Commercialization of First Generation
Biofuels
Vernon R. Eidman
Department of Applied Economics
University of Minnesota
August 21, 2007
Outline
• Discuss the likely increase in ethanol and biodiesel
production over the next several years
• Describe ethanol and biodiesel production costs
• Note developments in the market prices for ethanol and
biodiesel
• Discuss the impact of biofuel production on crop
production and food costs in the United States
Ethanol production has been growing rapidly
and is expected to continue doing so for at
least the next two years.
12.5*
13*
2009
7.2*
9.8*
2008
5.4
6.3*
2007
4.3
4.9
2006
3.6
3.9
2005
3.1
3.4
2004
Ethanol Production
Capacity on Jan.1
(bill. gallons per year)
Ethanol Production
(bill. gallons per year)
Year
* Projected
Biodiesel production also has been growing
rapidly.
• Biodiesel production (million gallons per year)
-25 in 2004
-75 in 2005
-250 in 2006
• The industry production capacity is much larger, 1.39 billion gallons,
although it is difficult to know how much is dedicated to other products.
• USDA Baseline 2/07 projects (million gallons per year) from soybean oil
- 360 in 2007
- 620 in 2008
- 645 in 2009
• Additional biodiesel can be produced from
- Other vegetable oils
- Corn oil from ethanol plants
- Yellow and brown grease
- Animal fats
Continued growth of both ethanol and
biodiesel depends on profitability.
• The major factors expected to determine industry
profitability over the next several years are
– Policy
– Cost of feedstock
– Price of petroleum
– Market premium for ethanol and biodiesel
Grain Ethanol Production Costs
• The standard plant has remained much the same,
but the size of the “small plant has increased from
48 to 60 mgpy,
• and the investment costs have gone up.
Investment Per Gallon of Annual Capacity
mgpy
2003-2005
2006-2007
48/60
$1.25
$1.875
120
0.97
1.50
Estimated Ethanol Production Costs for
New Construction
2.16
1.91
1.66
1.40
1.14
120 Million
Gallons per Year
$/Gallon
2.21
1.96
1.70
1.44
1.19
60 Million
Gallons per Y