FARMERS'REASONS FOR ENGAGING IN BIOENERGY UTILISATION more

FARMERS’ REASONS FOR ENGAGING IN BIOENERGY UTILISATION AND THEIR INSTITUTIONAL CONTEXT: A CASE STUDY FROM GERMANY MELF-HINRICH EHLERS1 ABSTRACT In Germany utilisation of biogas from agricultural resources has increased significantly in recent years. Farm waste and purposely grown biomass are used. Despite the introduction of formal incentives, reasons of farmers for the individual activities relating to biogas remain unclear. This research integrates a qualitative case study with institutional economic approaches to investigate farmers’ reasons for action. A preliminary reading of interviews with farmers suggests a variety of reasons that changed over time from first biogas plants in 1980. Keywords: Farmers, bioenergy, biogas, institutions, action. 1 INTRODUCTION This paper tries to address the question why some German farmers engaged in projects aiming at the utilisation of bioenergy deriving from farmland crops and farm waste. It focuses on biogas utilisation for electricity and heat from the early 1980s to mid-2007. During that phase, though especially in recent years, uptake of agricultural biogas utilisation increased for Germany as whole (Figure 1). In 2007 renewable sources made up 14.2 per cent of gross electricity consumption and 6.6 per cent of total final heat consumption in Germany (BMU 2008). The share of biogas from sources other than landfills and sewage in renewable electricity rose from 5.9 percent in 2006 (BMU 2007) to 8.5 percent to in 2007 (BMU 2008). Biogas is now mainly generated from farmyard manure and slurry, but increasingly also from purposely grown biomass. In 2007 about 400,000 hectares of the 16.8 million hectares agricultural land in Germany were crops grown for biogas (FNR 2007) and 60 per cent of the biogas plants received a premium under the electricity feed-in law for using purposely grown biomass (FNR 2007). 1 Division of Resource Economics, Institute of Agricultural Economics and Social Sciences, Humboldt University Berlin, Berlin, Germany. Email: melf-hinrich.ehlers@staff.hu-berlin.de 2 Contributed Paper presented at IAMO Forum 2008 Figure 1: 4000 Biogas plants in Germany 3711 3500 Plants 3000 2500 2000 1500 1000 500 120 0 49 247 1043 1608 2010 Installed capacity (MWel) 949 84 88 94 98 19 19 19 19 20 19 19 19 19 19 19 20 20 20 Year Source: FNR 2005, FNR 2007 It is specifically asked how changing institutions relate to reasons farmers ascribe to their activities in the field of biogas utilisation. The preliminary reading of qualitative material from a regional case study in Germany offers first insights into drivers and barriers to the diffusion of agricultural biogas utilisation. 2 MATERIALS AND METHODS To date there has been little research on the diffusion of agricultural bioenergy utilisation. This holds also for biogas utilisation in Germany, where the major focus is on trying to determine the possible scale of biogas or bioenergy use at different spatial levels and regions in Germany (e.g. FRITSCHE, DEHOUST 2004; HOLM-MÜLLER, BREUER 2006). Moreover, the broader literature on the adoption of technology or farming practices suggests that there can be a diversity of drivers and barriers (e.g. LYNNE et al. 1988; BEEDELL, REHMAN 2000). These tend to be strongly context dependent cases (e.g. SKERRATT DENT 1996; SHUCKSMITH, HERRMANN 2002). The context dependency of diffusion processes of renewable energies such as wind or biomass is emphasised in the functional models of e.g. JACOBSSON and JOHNSON (2000) and NEGRO et al. (2007), which take both exogenous and endogenous factors including feedbacks into account. TOKE (2002) and RAVEN and GREGERSEN (2007) draw specific attention to the Danish incentive structures to invest in wind or biogas. They conclude that local conditions are particularly important to investment decision of farmers. Such context dependency of planning of biogas projects is also emphasised by KHAN (2005). 20 08 80 90 00 82 86 92 96 04 02 06 Farmers´ reasons for engaging in bioenergy utilisation … 3 Figure 2: Institutions of agricultural bioenergy Institutions externally determined at higher levels Federal and higher levels Regional and local levels Interaction between resources and actors Institutional innovations Institutions of regional biogas utilisation Property rights and working rules Properties of transactions Characteristics of actors Institutional impacts Governance structures of biogas utilisation Source: Hagedorn et al. (2002), own adaptations The underlying research uses as a conceptual framework based on the “Institutions of Sustainability” (HAGEDORN et al. 2002), which explicitly includes actors - in the case of the paper farmers are at the core - and three further sets of institutional context variables (Figure 2). Institutions can be defined as sets of conventions, norms and formally sanctioned rules that coordinate human interactions (VATN 2005: 60). The basic unit of analysis is the transaction of energy from agricultural land and waste resources to the electricity grid. The transaction integrates all actors and biophysical flows from land use to outputs of utilisable energy. It involves sub-transactions like biomass and farm waste provision, energy conversion or environmental impacts. Properties of these transactions such as measurability, frequency, scale and value vary. Most of these transactions come into effect as part of actions of actors at local and supra-local or regional level, like farm holdings, local banks, developers of biogas plants or planning authorities. Farming operations are suggested to be a bottleneck for biogas utilisation and its impacts. Actions of all actors other than farmers are taken as given when investigating farmers’ reasons for action. Reasons for action can depend on the characteristics of actual and potential transactions while institutions determining property rights of actors and certain modes of action shape both actions of individual farmers and characteristics of transactions. Whether and how these institutions are coming into effect and impact on actors 4 Contributed Paper presented at IAMO Forum 2008 also depends on the governance structures. Property rights are defined as rights and privileges to benefit streams (BROMLEY 2006: 54-66). In addition there are rights and privileges as well a duties and no right to choose modes of action, which are determined by formally sanctioned working rules (BROMLEY 2006:51-54, VATN 2005: 60). These are the context of reasons for action, while existing norms and conventions may also provide reasons for action (BROMLEY 2006:51). All formal institutions, which are determined at political levels from federal state level upwards are taken as given, though they change over time and their execution at regional and local levels may be imperfect, as they are influenced by lower level institutions and relating actions (YOUNG 2002: 23-26). The unit of analysis determines the boundaries for the empirical case study. First, the biophysical context is spatially defined from an input and impact perspective. Regional land and regional supply of farm wastes are included, though inflows of feedstuff into the region etc. that lead to farm wastes are not. In turn, only those biophysical impacts of the utilisation of biogas that occur in the region itself are taken explicitly into account. Yet, from a social perspective such biophysical boundaries of a case study may be inappropriate (YIN 1994: 4244), as for example regional actors may base their actions on economic, social or environmental impacts outside the regions. Therefore the case boundaries are drawn in terms of whether actors have a direct influence on regional biogas transactions. Actors with such direct influence may, however, be based on a supra-county level. Examples of such actors are environmental administration handling planning applications or technology providers and engineers. A case study approach has been chosen due to data availability and the research questions. Particularly current financial conditions and the size of investments are generally seen to make investors into biogas utilisation reluctant to respond to questionnaires focusing on business data. Predominantly qualitative empirical approaches have the advantage that they help to elucidate “why questions” such as reasons for action (YIN 1994: 5, MAXWELL 1996: 20) and at the same time provide indications of factors such as costs which are at present inaccessible to quantitative means. With a qualitative case study approach it is not aimed at statistically representative samples. Rather it is aimed to identify purposeful samples that are typical or extreme (MAXWELL 1996: 71-72). Farmers´ reasons for engaging in bioenergy utilisation … 5 Table 1: Interview themes and reading categories Reading categories 1. general reasons for action 2. decision processes 3. timing of decisions and actions 4. resources needed for action Interview theme a) reasons for activities relating to biogas utilisation from an individual perspective b) the meaning of other persons for individual activities c) rules that influence individual activities 1. interaction with others 1. formal institutions 2. enforcement of rules 3. informal institutions d) change in courses of action and procedures over time 1. changes of rules, norms and conventions 2. perceived possibilities to change rules 3. individual rule changing activities e) the role of input and output characteristics and the environment for biogas utilisation 1. characteristics of soil and inputs 2. impacts of activities on environment A purposeful sample of farmers was chosen for qualitative face-to-face interviews in a distinct northwest region in Germany, called Nordfriesland, on the basis of administrative counties. In the case study region first modern biogas plants were erected in the early 1980s and then from the later 1990s onwards increasingly until today. Currently plant numbers are greater than 40 and installed capacities are comparatively high. The interviews were carried out on the basis of an interview guide with themes listed in the left hand column of Table 1 that were addressed by open questions (HELFFERICH 2004). Table 2 provides an overview of the selected interviewees. However, based on a case study strategy also contents of written documents are taken into consideration to contextualise the analysis of the interviews and the cases as a whole (MAXWELL 1996: 75-76, YIN 1994: 81). The preliminary reading of the interviews is based on a two-step approach of first categorising material according to topical issues and then coding its content according to explanatory factors. The material of the interviews has to date mainly been categorised in close relation to the above-mentioned interview themes (MAXWELL 1996: 78-79). Table 1 relates the categories to interview themes. 6 Contributed Paper presented at IAMO Forum 2008 Table 2: Overview of interviewed farmers Farm size (ha) 125 Plant size (kWel) Operating since Other renewable (year) energies (type, first year) 1980 Wind 1990 Farmer Farming Farm enterprises since (year) A1 1969 wheat, barley, oil seed rape (OSR), pigs wheat, rye, OSR, maize, pigs 15 B1 A2 A3 1993 2000 1978 236 only biomass supply 330 250 2006 2006 Wind 1998, photovoltaics 2004 Wind 1995, photovoltaics 2003 Wind 2005 (small share) Wind 2007 wheat, OSR, maize, pigs 200 gras, maize, wheat 130 (whole crop silage), pigs maize, potatoes, sugar beet, pigs, sows grass, maize, (limited area of wheat, OSR) dairy cows, sows, pigs clover, grass, maize, oats, barley, peas, seed grass, potatoes, rye, spelt, OSR, dairy cows maize, grass, wheat, sows, dairy cows 155 A4 1997 500 2006 A5 1978 160 75 (upgraded 1997 (upgraded Wind 1990, to 175), (2nd: 2004), photovoltaics, 360) (2nd 2007?) 2007 145 (upgraded 530) (-) (upgraded to 300), 600 300 (upgraded to 360) 2001 (upgraded none 2006) A6 1978 450 A7 1984 200 (1997), (upgraded 2001), 2005 2005 Wind 2000 A8 1988 grass, rye, wheat, maize, 120 dairy cows, cattle Wind 1997 The material in the categories has then been exposed to a preliminary coding (MAXWELL 1996: 79) of reasons for action based on plural rationalities that are more or less bounded (VATN 2005a). The first coding is based on well-informed individualistic cost-benefit calculations. A second coding takes up the notion of costly information and rule enforcement, as it is emphasised in new institutional economics (e.g. NORTH 1990, WILLIAMSON 1985). The third coding relates action to beliefs or concepts and typifications of natural and social phenomena that form a basis for action as enabling institutions (e.g. VATN 2005a) or volitional pragmatism (BROMLEY 2006). A fourth coding is the relating concept of the logic of appropriateness (MARCH, OLSON 1989: 22) where action is based on what is considered as socially appropriate. Finally it is coded for expressive rationality, (HARGREAVES HEAP et al. 1992: 21-23) emphasising action to articulate meaning. The latter three coding concepts put strong emphasis on the role of preference formation for behavioural intentions (BOWLES 2006: 100-01, 200). Farmers´ reasons for engaging in bioenergy utilisation … 7 3 RESULTS The results consist of a preliminary reading of the qualitative material derived from the case studies and a documentation of formal contextual factors. Thus far the diffusion pattern of biogas plants in Germany seems to resemble the stylised Sshaped diffusion curve (see Figure 1) (ROGERS 2003: 273). Yet, it can be identified that adoption rates changed when the support framework of the national electricity feed-in tariff scheme changed. Currently the 2004 feed-in law determines prices renewable electricity fixed for 20 years, which electricity companies have to pay. Basic rates are decreasing with increasing plant size (Table 3) and every subsequent year by 1.5 per cent. Additional premiums are paid since the 2004 feed-in law. The premium for purposely grown biomass is six cent per kWh up to plant sizes of 500kW and four cent per kWh until 5000kW. An additional two cent per kWh are paid, if combined heat and power is used. Finally, two cent per kWh are paid, if a new technology is used, the major being paid for sole fermentation of energy crops. Table 3: Basic payment Payment rates under the German electricity feed-in law Payment rates in ct/kWh Feed-in law from 1990 Feed-in law from 2000 Feed-in law from 2004 Year 1991# 1995# 2000# 2000* 2004 2004 Up to 150 kW 7.08 7.84 7.32 10.23 9.90 11.50 150 to 500 kW 7.08 7.84 7.32 10.23 9.90 9.90 500 to 5 MW 9.21 8.90 8.90 5 MW to 20 MW 8.70 8.40 8.40 Notes: # 80 per cent of average electricity prices for consumers * starting from April 2000 and decreasing by 1 per cent from 2002 onwards (Exchange rate of 1.95583 DM/EURO used throughout) There are further incentives from the national level. As part of a so-called “market incentive programme” soft loans are provided to investors of biogas plants. Furthermore, a premium is paid (initially 45 euro per hectare) for energy cropping on non set-aside land. Set-aside land, in turn, can be used for growing energy crops. Some projects in the past were also designed to be able to receive rural development funds from EU-level. Especially in early years there were further soft loans and grants available mainly from federal states. A “biomass order” was introduced in 2001. It determines for which feedstock and technologies the feed-in law is applicable. Furthermore, plants larger than one MW are only granted planning permission in accordance with federal emission law, whereas plants not 8 Contributed Paper presented at IAMO Forum 2008 greater than 0.5 MW receive privileged planning when located close to farms. Legislation changed from the late 1970s to today. It seems difficult to determine when, under which conditions, which combinations of incentives and disincentives came into effect in terms of uptake of biogas production. Indeed, there may be various reasons for farmers to engage in activities supporting, shaping or constraining the diffusion of biogas utilisation. The reading of the material from the early 1980s suggests that experiences with the oil crises in the 1970s brought alternative energies on the agenda. “Energy autarky” of farm holdings emerged as an aim where energy had to come from resources available directly on the farm. This led to a search for technological options to convert farm resources into energy. Biogas as a technology was seen as advantageous as it is makes use of farm waste. The energy, especially in terms of heat could be used directly on the farm for pig houses and living space. To achieve energy autarky, reliable technology had to be found, for which one had to persistently search and to communicate the intention to set up a biogas plant. After an intensive search a farmer could perceive a certain technology as trustworthy, but then the question arises how to finance that technology. Farmer A1 would not have invested into biogas, if he had not found out that there were federal grants made available. Despite agricultural extension services warning him of potential financial losses, the farmer set up a biogas plant. He, a university and some extension workers tried to make the plant profitable, but did not succeed. As the biogas plant was on a farm and the technology rather unknown, it was easy to receive planning permission. However, when the plant was established more and more rules had to be followed. In the beginning farmer A1 was keen to share his experiences, but later when losses piled up he was increasingly frustrated and finally sold the plant. Energy autarky seems less a reason for the second generation of farmers (A5-7). A major driver was to make use of farm waste (mainly slurry) and to sell electricity, whilst using the heat on the holding and neighbouring buildings. The early feed-in law provided some incentives, but also soft loans did. Generally the farmers emphasised to be keen on doing “new things”. To manoeuvre in legally ill-defined areas was found to be exiting. Producing renewable energy was seen to contribute to wider society. However, achieving planning and operating consent was considered difficult. It was particularly difficult to import organic waste to increase productivity. Extension services were rather seen as a constraint. Farmers of this group, except A6, are based in villages and proactively informed their neighbours, who were generally eagerly interested in the biogas plants. All farmers disliked public administration and regulation, but emphasised the importance of keeping good relations with Farmers´ reasons for engaging in bioenergy utilisation … 9 public servants. Purposely grown biomass was only used later when farmers increased plant sizes. Several construction regulations were held inappropriate and the EU energy crop premium was considered not worthwhile its paperwork and monitoring. Farmers who invested into biogas after the introduction of the 2004 feed-in law (A2-4, A8) emphasised commercial interest in biogas due to low cereal prices and the incentives offered by a well-established feed-in law. All had additional reasons for their action including demand for heat on the holding, better usage of farm waste, choice between investment opportunities, cereal cropping problems due to weeds, diversification, benefiting from renewable energy after having missed out opportunities in wind energy, etc. Most saw biogas as a valuable contributor to climate change mitigation and renewable energy as well as to meet increasing energy demands. However, all worried about increased cereal prices and difficulties to secure biomass, except farmer A3 who uses his entire land to grow biomass. Measures are undertaken to mitigate impacts on neighbours through allocation of maize plots, timing of harvest, routing of transport, etc. Yet, obtaining planning consent was generally not seen difficult, partly due to good collaboration with technology providers and engineers. Still, some suggest lower trust in technology providers as a consequence of a rapidly developing market for biogas technology. All found the EU energy crop premium not worth the efforts. Local banks ensured that soft loans were integrated into the financial planning from the start. The farmer (B1) who only does energy cropping for biogas responded to enquiries of a biogas cooperation to supply biomass and first started to grow maize on set aside land of low productivity. Low cereal prices, opportunities to spread his pig slurry on maize plots and the ease of growing maize encouraged him to expand the maize area including better soils. He is continuing to grow maize, despite increased cereal prices, because several biogas plants in the area are now competing with prices for biomass. 4 DISCUSSION The preliminary reading of the interviews seems to be in line with KHAN (2005) and RAVEN and GREGERSEN (2007) in terms of context dependency of biogas utilisation. Persistent proactivity of farmers in relation to neighbours may have prevented certain problems especially in recent years. In turn, there may have been conflicts with planning authorities, waste regulators and technology providers in the 1990s that in parts were gradually mitigated by new institutions, though also new conflict laden rules where introduced. A further analysis of the interviews should be able to draw connections to the logic of appropriateness (MARCH, 10 Contributed Paper presented at IAMO Forum 2008 OLSON 1989: 22) and the role of social beliefs (BROMLEY 2006). The latter seem to have played a role throughout the diffusion of biogas. However, economic calculus seems to have gained importance in recent years, whereas in the early 1980s it may have overrun by expressive action (HARGREAVES HEAP et al. 1992: 21-23). Although it may be pointed at the importance of institutions, a more thorough analysis would have to include the perspectives of other actors. 5 CONCLUSION Overall, the reading of the qualitative material suggests that diversity of factors drives the diffusion of agricultural biogas. First, this could be due to an institutional context associated with limited degrees of formalisation, especially in early years. Second, farmers were embedded in a diversity of settings and found a diversity of reasons for actions relating to biogas utilisation such as final investment and cropping decisions. Successful plant development seems to be due to proactive measures to receive funding, especially in the first years. However, in many cases, despite increasing commercialisation, the financial sustainability of projects seems to strongly depend on contract arrangements to secure biomass supply and on payments under the feed-in law. REFERENCES BEEDELL, J.D.C., REHMAN, T. (2000). Using social-psychology models to understand farmers’ conservation behaviour. Journal of Rural Studies, 16, 117-127. BMU (2007). Erneuerbare Energien in Zahlen – nationale und internationale Entwicklung. Stand: November 2007 – Internet-Update. Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit, Germany. BMU (2008). Entwicklung der erneuerbaren Energien in Deutschland im Jahr 2007. Stand 12. März 2008. Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit, Germany. BOWLES, S. (2006). Microeconomics: Behaviour, Institutions, and Evolution. Princeton: Princeton University Press. BROMLEY, D. W. (2006). Sufficient reason: volitional pragmatism and the meaning of economic institutions. Princeton: Princeton University Press. Farmers´ reasons for engaging in bioenergy utilisation … 11 FNR (2005). Basisdaten Biogas. Stand März 2005. Gülzow, Fachagentur Nachwachsende Rohstoffe e.V., Germany. FNR (2007). Daten und Fakten zu nachwachsenden Rohstoffen. Gülzow, Fachagentur Nachwachsende Rohstoffe e.V., Germany. FRITSCHE, U.R., DEHOUST, G. (2004). Zukunftsaussichten zur nachhaltigen energetischen Nutzung von Biomasse in Deutschland – Zentrale Ergebnisse eines BMUForschungsberichtes, in: FRICKE, K., KOSAK, G., WALLMANN, R., FISCHER, J., VOGTMANN, H. (eds): EEG und Emissionshandel – Neue Chancen für Biomassenutzung und Abfallwirtschaft. 65. Informationsgespräch des ANS e.V., 6. und 7. Dezember in Braunschweig. Weimar, Schriftenreihe des ANS, Orbit e.V., 157-165. HAGEDORN, K., ARZT, K., PETERS, U. (2002). Institutional Arrangements for Environmental Co-operatives: a Conceptual Framework, in: HAGEDORN, K. (ed): Environmental Cooperation and Institutional Change. Cheltenham: Edward Elgar, 3-25. HARGREAVES HEAP, S., HOLLIS, M., LYONS, B., SUDGEN, R., WEALE, A. (1992). The Theory of Choice. A Critical Guide. Oxford: Blackwell Publishers. HELFFERICH, C. (2004). Die Qualität qualitativer Daten. Manual für die Durchführung qualitativer Interviews. Wiesbaden: VS Verlag. HOLM-MÜLLER, K., BREUER, T. (2006). Potentialkonzepte für Energiepflanzen. Informationen zur Raumentwicklung, 2006(1/2), 15-21. JACOBSSON, S., JOHNSON, A. (2000). The diffusion of renewable energy technology: an analytical framework and key issues for research. Energy Policy, 28, 625-640. KHAN, J. (2005). The importance of local context in the planning of environmental projects: examples from two biogas cases. Local Environment, 10(2), 125-140. LYNNE, G. D., SHONKWILER, J.S., LEANDRO, R. R. (1988). Attitudes and farmer conservation behaviour. American Journal of Agricultural Economics, 70, 12-19. MARCH, J.G., OLSON, J.P. (1989). Rediscovering Institutions. The Organisational Basis of Politics. New York: Free Press. MAXWELL, J.A. (1996). Qualitative Research Design: An interactive Approach. Thousand Oaks et al.: Sage. 12 Contributed Paper presented at IAMO Forum 2008 NEGRO, S.O., HEKKERT, M.P., SMITS, R.E. (2007). Explaining the failure of the Dutch innivation system for biomass digestion – A functional analysis. Energy Policy, 35(2), 925-937. NORTH, D.C. (1990). Institutions, Institutional Change and Economic Performance. New York: Cambridge University Press. RAVEN, R.P.J.M., GREGERSEN, K.H. (2007). Biogas plants in Denmark: successes and setbacks. Renewable and Sustainable Energy Reviews, 11, 116-132. ROGERS, E.M. (2003). Diffusion of Innovations. 5th ed., New York: The Free Press. SHUCKSMITH, M., HERRMANN, V. (2002) Future changes in British agriculture: projecting divergent farm household behaviour. Journal of Agricultural Economics, 53(1), 37-50. SKERRATT, S., DENT, B.J. (1996). The challenge of agri-environmental subsidies: the case of Breadalbane Environmentally Sensitive Area, Scotland. Scottish Geographical Magazine, 112(2), 92-100. TOKE, D. (2002). Wind power in UK and Denmark: Can rational choice help explain different outcomes? Environmental Politics, 11(4), 83-100. WILLIAMSON, O.E. (1985). The Economic Institutions of Capitalism. New York: The Free Press. VATN, A. (2005). Institutions and the Environment. Cheltenham, Edward Elgar Publishing. VATN, A. (2005a). Rationality, institutions and environmental policy. Ecological Economics, 55, 203-217. YIN, R.K. (1994). Case Study Research: Design and Methods. Thousand Oaks et al.: Sage. YOUNG, O. R. (2002). The Institutional Dimensions of Environmental Change – Fit, Interplay, and Scale. Cambridge, Massachusetts: The MIT Press.