Bioenergy Prospects in Mexico: Biorefineries at the West Region - - PowerPoint PPT Presentation

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Bioenergy Prospects in Mexico: Biorefineries at the West Region Hector M. Nu nez Center for Research and Teaching in Economics Centro de Investigaci on y Docencia Econ omicas CIDE, M exico Nov 14, 2017 35th USAEE/IAEE North

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SLIDE 1

Bioenergy Prospects in Mexico: Biorefineries at the West Region

Hector M. Nu˜ nez Center for Research and Teaching in Economics Centro de Investigaci´

  • n y Docencia Econ´
  • micas

CIDE, M´ exico

Nov 14, 2017

35th USAEE/IAEE North American Conference, Houston, Texas

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 1 / 20

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SLIDE 2

Introduction

Biofuels in Mexico

  • 90% of Mexican energy consumption comes from fossil fuels
  • It is the 14th largest Greenhouse Gas (GHG) emitter in the world,

contributing with about 1.5% of the global GHG emissions

  • In accordance with the Paris INDC, 35% of domestic energy must

come from renewable sources by 2024 and 22% GHG reduction by 2030 respect to a BAU scenario

  • Meeting that goal is likely to require a domestic biofuel industry
  • There have been several attempts to introduce biofuels into the

market, but so far no success

  • The 2014 energy reform was mostly designed to increase fossil fuels

production in the transportation sector

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 2 / 20

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SLIDE 3

Biofuel Potential? Feedstocks

Biofuel Feedstocks in Mexico

  • Biofuel could be produced both from dedicated crops (sugarcane,

corn, wheat, and sorghum) and from agroindustrial residues from agave, corn, wheat, sorghum, sugar and spirits

  • For this version, I will consider only ethanol from sugarcane, sorghum

stover, tequila & agave residues

  • There has been a surplus of sugarcane in several recent years
  • Sorghum is the second largest crop in the country
  • Agave, which is primarily used for tequila and mezcal production, has

high potential as biofuel feedstock:

  • Less expensive than sugarcane because of its low water demand, less

need for fertilizers and their ability to grow in semi-desert areas with lower quality soil

  • It will not compete directly with the distillation of drink since it will use

leaves of the plant and agave bagasse from the tequila process

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 3 / 20

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SLIDE 4

Biofuel Potential? Feedstocks

No Policy

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 4 / 20

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SLIDE 5

Biofuel Potential? Feedstocks

Only Mandate

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 5 / 20

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SLIDE 6

Biofuel Potential? Feedstocks

Only Subsidy

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 6 / 20

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SLIDE 7

Biofuel Potential? Feedstocks

Mandate & Subsidy

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 7 / 20

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SLIDE 8

Biofuel Potential? Research Goals

Research Goals

  • Gathering better information about costs and productivity from the

agave and tequila agroindustry (West region)

  • Develop an endogenous-price mathematical programming model

emphasizing the Mexican agricultural and fuel sectors, which are embedded in a multi-region, multi-product, spatial partial equilibrium model of the world economy, to analyze the implications of biofuel policies in Mexico in 2025 on:

  • Biofuels production and trade,
  • Land use,
  • Crop/Commodity markets,
  • Food and fuel prices,
  • Social welfare,
  • GHG emissions
  • Can Mexico meet domestic demand for biofuels? How?

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 8 / 20

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SLIDE 9

Biofuel Potential? Research Goals

Survey to Agave tequilana producers

Key data obtained

  • Updated planting and harvesting

schedules.

  • More accurate information

regarding workforce, outsourced services (transportation, harvesting, etc.), seedling acquisition and main agricultural inputs used.

  • To date, producers don’t use the

waste (such as agave leaves, which are left to dry out).

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 9 / 20

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SLIDE 10

Biofuel Potential? Agave Tequilana

Agave Tequilana

Variable Value Area Planted (Ha) 164,705 Yield (Ton/Ha) 106.26 Crop cost ($MXN for 4.5-5 years) 165,488.00 Survival rate (%) 79 Lt of tequila/Ton 133 Tequila Industrial Cost ($MXN/lt) 21 Price of tequila ($MXN/lt) 277 Leaves (% plant weight) 50 Harvesting extra cost ($MXN/Ha) 1,500 Lt of ethanol/Ton residues 104.16a Eth Industrial Cost ($MXN/lt) 3.28

aRodr´

ıguez-Hern´ andez, et. Al. (2016)

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 10 / 20

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SLIDE 11

The Model Graphical Representation Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 11 / 20

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SLIDE 12

The Model Equations of the Model

Objective Function

∑

vkt∫ Dmx vkt (⋅)d(⋅) + ∑ fuel, cou

∫ Dcou

fuel (⋅)d(⋅) + ∑ com, cou

∫ Dcou

com (⋅)d(⋅)

− ∑

  • il

gas

∫ Smx

  • il,gas (⋅)s(⋅) − ∑

fuel, row

∫ Srow

fuel (⋅)s(⋅) − ∑ com, row

∫ Srow

com (⋅)s(⋅)

− ∑

z

cmx

z

⋅ Smex

z

− ∑

cou, cou

ctcou,cou ⋅ Xcou,cou + subsidy ⋅ Smx

bio

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 12 / 20

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SLIDE 13

The Model Equations of the Model

Subject to:

V KT vt ≤ ∑

fuel

kplvt ⋅ (γDvt

bio + Dvt fuel)

∀vt Dvt

bio ≤ αbio ⋅ (Dvt bio + Dvt fuel)

∀vt Sbio = ∑

dto

βSCeth ⋅ (CLdto

SCeth + NLdto SCeth)

+∑

dto

βcell ⋅ (leavesdto

ag + bagassedto teq + stoverdto Sorg)

Scom = ∑

pz

βdto

pz ⋅ PLdto pz + ∑ dto

βdto

cr ⋅ (CLdto cr + NLdto cr )

∀com ∑

pz

PLdto

pz + ∑ cr

NLdto

cr + ∑ cr

CLdto

cr ≤ ∑ cr,pz

landdto ∀dto Material balance, historical and synthetic convexity, and non-negativity constraints

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 13 / 20

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SLIDE 14

Data

Data

  • 162 ag.-districts + 304 mun. (West Region): Historical crop mixes (2000-2013),

crop yields, costs of production and processing, and cost of transportation

  • Planted and Natural grasses + 17 Crops: A. tequilana, A.mezcalero, sugarcane,

alfalfa, barley, beans, yellow corn, white corn, corn silage, grass, green chili pepper,

  • ats, oat silage, orange, sorghum, soybeans and wheat
  • Products: tequila and mezcal from Agaves; soybean oil and soybean meal; sugar

from sugarcane; and ethanol from sugarcane, sourghum and agaves’ residues

  • Fuel: Supply of oil and gas, costs for gasoline, diesel and jet fuel, & other oil
  • products. VKT for gasoline (blend), diesel and jet fuel
  • Fuel: Demand of VKT (gasoline or blend) at state level
  • Commodity prices, elasticities and quantities demanded for Mexico, (+ supply for)

U.S. and ROW

  • GHG emissions are calculated for all crops, pastures and fuels based on the

above-ground CO2e emissions

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 14 / 20

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SLIDE 15

Data

Agave tequilana and process to obtain ethanol

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 15 / 20

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SLIDE 16

Results Policy Scenarios

Policy Scenarios: Second Best Policies

  • Validation results show small deviations and we project market

conditions to 2025 in the model under different policy scenarios

  • Blend mandate: 15%
  • Imposes an implicit tax on gasoline and an implicit subsidy on ethanol
  • Increases demand for ethanol
  • Explicit subsidy to biofuels producers of 50% price of gasoline
  • Lowers domestic price of ethanol and makes it more competitive,

increases export of oil

  • Both policies together

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 16 / 20

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SLIDE 17

Results

Fuel sector in Mexico 2025

Fuels Baseline Mandate Subsidy Mand+Subs Demand VKT (Billions) 421.62 1.85% 0.00% 1.85% Gasoline (Gl) 44.86

  • 20.42%

0.00%

  • 20.42%

Ethanol (Gl) 0.00 6.30 0.00 6.30 Supply (Gl) Gasoline 5.94 5.94

  • Eth. SugarCane

0.00 0.31 0.00 0.94

  • Eth. Sorghum

0.26 0.26 0.26 0.30

  • Eth. Ag. Tequilana

0.33 0.47 0.46 0.47

  • Eth. Ag. Mezcalero

<0.01 <0.01 <0.01 <0.01 Total Ethanol 0.70 1.18 0.84 1.83 Price (MXN$/lt) VKT 2.16

  • 7.24%

0.00%

  • 7.31%

Gasoline 19.86

  • 4.26%

0.00%

  • 4.25%

Ethanol 35.74

  • 15.55%

0.00%

  • 15.82%

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 17 / 20

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SLIDE 18

Results

Land use in Mexico 2025

Crops Baseline Mandate Subsidy Md+Sb (MMHa) (% change)

  • A. Mezcalero

0.013 6.24 1.41 8.02

  • A. Tequilana

0.19 13.02 10.42 12.03 Bean 1.670 0.00 0.00 0.00 Sorghum 1.007 1.19

  • 0.01

15.39 Sugarcane 0.802 0.01 0.00 4.09 White corn 5.412 0.00 0.00 0.01 Total cropland 37.19 0.51 0.10 2.43

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 18 / 20

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SLIDE 19

Results

Social welfare and GHG emissions in Mexico 2025

Commodities Baseline Mandate Subsidy Mand+Subs (B MXN$) (% change)

  • Agr. producers surplus

944.05 3.85 0.00 0.2

  • Agr. consumers surplus

2,545.27

  • 0.16

0.00

  • 0.23

Fuel producers surplus 4,246.68

  • 1.69

>100 >100 Fuel consumers surplus 10,414.49 0.44 0.00 0.44 Government Revenue 11.99 12.53 <-100 <-100 Total surplus (including ED) 17,102.08

  • 0.12
  • 0.01
  • 0.15

GHG emissions (Mt CO2e) 263.80

  • 3.16

0.00

  • 3.28

26

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 19 / 20

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SLIDE 20

Concluding Remarks

Concluding Remarks

  • Results suggest that some compensating redistribution may be needed

if these policies are to be seen as politically sustainable

  • Ethanol maximum production is 4% of the total projected gasoline
  • demand. Biofuel potential in Mexico is not high and a significant

change in the fuel transportation mix will require ethanol imports from the US and the rest of the world and environmental gains will be moderate

  • Important topics that are left out: Relax competitive markets

assumptions; other biofuel feedstocks such as sorghum, residues of corn, organic wastes, jatropha and some alga species; other biofuels like biodiesel and biogas (under construction in the model)

  • This analysis aims to call the attention of the industry (e.g. agave,

sugarcane, automotive) and the government to provide incentives and commands to both demand and supply sides since now

Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 20 / 20