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U.S. agriculture and energy sectors: A complex love affair

Thursday, March 31, 2016

For most of the last century, the relationship between the nation’s agricultural and energy sectors has been relatively straightforward—farmers used electricity, diesel fuel and natural gas (much of it in the form of nitrogen fertilizer) to run their operations, and the U.S. energy sector provided it to them.

However, over the last few decades, that relationship has become increasingly complex. The supplier-to-customer linkage is still crucial, of course, even though U.S. farmers have become more energy-efficient over time. A 2013 USDA Economic Research Service study estimated that the U.S. agricultural sector used 1.6 quadrillion BTUs of energy in 2011, or about 1.7% of total U.S. energy consumption that year. The productivity of energy per unit of output has improved for farmers, although it varies quite a bit year-by-year because of weather related variability in production levels. According to a USDA index of farm input and output productivity, U.S. farm energy productivity increased about 29% between the five-year periods of 1948-52 and 2007-2011.

Since the late 1970s, U.S. agriculture has become a producer of energy, as well. The sector’s contribution to the transportation fuel market is well-known. The first federal policies encouraging the production of ethanol from renewable sources, primarily corn starch, were established in 1979. U.S. ethanol production levels grew gradually for the first 20 years, increasing to 1.8 billion gallons in 2001 from 175 million gallons in 1980.

The ethanol industry received two significant boosts in 2005-06: passage of the Energy Policy Act of 2005, which established the first Renewable Fuel Standard (RFS) for biofuels use in the U.S. vehicle fuel supply, and the phasing out of MTBE, a petroleum derivative that was found to pollute groundwater. Ethanol was the alternative to fulfill federal requirements for an oxygenate additive to produce cleaner-burning fuel in regions with significant air pollution problems. Biodiesel is also a product primarily produced from agricultural feedstocks—either virgin soybean oil or vegetable oil and/or animal fats recycled from food processing or restaurant use. Together, ethanol and biodiesel accounted for about 14.9 billion gallons of fuel consumed by U.S. motor vehicles in 2014, or about 10% of total fuel used.

The existing RFS, which was established under the 2007 Energy Independence and Security Act (EISA), peaks at requiring 36.5 billion gallons annually by 2022. U.S. petroleum companies, along with allies in the automobile industry, food processing and retailing, and livestock trade associations are supporting legislation that would pare back or even repeal the existing RFS. These companies are concerned by what they see as adverse impacts from current biofuels production for their industries, and fear the implications of greater biofuels production if the RFS remains in place. A few of the petroleum refiners are hedging their bets, as Valero and Flint Hill Resources, a Koch Industries subsidiary, own 15 ethanol facilities between them.

In May, the U.S. Environmental Protection Agency (EPA) issued a proposed rule that would reduce the RFS requirements for 2014 through 2016 below mandated levels due to concerns about the capacity of the U.S. market to absorb the required levels. The comment period for that proposed rule ended in late July, and EPA is now evaluating the more than 48,000 comments submitted.

The U.S. agricultural sector contributes to electricity generation, as well, primarily through wind and solar power. Although still a modest share of overall U.S. electricity production, the cost efficiency of wind and solar power has improved markedly in recent years. All renewable electricity sources, including hydro-electric, accounted for about 13% of total U.S. electricity generation in 2011, but wind and solar only accounted for about 2% of the total.

According to the 2012 Census of Agriculture, more than 57,000 U.S. farms have renewable energy producing systems in their operations, with the majority of that (63%) in the form of solar panels. That represents a massive increase of more than 500% from a similar survey in 2009 which found that only 9,500 farms had such systems. Of the 19,000 farms that had wind turbines in 2012, a little more than half were leasing land rights to allow other entities to site turbines on their land. The remaining farmers had installed their own wind turbines. Most farmers providing land for wind turbines in lease arrangements have maintained such relationships over many years without major problems, although some have complained that their land and/or farm infrastructure were damaged by the turbine installation or maintenance process.

In some parts of the country, farmers are caught up in the hydraulic fracturing (fracking) of subterranean shale layers in an extensive effort to recover both oil and natural gas.  Some farmers are benefiting by leasing their mineral and/or water rights to oil companies to allow them to explore for hydrocarbons below the surface. These deals are generating payments of up to several thousands of dollars per acre to some farmers in states such as Ohio and Pennsylvania within the oil-rich Marcellus shale region, though the payment rates are much lower in areas without proven reserves. In other locales, farmers are vigorously fighting against the incursion of fracking, concerned that their access to sufficient amounts of unpolluted water to grow their crops could be impaired by the demands that fracking places on local water systems.

Aside from the nuclear industry, U.S. agriculture has a relationship with almost every segment of the U.S. energy sector—as customers, competitors or, in some cases, partners. Since farmers and ranchers control more than 70% percent of privately-owned land in the United States, efforts to increase both conventional and renewable U.S. energy production over the next several decades will likely lead to even more complicated relationships between these two major sectors of the U.S. economy.


Stephanie Mercier Stephanie Mercier (smercier@farmjournalfoundation.org)
Farm Journal Foundation @samara333

View more posts by Stephanie Mercier

1 comment on “U.S. agriculture and energy sectors: A complex love affair”

  1. kaila lee
    Posted Sunday, May 01, 2016 at 7:12:53 PM

    is this a blog or a website

The views and opinions expressed in AgChllenge2050 blog posts are solely the opinions of the authors, and not those of Farm Foundation, NFP.