New renewable fuel standard would increase net farm income
By $13 billion and will lead to higher consumer food prices
COLLEGE STATION – Analysis by a Texas AgriLife Research economist reveals new renewable fuel standards would lead to more than a $13 billion increase in net farm income, yet cost consumers on average $10 more for food per person annually by 2022.
“Ultimately, it’s going to take farm land away from food production,” said Dr. Bruce McCarl, economist, who teamed with Robert H. Beach of RTI International in a report to the U.S. Environmental Protection Agency in support of their rule-making effort. “For agricultural producers, you would have conventional income and energy income. Farmers get more money from the land. For the last five years, commodity prices went up and corn prices went up. Farmers enjoyed historically high prices.”
The EPA recently released final regulations for the national renewable fuel standard program. McCarl and Beach conducted analysis on the impacts of agricultural feedstocks used to produce renewable fuels. Their report, “U.S. Agricultural and Forestry Impacts of the Energy Independence and Security Act: FASOM Results and Model Description” and more information about the new renewable fuel standards can be found at http://www.epa.gov/otaq/renewablefuels/index.htm.
The new standards are part of a federal initiative to reduce greenhouse emissions by using renewable fuels, reduce dependence on imported petroleum and further develop and expand the nation’s renewable fuels sector, according to the EPA.
For consumers, there’s a tradeoff, McCarl said. Though consumers could be paying on average $10 a year more per person for food, the U.S. would lessen its dependence on foreign oil and receive some reductions in greenhouse gas emissions.
“In the long run, is it going to be worth it to have increased energy security? We’re going to run out of petroleum at some point,” he said.
Major metropolitan areas would benefit from less emission, according to the EPA. For example, Houston would see reductions in emissions since ethanol is a cleaner burning fuel.
"(The) consumer will see less price influence and a cleaner environment, but will be paying more for energy," McCarl said.
For agriculture, McCarl said, there would be a reduction in conservation reserve program land. Texas will have the opportunity to develop energy sorghum which “displaces” switchgrass as an input to advanced biofuels in some parts of the country. Energy sorghum would be grown and used to produce ethanol as well as used in other energy sectors, such as the power market.
“It gives Texas an advantage. We could see some acreage shifted to energy sorghum,” he said.
Rural America will be changed as it reaches the 36 billion gallons of renewable fuel production federally mandated by 2022, McCarl said.
“It’s going to be a chunk of land diverted into fuel production,” he said. “That’s going to make rural America more profitable but with a different land-use pattern.”
For Texas, McCarl said, energy sorghum would be the best-suited crop for producers mainly because water is such a critical component. He said land that is best suited for these types of crops would be found east of Interstate 35.
East Texas may also benefit in the timber-producing region, he added.
“This might give them another market with cellulosic energy,” he said. “You could take wood that might have been pulped and put that into energy either on a one time or continuing basis with some possibly moving into energy sorghum.”
However, livestock producers would see negative effects as a result of a shift in production and higher feed costs, McCarl said. The demand for corn-based feedstock would raise feed prices, cutting into profit margins for feedlot operators and reducing supply. Cow-calf producers would receive lower prices.
“What’s going on now, you will see in the future,” he said. “Right now, beef producers are receiving higher prices as a result of less inventory nationally. But what we saw (in 2008) when corn prices were at all-time highs, beef prices were lower.”
Overall, McCarl said, the study’s results parallel those he found in the 1970s and earlier using the same model that he and others developed while at Purdue University.
“The big conclusion then was it would raise food prices and lower exports,” he said. “Today, we have the same conclusions. But today we have stronger forces at work, namely a desire for energy security and a shift to renewable energy.”