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 American Conference, Houston, Texas Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 1 / 20
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
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
Biofuel Potential? Feedstocks No Policy Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 4 / 20
Biofuel Potential? Feedstocks Only Mandate Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 5 / 20
Biofuel Potential? Feedstocks Only Subsidy Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 6 / 20
Biofuel Potential? Feedstocks Mandate & Subsidy Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 7 / 20
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
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
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 104.16 a Eth Industrial Cost ( $ MXN/lt) 3.28 a Rodr´ ıguez-Hern´ andez, et. Al. (2016) Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 10 / 20
The Model Graphical Representation Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 11 / 20
The Model Equations of the Model Objective Function vkt (⋅) d (⋅) + ∑ fuel (⋅) d (⋅) + ∑ com (⋅) d (⋅) ∑ vkt ∫ D mx ∫ D cou ∫ D cou com, fuel, cou cou − ∑ oil,gas (⋅) s (⋅) − ∑ fuel (⋅) s (⋅) − ∑ com (⋅) s (⋅) ∫ S mx ∫ S row ∫ S row com, oil fuel, row gas row ct cou,cou ⋅ X cou,cou + subsidy ⋅ S mx − ∑ ⋅ S mex − ∑ c mx z z bio cou, z cou Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 12 / 20
The Model Equations of the Model Subject to: V KT vt ≤ ∑ kpl vt ⋅ ( γD vt bio + D vt fuel ) ∀ vt fuel bio ≤ α bio ⋅ ( D vt bio + D vt fuel ) ∀ vt D vt S bio = ∑ β SC eth ⋅ ( CL dto SC eth + NL dto SC eth ) dto +∑ β cell ⋅ ( leaves dto ag + bagasse dto teq + stover dto Sorg ) dto S com = ∑ pz ⋅ PL dto pz + ∑ cr ⋅ ( CL dto cr + NL dto cr ) ∀ com β dto β dto pz dto pz + ∑ cr + ∑ cr ≤ ∑ ∀ dto ∑ PL dto NL dto CL dto land dto pz cr cr cr,pz 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
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, oats, 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
Data A gave tequilana and process to obtain ethanol Department of Economics (CIDE, M´ exico) Bioenergy Prospects in Mexico Nov 14, 2017 15 / 20
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
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 0 5.94 0 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
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
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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