Course: BFM 101 Biofuels Fundamentals

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Diverse Stakeholders in Bioenergy Development
Conclusions

Determining Economic Costs and Benefits of Energy Generation
Determining Economic Costs and Benefits of Energy Generation

In the economic model embraced in the U.S., communities have an interest in supporting viable local businesses,  but the responsibility for determining the economic feasibility of the business is the job of the business owner and the investors.  From a community perspective, there are other economic considerations to factor in before investing in or supporting a project.  These considerations include assets, debts, and value associated with aspects of the community not always perceived as having economic value. These include:

- Community aesthetics and values
- Community social events
- Educational opportunities
- Labor trade-offs
- Recreational opportunities
- Youth development opportunities
- Volunteer availability
- Property values

Communities are increasingly concerned with how new and proposed development will affect the broader community.  Communities have traditionally evaluated business ventures by estimating their projected return on investment and contribution to the local economy.  However, as communities expand the scope of what they consider when evaluating a proposed project – especially when some form of public subsidy is involved – developers and communities are being asked to consider broader impacts. For example, if a bioenergy venture contracts for and consumes all of the woody biomass in the region, wildlife habitat and scenery may be lost or, at least, reduced.  If the same facility consumes all of the residual biomass from an existing timber business, it might affect costs to households or even the informal economy. For example, increased demand for woody biomass may be a boon for forest or lumber yard owners, but may have unintended consequences for other users of residual wood products (free or low cost firewood, or informal trade arrangements for building material).  These losses must be measured against increased income, guaranteed incomes from contracts, the ability to buy health and life insurance, and access to jobs and services.

Bioenergy projects can affect a wide swath of the community, and it is likely that projects will come under increasing scrutiny as the industry develops.  Bioenergy developers will not only need to demonstrate the economic benefits to the community in the form of jobs, income, and taxes, but they will be asked to demonstrate broader economic, social, and environmental impacts as well.

Evaluating the Economic Feasibility of Bioenergy Generation

With the societal push for energy independence focusing on renewable energy sources, both new and old bioenergy technologies are being considered.  Despite advances in technology, significant barriers to widespread deployment of new and emerging bioenergy technologies remain.  Investors, community leaders, and project champions must perform due diligence before committing funds to projects.  While some technologies may work in a laboratory setting or on an experimental scale, they may not be commercially feasible.  Many advanced bioenergy projects have failed for one reason or another.

Determining the feasibility of bioenergy projects, and their economic impact, is complex.  Communities and investors must try to put aside propaganda, sales pitches, political whims, and other emotionally charged issues and pragmatically consider the entire production system. Resource economists have begun to develop tools that evaluate economic impact, job creation potential, and multiplier effects on communities (for example, how the industry is expected to stimulate economic development and increase economic activity beyond the immediate effect of the facility). It is beyond the scope of this curriculum to provide economic analysis tools for Extension Educators. However, educators may wish to explore the following:

Link:
Community Impact of Biodiesel and Bioethanol Plants
http://www.aae.wisc.edu/renk/impactcalculator.asp

This tool is explained in detail in the Journal of Extension article, “Understanding Community Impacts: A Tool for Evaluating Economic Impacts from Local Bio-Fuels Production.” [6].

Evaluating Job Creation Potential and Job Training Needs for Workers in the Bioeconomy

In evaluating the feasibility of a bioenergy project, the community and the developer must consider the local labor force.  Will it be necessary to bring in outside labor?  What are the strengths and weaknesses of the local labor market?  Project developers should consider income levels, benefits, and total compensation packages to determine if the local labor market is capable of supporting the project.  If  not, additional investments  will be required to attract qualified labor.

While new firms are creating employment, firms paying lower wages may feel the stress of wage competition.  This additional stress could force marginal firms out of business, ultimately damaging the economy if the employment gains don’t outweigh the losses.  These direct and indirect consequences should be considered when communities are asked to support new bioenergy projects – either through incentives or infrastructure development.

Assessing Risk for Communities

Over the past decade, bioenergy projects have provided rural communities with some benefits (for example, farmers benefit from alternative markets for corn and other biomass; some community-based jobs are created or maintained with new industries; construction jobs are created during plant construction) while helping to stabilize and improve commodity prices (such as corn in the case of ethanol).  However, many rural communities, farmers, investors, and bioenergy project developers have invested and lost significant amounts of capital.  Other communities have suffered unintended consequences when ethanol plants have gone bankrupt or have failed to go into production. Communities which have built infrastructure or arranged incentive programs may find themselves with unused infrastructure and debt. Communities should perform due diligence on all projects which they are being asked to support, or risk harm to the local economy.

Communities can assess the risk of proposed projects in a number of ways.  On a practical level, they can become involved early in the project cycle, learning about the proposed technology, including whether or not the technology has been successfully deployed elsewhere.  They can encourage project developers to provide detailed feasibility studies conducted by objective experts, not from the technology vendors themselves.

Policies that Support Bioenergy and Community Economic Development

Federal, State, and local policy makers play key roles in determining the market for bioenergy development. For example, at the federal level, policy makers can support bioenergy development by:

- Creating and funding programs such as BCAP (Biomass Crop Assistance Program) which provides incentives for feedstock production;
- Funding research and development which leads to technological advancements related to bioenergy; and
- Requiring federal agencies to develop policies which support bioenergy development.

At the State level, natural resource programs and technical assistance help determine where feedstocks can be grown and harvested, as well as the ability of farmers to grow and harvest them.  For example, states can help by:

- Developing sustainable planting and harvest guidelines for feedstock producers;
- Developing and delivering programs to teach farmers, woodland owners, and others how to grow, harvest, and collect various bioenergy feedstocks;
- Creating financial incentives that leverage federal investments;
- Passing standards that require utilities operating in the State to obtain a percentage of their fuel from local bioenergy sources;
- Creating statewide siting requirements that provide clear rules and standards for project developers;
- Providing technical support; and
- Providing research and development to support the local industry.

Resources provided by the eXtension Farm Energy Community of Practice at http://www.extension.org/ag+energy

Diverse Stakeholders in Bioenergy Development
Conclusions