The Difficult Bullish Case For Cellulosic Biofuel

Biofuel producers have their fingers crossed on several key Washington policy decisions. They may be holding their fingers for some time.

The news from the halls of government wasn’t encouraging on Wednesday. A bill to extend the expired biodiesel tax credit failed in the Senate, a sign that renewing the ethanol credit later this year could also be politically sticky.

The EPA meanwhile balked on a measure to raise the blending cap for ethanol. A decision had been expected in June and now appears more likely by late summer, at the earliest.

About 50 cellulosic ethanol pilot plants operate in the U.S. Several hundred demonstration plants around the world await funding

The uncertainty from these delayed decisions is likely to keep the industry in financial limbo – just as it was hoping for something better. Since the depths of the recession early last year, financing for new plants has been hard to find. Money isn’t likely to flow freely any time soon.

Things could be so different. Cellulosic ethanol is finally coming of age. Technological kinks appear to be working themselves out, and pilot projects are ready to pass the baton to demonstration ones.

As many as several hundred second-generation cellulosic ethanol plants await funding and the certainty of government decisions could help them lock in money.

There is good reason to think they should move ahead, says Poul Ruben Andersen, global marketing director for Novozymes’ bioenergy business. Four cellulosic demonstration plants are in operation (two in the United States and two in Europe) and the results are favorable.

“It is still early days,” says Andersen. But “this makes us confident.” In the U.S., Iogen and Verenium operate facilities, while in Europe Inbicon and Abengoa are demonstrating production. The plants are similar size, each about 1.5 million gallons.

Just as important, the industry believes second-generation costs are coming down. Cellulosic ethanol is more expensive than corn ethanol, which sells at about $1.60 a gallon. Large-scale production should bring it to below $2, or under the comparable price of gasoline.

POET, the largest producer of corn ethanol, says its cellulosic pilot plant in South Dakota (one of about 50 industry-wide in the U.S.) is successful enough that production can move to the demonstration phase. It hopes to begin construction this summer in Iowa. The 25-million-gallon plant will use corncobs and discarded plant material from grain harvesting.

“We will continue to tweak this process and improve it,” says CEO Jeff Broin. For instance, the company is installing a $2 million pretreatment system to better simulate conditions at the demonstration facility It also recently discovered that a second anaerobic digester is more effective at producing power for the plant than a separate boiler.

Yet this next generation of plants requires government certainty before it can take root. A decision on tax credits is one necessary component. Investment credits, loan guarantees and more aggressive production targets also are critical, according to a report released this week by the Union of Concerned Scientists.

At the top of the list is the decision over blending limits. Carmakers worry an increase in the present 10 percent ethanol-gasoline limit could harm engines and catalytic converters. Industry executives hope for 15 percent or more.

At 20 or 22 percent, investors will be upbeat enough to begin funneling money into new demonstration plants, says Andersen. “That would pave the way.”

It also may get production back on track. The EPA had hoped for 100 million gallons of cellulosic ethanol this year, but scaled back the goal to 6.5 million as the realities of the industry became clear. Now it appears the 1 billion gallon mark won’t be hit until 2017, well behind schedule.

Once again, it doesn’t have to be this way. The National Academy of Sciences estimates enough raw material is available to produce 32 billion gallons of cellulosic ethanol, or double the government’s target for 2022. The academy says 400 million tons of biomass can be found each year in the United States from agricultural discards, fuel crops, forest residues and solid wastes.

Unfortunately, a bull-run in cellulosic ethanol doesn’t appear likely in the short term. Analysts continue to expect the technology to get to scale in 2012. At the present pace, this may not be the case.

That suggests industry fingers had better remain crossed.

The Case Against Corn Based Ethanol Keeps Building

The case for corn-based ethanol keeps getting murkier.

The Obama Administration tried to stake out a middle ground last month when the EPA softened its threshold for acceptable biofuel. Instead of looking at the indirect impact of growing corn ethanol – i.e. the destruction of forests elsewhere in the world to prepare land for agriculture – the EPA approved the use of ethanol from modern, gas-fired refineries.

However, the evidence against this deliberate caving to the farm lobby keeps building.

This week, an analysis from Purdue University reinforced the EPA’s original stance: that corn-based ethanol is unlikely to reduce global greenhouse gases.

The university looked at ecological evidence and commodity trading data to reach its conclusion. It found that substituting ethanol for gasoline would double greenhouse gas emissions by changing land use in 18 regions of the world.

Chloregy released a second comprehensive analysis that points to ethanol’s failings. It noted that the price for corn rose 105 percent in the past five years aided by a 54-cent-a-gallon tariff on ethanol imported from Brazil, the other big biofuel making country. The tariff shields ethanol from competition, since Brazilian sugar-cane ethanol can be made for half the price of corn.

The high prices give added incentive to farmers around the world to clear land and plant corn. Adding to the ecological is that corn requires large amounts of nitrogen-base fertilizer. The consequence is an increase in the release of nitrous oxide, a more damaging greenhouse gas than CO2.

Presently, more than a third of the nation’s corn harvest goes to making ethanol. This should rise to 50 percent in five years, says the study, released on Thursday.

In a perfect world, this unsustainable trend should be enough to lead the Obama Administration to rethink its policy, the study argues. Unfortunately, the farm lobby won’t permit it. Instead of turning the focus to more ecologically sound second-generation cellulosic ethanol, the corn-based lobby will fight. Let’s hope market forces help turn the tables in the next few years as cellulosic refineries get up and running.

Biofuels And Liquid Coal Will Not Wean The US Off Oil

A massive biofuels development effort costing billions of dollars and requiring the erection of 400 refining plants won’t wean the United States off its addiction to gasoline.

That is the conclusion of a National Academy of Sciences study finished earlier the year and presented at Stanford University late Wednesday. The study, which examined the growth of the biofuels and liquid-coal industries over the next 25 years, said at best they could supply a quarter of the country’s transportation needs by 2035.

Biofuels and liquid coal could produce a quarter of the nations transportation fuels, says Michael Ramage

Biofuels and liquid coal could produce a quarter of the nation's transportation fuels, says Michael Ramage

By that time, the nation would be producing 2 to 3 million barrels of bio- and liquid-coal fuels a day. The country presently consumes 12 million barrels of oil a day for transportation.

“It may not sounds like a lot, but it is a lot,” said Michael Ramage, a retired ExxonMobile executive and chair of the committee producing the report. But “biomass is no panacea,” adds fellow committee member James Sweeney, director of the Precourt Institute for Energy Efficiency at Stanford.

The study’s sobering message comes as something of a surprise. Earlier examinations of the biofuels industry projected the supply of raw biomass, from which the fuel is fermented, to be roughly twice as large as the National Academy of Science’s estimate. The new work also anticipates much higher costs than previously expected.

Perhaps more than anything, the report highlights the enormity of task ahead of the nation as it remakes the carbon economy. Its conclusions add evidence to the belief that substantial efforts on many parallel technologies will be necessary to promote renewable fuel and combat global warming.

It also suggests that the transportation market place in the U.S. will get substantially more complex – with competing technologies and delivery infrastructures – leaving behind the “quaint” old days of a single gasoline-driven distribution network.

The study found that by 2035, biofuels still will be an expensive option – roughly equivalent to a $100 a barrel oil. Oil is selling at $68 a barrel or so today.

But the fuels would – assuming a project 30 percent improvement in the efficiency of the internal combustion engine – reduce CO2 emissions and cut America’s demand for imported oil in half.

Despite its reservations, the study ignores one potential wildcard. It does not consider the possibility that biofuel can be economically and efficiently developed from algae, which some scientists say is the nation’s best hope.

Algae Biofuel Still About A Decade Away From Competing With Gasoline

Biofuel from algae has several key advantages over ethanol typically made from corn or another feedstock. Growing it doesn’t require the use of agricultural land or consume as much water as a field of corn or sugar cane.

But more importantly, it has the potential to return 3 times the energy needed to produce it. Compare that with ethanol’s return of 1.3 times. (Gasoline made from petroleum is a net consumer of energy, returning only eight-tenths of the energy needed to extract and refine it.)

The marine agriculture necessary to grow algae in commercial volumes is still evolving

The marine agriculture necessary to grow algae in commercial volumes is still evolving

These benefits are behind the renewal of interest in algae that has taken place over the past five years. But the hopes of bringing algae biofuel to the market soon may have to wait.

Another three to five years will be needed to master the marine agricultural techniques required to grow algae in the volumes and concentrations necessary to make harvesting biofuel feasible. And it will be seven to 10 years before the fuel is plentiful enough to be a serious substitute for gasoline.

These are the predictions of John Travers, chief executive of AER Limited, an Irish maker of an enzyme technology used to convert raw algae into sugar, protein and oil.

Travers says the main hurdle is in learning the nuances of algae cultivation. Algae require the right amount of sunlight, nutrients and growing conditions. If the organisms grow too quickly, they use up all their food.

“People have been growing corn for a long period of time,” he says. “Marine agricultural knowledge is still evolving.”

Also evolving is the science necessary for converting algae to fuel. During a large-scale August test in a 100-liter container, AER’s enzymes were able to convert algae into sugar, protein and oil with some concentrations from 50 to 80 percent.

“We are ready to go to market next year,” says Travers. Let’s hope some of the growers come along at an equally fast pace.

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