Ethanol: The Good, the Bad, the Ugly, the Beautiful 19 comments
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The Good
The 9 billion gallons of ethanol that Americans used last year helped drive down oil prices. For those of us who fuel our vehicles with gasoline, as much as 10 percent of that gasoline is ethanol. The Energy Independence and Security Act of 2007 requires that more biofuel be used every year until we reach 36 billion gallons by 2022.
Reduced oil prices are good. We can go from good to great, if we move past fuel from food and haste to fuels from wood and waste. Although the economics do not yet favor major production, pilot plants are taking wood and paper waste and converting it to fuel. Other cellulosic material is even more promising. Some grasses, energy crops, and hybrid poplar trees promise zero-emission fuel sources. These plants absorb CO2 and sequester it in the soil with their deep root systems. These plants often grow in marginal lands needing little irrigation and no fertilizers and pesticides, standing in sharp contrast to the industrial agriculture that produces much of our fuel.
Cellulosic biofuels are becoming economic reality. Norampac is the largest manufacturer of containerboard in Canada. Next generation ethanol producer TRI is not only producing fuel, its processes allow the plant to produce 20% more paper. Prior to installing the TRI spent-liquor gasification system the mill had no chemical and energy recovery process. With the TRI system, the plant is a zero effluent operation, and more profitable.
A Khosla Ventures portfolio company is Range Fuels which sees fuel potential from timber harvesting residues, corn stover (stalks that remain after the corn has been harvested), sawdust, paper pulp, hog manure, and municipal garbage that can be converted into cellulosic ethanol. In the labs, Range Fuels has successfully converted almost 30 types of biomass into ethanol. While competitors are focused on developing new enzymes to convert cellulose to sugar, Range Fuels’ technology eliminates enzymes which have been an expensive component of cellulosic ethanol production. Range Fuels’ thermo-chemical conversion process uses a two step process to convert the biomass to synthesis gas, and then converts the gas to ethanol.
Range Fuels in Georgia is building the first commercial-scale cellulosic ethanol plant in the United States. Phase 1 of the plant is scheduled to complete construction in 2010 with a production capacity of 20 million gallons a year. The plant will grow to be a 100-million-gallon-per-year cellulosic ethanol plant that will use wood waste from Georgia’s forests as its feedstock.
The Bad
Over one billion people are hungry or starving. Agricultural expert Lester Brown reports, “The grain required to fill an SUV’s 25-gallon tank with ethanol just once will feed one person for a whole year.”
Corn ethanol that is transported over 1,000 miles on a tanker truck, and then delivered as E85 into a flexfuel vehicle that fails to deliver 20 miles per gallon is bad. GM and Ford (F) have pushed flexfuel vehicles that can run on gasoline or E85, which is a blend with as much as 85 percent ethanol. For the 2009 model year, the best rated car running on E85 in the United States was the Chevrolet HHR using a stick-shift, with a United States EPA gasoline mileage rating of 26 miles per gallon, and an E85 rating of only 19 miles per gallon.
In other words, if you passed on using E85 and drove a hybrid with good mileage, you would double miles per gallon and produce far less greenhouse gas emissions than any U.S. flexfuel offering. See Top 10 Low Carbon Footprint Four-Door Sedans for 2009.
The problem is not the idea of flexfuel. You can get a flexfuel vehicle with good mileage in Brazil. The problem is that GM and Ford used their flexfuel strategy as an easy way out, instead of making the tougher choices to truly embrace hybrids and real fuel efficiency. Flexfuel buying credits and ethanol subsidies have created incentives to buy cars that fail to cut emissions.
A new paper - Economic and Environmental Transportation Effects of Large-Scale Ethanol Production and Distribution in the United States - documents that the cost and emissions from transporting ethanol long-distance is much higher than previously thought. Ethanol is transported by tanker truck, not by pipeline, although Brazil will experiment with pipeline transportation.
The Ugly
It’s a tough time to make money with ethanol. Major players, like Verasun, are in bankruptcy. For the industry, stranded assets are being sold for pennies on the dollar. With thin margins, low oil prices, and high perceived risk, it is difficult to get a new plant financed.
Activists worry about oil refiners, such as Valero (VLO), offering to buy ethanol producers such as Verasun. But oil companies can bring needed financing, program management, and blending of next generation biofuels with existing petroleum refined gasoline, diesel, and jet fuel.
Government mandates for more ethanol do not match today’s reality. Subsidies to industrial corn agriculture are not good uses of taxpayer money. Encouraging federal, state, and local governments with their 4 million vehicles to give priority to flexfuel vehicles with lousy mileage is government waste.
Not all government help is misplaced. Range Fuels's large-scale cellulosic ethanol production was helped with an $80 million loan guarantee. The loan guarantee falls under the Section 9003 Biorefinery Assistance Program authorized by the 2008 Farm Bill, which provides loan guarantees for commercial-scale biorefineries and grants for demonstration-scale biorefineries that produce advanced biofuels or any fuel that is not corn- based.
The Beautiful
Beautiful is the transition to electric drive systems and the development of next generation biofuels. Last year, Americans in record numbers road electric light-rail in record numbers. In 2008, Americans drove 100 billion miles less than 2007. Americans also drove 40,000 electric vehicles.
Critics and special interests try to stop the shift to electric vehicles by wrongly stating that if there is coal power used, then there are no benefits. Mitsubishi (MSBHY.PK) estimates that its electric vehicle is 67 percent efficient, in contrast to a 15 percent efficient gasoline vehicle. Efficient electric drive systems lower lifecycle emissions. With the growth of wind, solar, geothermal, and other renewables, lifecycle emissions from electric transportation will continue to fall. For example, my main mode of transportation is electric buses and rail that use hydropower. My backup mode is a Toyota (TM) Prius that I share with my wife.
Long-term we will continue to see the growth of electric drive systems in hybrid cars, plug-in hybrids, battery electric, fuel cell vehicles, light-rail, and high-speed rail. Over decades, the use of internal combustion engines will decrease, but the transition will take decades, especially for long-haul trucks. During these decades we can benefit from next generation biofuels that will replace corn ethanol and biodiesel from food sources.
Shell (RDS.A) has a five-year development agreement with Virent, which takes biomass and converts it to gasoline - biogasoline. Gasoline, after all, is a complex hydrocarbon molecule that can be made from feedstock other than petroleum. Unlike ethanol, biogasoline has the same energy content as gasoline. Unlike cellulosic ethanol alternatives, Virent produces water using a bioforming process, rather than consuming valuable water. Virent has multi-million dollar investments form from Cargill, Honda (HMC) , and several venture capital firms. Biogasoline will be its major initial focus. Its technology can also be used to produce hydrogen, biodiesel, and bio jet fuel.
Sapphire is an exciting new biofuels company backed with over $100 million investment from firms such as ARCH Venture Partners, the Wellcome Trust, Cascade Investment, and Venrock. The biotech firm has already produced 91-octane gasoline that conforms to ASTM certification, made from a breakthrough process that produces crude oil directly from sunlight, CO2 and photosynthetic microorganisms, beginning with algae.
The process is not dependent on food crops or valuable farmland, and is highly water efficient. “It’s hard not to get excited about algae’s potential,” said Paul Dickerson, chief operating officer of the Department of Energy’s Office of Energy Efficiency and Renewable Energy “Its basic requirements are few: CO2, sun, and water. Algae can flourish in non-arable land or in dirty water, and when it does flourish, its potential oil yield per acre is unmatched by any other terrestrial feedstock.”
Scale is a major challenge. Producing a few gallons per day in a lab is not the same as producing 100 million gallons per year at a lower cost than the petroleum alternative. Yet, some of our best minds are optimistic that it will happen in the next few years. We will see fuel from marginal lands, from crops and algae that sequester carbon emissions. The fuel will blend with existing gasoline, diesel, and jet fuel, and run in all engines, not just those with low mileage.
Some think that such a transition is as impossible as an interception with a 100 yard run for a touchdown in a Superbowl. It is exciting when the impossible happens.
Stock position: None.
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This article has 19 comments:
Daisy chained Pebble Bed Reactors are the future for almost ALL fuel needs in America.
Also, how can one talk about the status of ethanol without discussing all the subsidies and regulatory favors it enjoys -- notably the renewable fuels standard and the $1.01 producer tak credit? The only mention that "government help" (of the "not misplaced" variety) gets is, again, in reference to Range Fuels, and then only relating to loan guarantees.
What I cannot figure out is the fact that in l984 I drove an american made car that got between 50 and 60 miles to the gallon on the highway with diesel fuel. While diesel fuel is dirty in terms of omissions, I could never figure out why our wonderfully educated automotive engineers could not develop a small diesel engine which could be clean..and provide high "gas" mileage too...perhaps 99 miles to a gallon. You could use biodiesel fuel for this car. It would beat the pants of anything that is being developed today. I suspect the oil companies beat this to death back in the 80's. What was this American made car, you ask? It was the Ford Escort diesel. A 6-speec manual shift car that got better than 45 mph in the city and nearly 60 on the highway. Maintenance? It needed a tuneup and a timing best change at 100,000 miles. I know that VW is coning out with a new diesel...but you never hear about that. What is wrong with this country's engineers?
clean diesel fuel is available and common in europe, in u.s.a big oil doesn't want to provide it to the market.
i am told over half of new car sales in europe are diesels.
i drove 2 diesels during 1981-1995 and they were both japanese manufacture. problem was, the engines were too heavy & the frames were not designed to carry the weight, so you get cracked frames. also, due to low power output, when going uphill you have to turn off the airconditioning, a minor inconvenience.
> jack
Frank is absolutely correct in highlighting that the potential benefit of biodiesel combined with high mileage technology is already available and a far better solution. What is still needed is capacity and downstream distribution. With several major auto producers introducing new diesel models this will be vastly improved in short order.
treehugger.com/files/2...
They are generally less safe for occupants when hit by a larger car, however. In some European cities (especially Italian ones), the risk to drivers is reduced somewhat by reducing city speeds and by restricting through traffic.
The biodiesel you see in the United States is HEAVILY subsidized, receiving $1.00-$1.10 in tax credits from the federal government plus a topping up of up to another $1.00 per gallon in several states (e.g., Kentucky, Pennsylania).
Even with those subsidies, the U.S. industry has been struggling. In recent months, it has survived mainly by exporting its product to Europe, where thanks to exemption from high fuel taxes biodiesel fetches a price of almost $4.00 per gallon. The European Biodiesel Board claims that some 80% of U.S. biodiesel output is being shipped to the EU.
Starting next Friday (13 March 2009), however, the European Commission will start applying countervailing duties of between $1.20 and $2.00 per gallon on imports of U.S. biodiesel. That is likely to lead to the closing of a large number of U.S. plants.
So, either expect to pay through the nose for biodiesel in the future, or be prepared to ask your fellow taxpayers to subsidize this expensive product heavily. Expect also to see higher prices for the vegetable oils you consume at home, and increasing numbers of food riots in places like Indonesia.
I'm encouraged to see Range mentioned on SA. Few people even know about it. At the end of the day though, biofuels will probably continue to be a hard sell both environmentally and tax treatment-wise.
All of the alternative energy space needs to show a path to a place where government subsidies aren't needed. Otherwise they're just wasting tax dollars in the first place and should be let to wither on the vine.
EtOH was adopted as oxygenated additive in place of MTBE because of concerns over solubility of MTBE in the water supply, and concerns over toxicity.
> jack
Given enough time and energy (cost) inputs, you can make ethanol out of anything organic, but that doesn't make it economically wise. I have no problem with biofuel research, but the subsidies are creating tremendous economic inefficiencies we are paying dearly for.
By the way, cellulose is not "waste." Ruminants (cattle, sheep, goats) have been efficiently converting cellulose into meat, milk, hide and other products for millenia and the last time I looked there were still a billion hungry people in the world. Oh, I forgot, that's irrelevant if fat Americans have to pay more than $3/gal. to fuel up SUVs.
Yes, Jatropha exists, and yields an oil that produces a good biodiesel. And it is not only alleged, it grows well in hot, subtropical regions, and can grow on poor soils. But the poorer the soil, and the less the rainfall, the lower the yields. Naturally, what lands do those who want the quickest return on their investment seek out? The same ones that can grow food crops. Unless the world can implement some kind of universal land-use regulation, assuring that growing Jatropha will not crowd out food crops is going to be pretty difficult.
To be sure, some governments, like India's, have tried to encourage the development of Jatropha on degraded lands. But they have met with mixed success. Physic nuts (the oil-bearing fruit) is poisonous, and as yet cannot be mechanically harvested. That means it is labor intensive. If yields are low (because the tree is growing on marginal lands), the combination of low yields and high labor costs makes it expensive. Moreover, the prospective workers on Jatropha plantations aren't dumb: they know that moving their families to a Jatropha plantation is risky: unlike other oil-yielding plants, the business can't serve both the food and fuel markets. That means that the product depends on just one market: the market for biodiesel fuel, which itself is heavily dependent on the maintenance of government policies.
And, although I admire the Toyota Pious, its driving dynamics are halfway between my Chevette and my Monarch with a broken steering coupling and missing leaf spring... and it drinks more gas than my Civic Si. Progress at $27,000 - I don't think so.
I'm going to ignore the oft-perpetuated inaccuracies about ethanol, because they have been corrected many times before.
As for electric "beautiful," there are materials that mean electric is a problem:
1. 95% of neodymium (motors) comes from China, and they have their own demands that outweight ours.
2. Lithium deposits (batteries) are mostly in Bolivia. They are more likely to sell to Venezuela than us.
When batteries are cheap, reliable, long-lived, and potent for CARS, then they have a chance. I cannot wait.
But until then, can you take your electric ultra-$$$$ bus to the store, the library, my son's school, a haircut, the post office, and then my daughter's school, all in a couple hours? I didn't think so.
First, some yellow dent corn does enter the food market, through products such as sweeteners and corn starch.
Second, yellow dent corn is used for animal feed. The last time I looked, meat, eggs and dairy products were "food".
Third, grain markets are connected. The ethanol lobby likes to point out that the corn that Mexicans use for totillas, white corn, is not the same as the variety used to produce ethanol. True enough. But the markets are linked, through the feed grain market. So when the price of yellow dent corn rose, livestock producers started turning to white corn, driving up the price of that grain as well.
Yes, ethanol production yields a high-protein feed byproduct (30% by weight), distillers grains. But that product is digestible mainly by ruminents. Hogs and poultry can only tolerate a limited amount in their diets. They still need whole grains, like corn.
Fourth, increasing production of corn has been, in part, at the expense of other grains, like wheat, barley and oats. America is now a net importer of oats. As less of those grains are produced, their price rises.
Finally, and the reason that I said that the industry speaks with forked tongue, the ethanol lobby, speaking to people concerned about the effects of ethanol on food prices will utter vigorous denials that the two are connected. Yet, in answer to taxpayers concerned about the subsidy cost, they will claim full credit for driving up the prices of subsidized food and feed commodities, and thus "saving" money on commodity-support payments that would have otherwise been triggered if demand for ethanol feedstock had not driven prices above the target price.