Guest blog: Agricultural residue resource in Europe presents a unique opportunity for the EU27 agricultural sector
In Europe today there is an agricultural residue resource available that could be sustainably harvested without altering current agricultural land use patterns. Supplementing food production, this resource could be turned into a variety of bioproducts ranging from transport fuels to chemicals and plastics. And it can be grown again and again each year in perpetuity.
This agricultural residue resource presents a unique opportunity for the EU27 agricultural sector to deliver on the EU 2020 strategy: innovate using available industrial biotech solutions; invest in tomorrow’s rural infrastructure projects; spur growth and job creation; reduce greenhouse gas emissions; and start the transformation towards a competitive bio-based economy.
At Bloomberg New Energy Finance wrote we studied how agricultural residues could help diversify farmers’ revenues and build a next-generation bioproduct value chain in Europe over the next decade. The development of this industry will likewise present a chance to redirect part of the European Union’s structural funds and realign its agricultural policies towards.
The process of harvesting agricultural residues and converting this resource into various bioproducts could bring numerous benefits to the agricultural sector and the EU27.
· Additional farmers’ margins: French wheat farmers, for example, could make an additional EUR 222 per hectare from harvesting, loading and transporting wheat straw to a biorefinery when delivered gate prices are at EUR 80 per dry tonne.
· Diversifying farmers’ income: If enough biorefineries can be built and agricultural residue demand opens up, wheat straw could be used as a feedstock in the production of biofuels, biochemicals and bioplastics. In this case, a Polish wheat farmers, for example, could generate up to 40% of their income per hectare from collecting wheat straw under a gate price scenario of EUR 80 per dry tonne.
· New revenue generation: At our assumed EUR 80 per dry tonne gate price, the next-generation ethanol industry in 2015 has the potential to help generate revenues within the EU27 community of up to EUR 20bn. This would simultaneously lower its dependence on foreign petroleum products and reduce its annual crude oil import bill.
· Energy independence and lowering crude imports bill: In the current context of volatile crude oil prices and energy security concerns, the potential benefits of next-generation bioproduct production should not be underestimated. By 2020 the EU27 community will spend approximately EUR 40bn a year importing crude oil and converting it into gasoline if oil prices at $100 a barrel persist.
· Job creation: 520,000 man-years of employment could be created by 2020 as a result of constructing the necessary biorefining capacity, operating these biorefineries and delivering agricultural residues to these plants. From 2015 onwards, up to 31,000 permanent new jobs could be created in the collection and transport of agricultural residues in rural areas alone.
· Reduce greenhouse gas emissions: more than 25% of greenhouse gas (GHG) emissions from fossil gasoline could be avoided by 2020 if next-generation ethanol develops to its full capacity. Compared to fossil gasoline, next-generation ethanol, produced from enzymatic hydrolysis technologies, reduces GHG emissions by more than 80% – an important contribution towards lowering the carbon footprint of the EU transport sector.
There are however barriers preventing the EU from unlocking the value of this agricultural residue resource. I have outlined some actions that could be taken by European policymakers and other stakeholders to unlock this potential.
· New biofuels mandate: a specific and large next-generation biofuels mandate, similar to the US renewable fuel standard, would drive long-term demand. The mandate would also provide the market security required by the agricultural and investment sectors to deploy capital in the construction of biorefining capacity. A next-generation biofuels mandate should likewise ultimately drive demand for agricultural residues.
· Agricultural policies and structural funds: to reinvigorate the rural communities in line with its EU 2020 growth strategy, the EU could use its Common Agricultural Policy, rural development funds and structural funds to stimulate agricultural innovation and enable farmers to diversify their income.
· Collection incentives: in its infancy the industry would also benefit from agricultural residue collection subsidies, which are progressively scaled back as the market develops.
· Blending credits: tax breaks for blending next-generation biofuels with fossil transport fuels would improve the short-term production economics. But they should also be gradually reduced as the industry reaches its maturation point around 2018.
· Remove technical impediments: current regulations prevent biofuels from penetrating more than 10% of the fossil diesel and gasoline markets. Removing them will help the industry meet its full potential.
· Bioproduct value chain creation: a clear policy, active investment and agricultural innovation are all required to drive the creation of a new industry and a new bioproduct value chain.
The next generation biofuels are slowly coming out of the “financing valley of death” – the financing of the first commercial scale plants using new technologies, but there is still a lot to do make it a reality. In the US, the delay in plant construction plans has given a tool to those wanting to cut the current mandate. If they succed, the industry development would take a big hit. Still, in a report we published earlier this years, we found that production cost will continue falling.
The minimum price at which cellulosic ethanol could be profitably sold, based on the semi-commercial enzymatic hydrolysis facilities coming online today, is $0.94 per litre when accounting for a 10% weighted average cost of capital (WACC). This is an improvement of 46% on the laboratory and pilot scale costs of $1.75 per litre from 2008. In 2016, when assuming the industry fully scales-up, the minimum ethanol selling price should drop to $0.67 per litre – an 29% improvement on 2012 semi-commercial facility costs.
Guest blog provided by Roberto Rodriguez Labastida, Bloomberg.
This blog was produced in conjunction with the Agriculture Investment Summit 2013. For more information about the event and to attend, please visit the website >