology Research) (Sáez et al. (1998), Caldes et al. (2006)

In Europe

In Spain

In other countries

•The input-output methodology has been used to calculate the impact of biofuels in the employment creation at European level (Neuwahl et al. (2008) )

•The input-output methodology has been widely used in the U.S. to calculate the economic impact of biofuels (Hodur et al. (2006), Low and Isserman (2009)

•There are also studies in other countries such as Croatia and Canada (Thomassin and Baker (2000), Kulisic et al. (2007 ))

3.- The input-output methodology

The input-output model of Leontief relates the total output of an economy with domestic demand through the following equation:

X = Ad X + D = (I–Ad)-1 D = B D

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Theoretical development

The increased domestic production resulting from an increase in domestic demand can be expressed as:

ΔX = (I–Ad)-1 ΔD = B ΔD

If only one physical unit of product of the industry j (for example one toe oil) is increased the Equation becomes:

ΔX = iΔXi = i bijΔDj

Bioethanol from cereal production costs

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3.- The input-output methodology

For E5 Size of the plant [1] 200

Investment Million euros

Material Investment Total Material Investment 136.1 Non Material investment Total Non Material investment 22 Land Initial stock of cereals VAT investments Total investments [2] 179.3 Amortization Material [3] [3] 27.2 Amortization Non Material 4.4 Cost Structure Euro / l Fixed costs Staff O & M and distribution Plant Maintenance Other fixed costs Amortization material Amortization non material Total fixed costs 0.2615 Variable costs Enzymes and chemicals Water and electricity Natural gas Other variable costs Total variable costs 0.1233 Additional income DDGS Electricity and other Total additional income 0.1828 Subtotal net costs (excluding feedstock) 0.2021 Raw material Cereal [4] 0.3823 Total net costs 0.5843 Transport and distribution costs 0.0467 Cost of sales 0.631 Margin on sales 0 0 Sale of product without tax [5] 0.631

Sources of data

Source: Renewable Energy Plan

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3.- The input-output methodology Sources of data

Plant of 50,000 tonnes production of biodiesel per year

Capacity 50,000.0 t Investment

machinery 12,621,254.2

Euros

Investment civil works

300,506.1 Euros

Amortization 5 years Cost Structure Concept Euros / year cent / kg cent /

l FIXED COSTS Operating Staff 841.416,9 1.7 1.5 Plant Maintenance 120.202,4 0.2 0.2 Insurance and taxes 138.232,8 0.3 0.2 Other expenses 649.093,1 1.3 1.1 Amortization equipment (5

years) 2.524.250,8 5.0 4.4

Amortization buildings (5 years)

60.101,2 0.1 0.1

FIXED COSTS 4.333.297,3 8.7 7.6 VARIABLE COSTS Methanol 1.156.948,3 2.3 2.0 Additives 450.759,1 0.9 0.8 Steam and electricity 900.108,8 1.8 1.6 Other consumables 90.452,3 0.2 0.2 Raw material Sunflower oil 33.500.000,0 67.0 59.0 Yield (kg / l) 0.9 Cost (cent / kg) 67.0 TOTAL VARIABLE COSTS 36.098.268,5 72.2 63.5 ADDITIONAL INCOME Glycerine Revenue 1.532.700,0 3.1 2.7 Production (kg / l) 0.1 Price (cents / kg) 51.1 TOTAL ADDITIONAL INCOME 1.532.700,0 3.1 2.7 NET COSTS NET TOTAL COSTS 38.898.865,7 77.8 68.5 COST OF SALES Distribution costs 3.425.769,0 6.9 6.0 TOTAL COST OF SALES [1] 42.324.634,7 84.6 74.5

Biodiesel from sunflower oil production costs

Source: Renewable Energy Plan

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4.- ResultsPermanent economic impacts

Are produced by permanent costs, which occur during the operation phase of the biofuels industry

Table 1. Permanent economic impacts on domestic production under different percentage of imported raw materials by toe of biofuel produced

% of raw material (sunflower oil or grain) imported for processing biofuels

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Biodiesel 2,989 2,817 2,645 2,472 2,300 2,128 1,955 1,783 1,611 1,439 1,266 X (€/year) Bioethanol 2,676 2,576 2,476 2,376 2,277 2,177 2,077 1,977 1,877 1,778 1,678

Biodiesel 3. 06 2.88 2.70 2.53 2.35 2.18 2.00 1.82 1.65 1.47 1.30 Multiplier effect Bioethanol 2.15 2.07 1.99 1.91 1.83 1.75 1.67 1.59 1.51 1.43 1.35

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4.- ResultsTable 2. Permanent economic impacts on domestic production caused by the increase in demand of biodiesel production according to different alternatives

% of oil imported

Biodiesel production 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Alternative % N (toe) X

(€

/toe)

2,989 2,817 2,645 2,472 2,300 2,128 1,955 1,783 1,611 1,439 1,266 BD1 0.51% 150,673 450 424 399 372 347 321 295 269 243 217 191 BD2 0.88% 260,580 779 734 689 644 599 555 509 465 420 375 330 BD3 2.78% 826,009 2,469 2,327 2,185 2,042 1,900 1,758 1,615 1,473 1,331 1,189 1,046 BD4 3.90% 1,157,773 3,461 3,261 3,062 2,862 2,663 2,464 2,263 2,064 1,865 1,666 1,466 BD5 4.50% 1,335,893 3,993 3,763 3,533 3,302 3,073 2,843 2,612 2,382 2,152 1,922 1,691 BD6 5.00% 1,484,325 4,437 4,181 3,926 3,669 3,414 3,159 2,902 2,647 2,391 2,136 1,879 BD7 5.50% 1,632,758 4,880 4,599 4,319 4,036 3,755 3,475 3,192 2,911 2,630 2,350 2,067 BD8 6.00% 1,781,190 5,324 5,018 4,711 4,403 4,097 3,790 3,482 3,176 2,869 2,563 2,255 BD9 6.50% 1,929,623 5,768 5,436 5,104 4,770 4,438 4,106 3,772 3,441 3,109 2,777 2,443 BD10 7.00% 2,078,055 6,211 5,854 5,496 5,137 4,780 4,422 4,063 3,705 3,348 2,990 2,631 BD11 7.50% 2,226,488 6,655 6,272 5,889 5,504 5,121 4,738 4,353 3,970 3,587 3,204 2,819 BD12 8.00% 2,374,920 7,099 6,690 6,282 5,871 5,462 5,054 4,643 4,234 3,826 3,418 3,007 BD13 8.50% 2,523,353 7,542 7,108 6,674 6,238 5,804 5,370 4,933 4,499 4,065 3,631 3,195 BD14 9.00% 2,671,785 7,986 7,526 7,067 6,605 6,145 5,686 5,223 4,764 4,304 3,845 3,382 BD15 9.50% 2,820,218 8,430 7,945 7,459 6,972 6,487 6,001 5,514 5,028 4,543 4,058 3,570 BD16 10.00% 2,968,650 8,873 8,363 7,852 7,339 6,828 6,317 5,804 5,293 4,782 4,272 3,758 BD17 10.50% 3,117,083 9,317 8,781 8,245 7,705 7,169 6,633 6,094 5,558 5,022 4,485 3,946 BD18 11.73% 3,481,794 10,407 9,808 9,209 8,607 8,008 7,409 6,807 6,208 5,609 5,010 4,408 BD19 19.86% 5,896,143

X

(Mill

ions

€)

17,624 16,609 15,595 14,575 13,561 12,547 11,527 10,513 9,499 8,485 7,465

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Table 3. Permanent economic impacts on domestic production caused by the increase in demand of bioethanol production according to different alternatives

4.- Results

% of imported grain

Production of bioethanol 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Alternative % N (toe) X

(€

/toe)

2,676 2,576 2,476 2,376 2,277 2,177 2,077 1,977 1,877 1,778 1,678 BE1 1.48% 112,640

X (M

illio

ns €

) 301 290 279 268 256 245 234 223 211 200 189

BE2 2.33% 176,933 473 456 438 420 403 385 367 350 332 315 297 BE3 3.71% 281,609 754 725 697 669 641 613 585 557 529 501 473 BE4 3.90% 296,171 793 763 733 704 674 645 615 586 556 527 497 BE5 4.50% 341,736 914 880 846 812 778 744 710 676 641 608 573 BE6 5.00% 379,707 1,016 978 940 902 865 827 789 751 713 675 637 BE7 5.50% 417,678 1,118 1,076 1,034 992 951 909 868 826 784 743 701 BE8 6.00% 455,649 1,219 1,174 1,128 1,083 1,038 992 946 901 855 810 765 BE9 6.60% 501,213 1,341 1,291 1,241 1,191 1,141 1,091 1,041 991 941 891 841 BE10 6.91% 524,904 1,405 1,352 1,300 1,247 1,195 1,143 1,090 1,038 985 933 881 BE11 9.78% 742,656 1,987 1,913 1,839 1,765 1,691 1,617 1,542 1,468 1,394 1,320 1,246

Temporary economic impacts

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4.- Results

Are generated by temporary costs, which occur during the implementation and building phases of the biofuels industry

Biodiesel BioethanolX (€/toe) 80 604

Multiplier effect 1.85 1.66

5.- Conclusions

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• Temporary economic impacts in the production are greater for bioethanol than for biodiesel.

• However, the multiplier effect that would result from each euro invested in a biodiesel plant would be greater than the effect that would occur when the money is invested in a bioethanol plant.

• The higher the percentage of local raw materials to be used in the production of biofuels, the greater the impact that biofuels generate in the national economy.

• The quantification of these economic impacts can help decision-makers when setting policies about energy, economy or employment.

• The impact that the biodiesel production has on the national economy in the operating phase is higher than the impact of bioethanol production when it is less than 50% of imported raw material imported

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Thank you for your attention

Francisca Fernández TiradoCarlos Parra López

IFAPA, Centro Camino de PurchilApdo. 2027 – 18080 Granada, España

Tel.: +34 (0)958895268; fax: +34 (0)958895203;E-mail: francisca.fernandez.tirado@juntadeandalucia.es