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

ProblemThe 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.

ObjectiveTo 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.

Analytical ToolPOLYSYS:305 crop production regions (ASDs)National livestock productionNational demand market (Elasticity Driven)(Sum of Production = Domestic Supply)Energy market is goal drivenSolutions compared to a USDA Baseline

Cropland Base2002 Agricultural Census

POLYSYS ModelEconomic ModuleEnvironmental Module

Production Year tRegional Supply Elasticities Responds to changes in expected price

POLYSYS GeneratedLagged Prices

Expected PriceYear t

ABSCrop Budgets

POLYSYSGeneratedSolution t-1

YieldChanges in expected priceChange in Prices Paid

Beginning Inventory

Regional Production

Imports

National Supply

By ASDAcres, Cost of production

By ASDAcres, Cost of productionYear t

Baseline AcresCost of ProductionYear t

Change in AcresCost of ProductionYear t

Change inNon chemicalNitrogenOther FertilizerExpenditures

Change in Gross Soil Erosion, acres By ASD and Crop

Proportion Tillage by ASD and CropFrom BaselineBased on CTIC

County Crop Acres Based on NASS

KLSR Factors By ASD for Cropland, CRP, and Pasture

CP Factors By ASD for Crop and Tillage

Change in USLE Estimated Erosion by ASD and HUC

DetermineASD Change in Carbon Sequestration and Emissions

Carbon Seq. and Emissions byASD, Crop, and Tillage

Change inCarbon Sequestration andCarbon Emissions

A

A

MOSS

Change inSedimentation andSedimentation CostBy 10 USDA Regions

Change inGross Soil Erosion by ASD

Extended Economic Baseline2007 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.

Ethanol ScenariosChanges 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.

Environmental SubmoduleChange in Land UseChange in Input ExpendituresFertilizer 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 ErosionEstimated using NRCS ASD region KLSR and P estimates combined with an estimated C factor (incorporating tillage) based on 1997 NRI dataChanges in land use by POLYSYS region.Impact on Sedimentation Made using erosion estimates converted to 99 river basins and coupled with sediment delivery and deposit ratios used in MOSS II along with Ribaudos 1985 cost of erosion study with costs indexed to 2007.

Environmental SubmoduleChanges in carbon sequestrationCarbon 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).

Ethanol Production Paths

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

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

Change in Crop Area from the USDA Baseline 12 BGY to 18 BGY Scenario 2016CornSoybeansWheatCotton

Change in Crop Area from the 8.6 BGY to 18 BGY Scenario 2016CornSoybeansWheatCotton

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

Herbicide Use: Regional ChangesChanges between 18 BGY and 12 BGY USDA Baseline Scenarios

Changes between 18 BGY and 8.6 BGY Scenarios

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

Fertilizer Use: Regional ChangesChanges between 18 BGY and 12 BGY USDA Baseline Scenarios

Changes between 18 BGY and 8.6 BGY Scenarios

Erosion: Regional ChangesChanges between 18 BGY and 12 BGY USDA Baseline Scenarios

Changes between 18 BGY and 8.6 BGY Scenarios

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

Carbon Emissions: Regional ChangesChanges between 18 BGY and 12 BGY USDA Baseline Scenarios

Changes between 18 BGY and 8.6 BGY Scenarios

ImplicationsThe 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.

ImplicationsWhat 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.

POLYSYS contains the entire cropland base with 34 million acres removed for use in minor crops and farmsteads, etc. In the