Long - term Biofuel Projections under Different Oil Price Scenarios

The foremost questions debated in biofuel research reports and the press include 1) what impact will expansion of biofuel have on shortand intermediate-term food prices and security? 2) How will agriculture expand shortand intermediate-term output in response to increased shortand intermediate-term demand for food and feedstock, and 3) What will expanded biofuel production cost? Yet, there has been little effort to consider what will happen to biofuel expansion and production in the long term. As a natural resource issue, the long-term sustainability of biofuel as a significant source of liquid fuel and substitute for fossil fuel in transportation is an important issue. When considering shortand intermediate-term agricultural projections, it may be appropriate to extend current country and regional agricultural trends, market relationships, and resource use patterns into the future. However, current market relationships and resource use patterns are not indicative of long-term agricultural commodity production, resource use, and production technologies. It is more difficult to support long-term projections beyond 10 to 20 years (Fischer, Byerlee, & Edmeades, 2009) even when adjusted by expert opinion. Long-term agricultural and biofuel projections require a modern global economic environment characterized by dynamic agricultural growth, trade, and development.1 This article highlights some key preliminary findings from a long-term breakeven model for biofuel feedstock production and biofuel conversion with long-term biofuel expansion projections. Complete model specifications and results are provided in Miranowski and Rosburg (2012) and Miranowski (2012). The article is divided into four sections designed to address the longterm expansion and sustainability of biofuel production. The first section discusses the rationale underlying longterm projections and the breakeven or parity pricing framework based on producers’ willingness to supply feedstock (or long-run supply cost) and biofuel processors’ willingness to pay for feedstock (or long-term derived demand) given alternative long-term oil-price scenarios. Then, the article provides a summary of the model and data used in Miranowski and Rosburg (2012) and Miranowski (2012) to consider long-term breakeven or parity price relationships for alternative biofuel feedstock. Next is a summary of some of the key results from the model discussed in the previous section, including alternative biofuel feedstock and production locations and the long-term expansion potential of biofuel production given alternative oil-price scenarios. This is followed by a summary of the projections of future expansion and production in the absence of government biofuel policies.