

      Date:
      October 5, 2021
      To:
      Christopher Ramig, Diana Galperin, Michael Shell, and Lauren Rafelski, Office of Transportation and Air Quality, U.S. EPA
      From:
      Chris Wade, Robert Beach, and Marwa Salem
      Subject:
      Documentation of the Canola Oil Biodiesel Scenario in FASOMGHG

This memorandum provides a brief documentation on how the Forest and Agricultural Sector Optimization Model with Greenhouse Gases (FASOMGHG) model was updated to model the impacts of a canola oil biodiesel shock scenario. 
Introduction
Based on guidance received from EPA, RTI implemented a canola biodiesel expansion scenario into the FASOMGHG model. This included parameterizing a ramp-up of demand for canola oil being consumed to produce biodiesel through a constraint growing from 0 Mgal in 2005 to 200 Mgal in 2020, at which point it remained fixed until 2030 (Figure 1).
 
Figure 1: Introduction of canola oil shock into FASOM
Canola Oil, Seed, and Meal Market Updates
Market conditions for canola, canola meal, and canola oil were updated based on the USDA Oil Crop Yearbook, USDA NASS data, and the US Canola Association. This included historical prices and quantities consumed, as well as updated elasticities for domestic demand and imports. These values are presented in Table 1. 
Table 1: Canola seed, meal, and oil market parameters based on historical consumption, prices, and estimated elasticities.
Measure
Commodity
Price ($/Million lb)
Quantity (Million lb)
Elasticity
Domestic demand 
Canola Seed
$78,2002
4,3911
-0.8182
Domestic demand
Canola Meal
$58,5001
3,5042
-0.52
Domestic demand
Canola Oil
$171,129
1,5252
-0.5592
Imports
Canola Seed
$113,100
4,7902
0.85
Imports
Canola Meal
$52,390
2,5202
0.15854
Imports
Canola Oil
$156,771
1,1452
3.14

US  -  Canada Canola Oil Trade Updates
In addition to updated trade quantities and elasticities, RTI introduced differentials in prices between US producer prices for canola seed[1] and prices received by Canadian producers for exporting their crops. The historical data show prices received by producers in Canada when exporting canola seed are systematically lower than the prices domestic US producers receive. Between 2013 and 2019 we found that the average price difference between US producer prices and Canadian export prices was 8.39% (Figure 2). We introduced this price differential into the model to better reflect the additional transportation costs associated with importing goods.  

Figure 2: Historical price differential of canola oil between US producer prices, and Canadian export prices from 2013 to 2019 in 2010 USD per MT.
Domestic Planted Area of Canola Seed
RTI also used USDA NASS data to update the historical data in FASOMGHG on the area dedicated to canola seed production by US states.[,] Historical data are used to define the range of acreage that can be planted to a crop within a region. Table 2 summarizes the harvested canola area data from 2009 to 2020 in thousand acres, which were imported into the model. 
Table 2: Historical harvested area of canola seed for US states from 2009 to 2020 in thousand acres based on USDA Agricultural Census and Surveys.

                                                                           2009
                                                                           2010
                                                                           2011
                                                                           2012
                                                                           2013
                                                                           2014
                                                                           2015
                                                                           2016
                                                                           2017
                                                                           2018
                                                                           2019
                                                                           2020
IDAHO
                                                                           14.5
                                                                           18.4
                                                                           18.5
                                                                           36.5
                                                                             43
                                                                             34
                                                                             27
                                                                           20.5
                                                                           22.3
                                                                             42
                                                                             0
                                                                              0
KANSAS
                                                                             NR
                                                                             NR
                                                                             NR
                                                                             NR
                                                                             NR
                                                                             NR
                                                                             NR
                                                                             24
                                                                             47
                                                                             35
                                                                             19
                                                                              3
MINNESOTA
                                                                           12.5
                                                                             45
                                                                             28
                                                                           29.5
                                                                           16.5
                                                                           14.5
                                                                           21.5
                                                                           27.5
                                                                           34.5
                                                                             45
                                                                           48.5
                                                                             48
MONTANA
                                                                            6.5
                                                                           17.1
                                                                           30.5
                                                                           49.5
                                                                             69
                                                                             61
                                                                             77
                                                                             60
                                                                            137
                                                                            116
                                                                            138
                                                                            145
NORTH DAKOTA
                                                                            725
                                                                           1270
                                                                            850
                                                                           1455
                                                                            915
                                                                           1190
                                                                           1400
                                                                           1450
                                                                           1560
                                                                           1580
                                                                           1610
                                                                           1520
OKLAHOMA
                                                                             31
                                                                             56
                                                                             75
                                                                            105
                                                                            149
                                                                            155
                                                                            115
                                                                             70
                                                                            140
                                                                             53
                                                                             21
                                                                              8
WASHINGTON
                                                                           NR 
                                                                             NR
                                                                           10.2
                                                                           14.5
                                                                             36
                                                                             47
                                                                             34
                                                                             31
                                                                             54
                                                                             67
                                                                             73
                                                                             88
*NR = Not Reported
Canola Seed Yields
Exogenous growth of canola seed yields was updated to better align with the FAPRI model assumptions and reflect regional yields updated with USDA NASS data (Figure 3).[9,10] This included using a linear projection of yield growth from 2000 to 2020 based on historical data, then moving to a parabolic growth function with an asymptote at 2040 lb/acre which is "reached" by 2040. Projected yields remain endogenous to the model (i.e., they can vary from the exogenous levels due to adjustments in production practices, input use, and crop mix by the representative landowners in the model responding to relative prices); however these updated parameters better calibrate the model to historical yield growth patterns. 

Figure 3: Historical state level, and national yields for canola seed in pounds per acre from 1991 to 2020, as well as asymptote for yield growth projection implemented in the model. 
