Lay Off the Corn: Ethanol’s Future Will Be Driven by Innovation

"Sowing is not as difficult as reaping." – Johann Wolfgang Von Goethe

Farmers plan to plant more acres of corn this year than in any year since World War II. The boom in American corn fields is largely due to the surging demand for ethanol – the popular biofuel which now accounts for nearly 4% of the nation's fuel consumption.

But corn-based ethanol is not considered to be the long-term solution to the world’s energy problems.

A big reason for this is that corn-based ethanol requires nearly as much energy to produce as it releases when burned. Moreover, corn-based subsidies are currently costing taxpayers as much as $7 billion a year. And there are powerful indications that the increased use of corn for ethanol will lessen the availability of corn for food.

In our February 2007 ChangeWave survey of the alternative energy industry, we asked industry respondents to give us their thinking on ethanol. A total of 178 Alliance members who work for companies involved in the industry participated.

First, we focused on ethanol's impact on the availability of corn for food. We asked industry members:

Some analysts believe an ethanol boom in the U.S. will limit corn's availability for food and feed use, while others think there will be sufficient supply for both. What about yourself? Which of the following views is closest to your own?

Nearly 3-in-5 (58%) industry respondents believe that the rapid growth of the ethanol industry will disrupt the availability of corn for a wide range of foods.

Already, one consequence of the sharp rise in ethanol demand is higher corn prices – which have jumped to $4 per bushel from just around $2 a couple of years ago. High corn prices not only mean more expensive foods, but also hurt livestock farmers who need grains to feed their cattle, swine, and poultry.

New Alternatives

Clearly, ethanol suppliers need to develop viable alternatives to corn as their major feedstock. Leading candidates for the next ethanol are biofuels made from trees, grasses and other sources of high cellulose. That's because scientists say the energy yielded from them could potentially be as much as 50 times greater than corn-based ethanol.

To get a better idea of the direction in which the ethanol industry is headed, we asked industry respondents to tell us which biomass technology they think will see the most growth over the next few years.

Which of the following biomass-based energy-generating processes/ technologies do you think will experience the most growth over the next three to five years?

More members (29%) chose Cellulosic Ethanol than any other process, including second choice Corn/Sugarcane (26%).

Cellulosic ethanol is made from a variety of non-food plant materials – including agricultural wastes (e.g., corn stover and cereal straws) and industrial plant waste (e.g., saw dust and paper pulp) – along with ‘energy crops’ grown specifically for fuel production such as switchgrass.

Now, let's chew on this for a minute. Each of these processes is more technically challenging than producing corn-based ethanol. For example, making ethanol from cellulosic feedstocks currently requires far more complex refining along with more expensive enzymes.

Switch to the Next-Gen

Given this situation, investors obviously need to know which non-food biomass is likely to emerge as the biggest winner. We asked industry members the following:

Which type of nonfood biomass do you think has the best chance of succeeding as an alternative resource for Biofuels (e.g., switchgrass, animal waste, vegetable oils, etc.)?

By a two-to-one margin, industry respondents consider Switchgrass (36%) to be the best candidate to replace corn in the ethanol ‘food-chain.’ Switchgrass is a resilient, high-yield grass native to North America. Most notably it's drought-resistant, friendly to the environment, and has a net energy output 20 times better than corn.

Ethanol suppliers certainly have momentum in their quest to propel the industry to the next generation of high-energy biofuels. One of many recent indicators – a DOE commitment to provide up to $385 million in six bio-refinery projects to produce cellulosic ethanol.

As one Alliance member puts it, “Ethanol projects abound, and new methods to turn switchgrass and other non-food based biomass into biofuels at lower cost will be discovered more quickly than other energy technologies.”

Bottom Line

The primary challenge for the ethanol industry is to develop a cost-effective process that turns switchgrass (or other non-food biomass material) into biofuel.

Of course, my appetite for the sector is only growing – as companies that successfully develop these new technologies are going to reward their investors very well.

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This article summarizes the results of a recent ChangeWave Alliance survey. The Alliance is a research network of 10,000 business, technology and medical professionals who spend their everyday lives working on the front line of technological change. For more info on the ChangeWave Alliance, or if you are interested in joining, please click here.

Comments

[SgtSally:]

Corn based ethanol is a tragic misstep on the path to American energy independence. The 4% of the nation's fuel consumption could have been achieved with mediocre attempts at fuel economy standard improvements, automobile maintenance improvements, and driving habit changes - without the $7 BILLION price tag.
Externalities such as the thousands of diesel smoke spewing tractors that will take to the fields this spring, soil erosion as marginal acreages are put under the plow, rises in food costs, and the highly polluting nature of all these ethanol plants are not even factored in. All in all, ethanol likely costs > $10.00 per gallon.

2007 May 02 11:56 AM

[jbs:]

Your country is spending far too much on an unsustainable initiative. What the US should really be doing is buying ethanol from Brazil. It costs less and is more efficiently produced because it is derived from sugar cane.

I think the US is making a huge mistake by not investing more money in truly renewable resources and instead squandering taxpayer money on corn ethanol. Sooner or later they will realize that it is unsustainable, and at that point more money will be doled out to protect the corn farmers and refiners who will have become dependent on corn-based ethanol. More subsidies will be needed as a direct result of the current round of subsidies.

2007 May 02 02:15 PM

[adksunbeam:]

I agree completely with the comments from king00000d and Jordan Smith, although I would see ethanol purchases from Brazil as only a stop gap measure while alternative energy sources are developed and come on line. Improved fuel economy to say an average of 45mpg would eliminate the need to import oil at all, according the Senator Bill Bradly from New Jersey. That would be another step in the right direction. These massive subsidies that are being directed towards oil and ethanol production would be far better spent if directed towards the development of renewable energy sources that do not have the high processing expense of ethanol, regardless of the source (corn, cane, switchgrass, animal waste, etc.). Solar in particular is available everywhere. Wind and water are more limited. The technology needs to be improved on solar to increase the efficiency in areas that do no receive full sun day after day. There really is no reason every building can not produce at least some of its own energy requirements. These oil and ethanol subsidies should also be channeled to the building owners to help offset the cost of installing solar energy panels. Why can't our leaders see that ethanol prduction is not reducing energy use or waste in the least. It is just trading one problem (oil) for another.

2007 May 03 07:35 AM

[Marvin Pete...:]

There are so many things that could be done to reduce need for and use of transportation fuels. For example remove traffic bottlenecks by improving and/or building additional roads, provide tax or other incentives for folks to move nearer their work or encourage other lifestyle adjustments to significantly reduce the need for and consumption of gasoline and encourage real life style adjustments that result in energy savings.

Corn ethanol is not a technological/economic solution to supply transportation fuel. Significant improvement in fuel economy can only be achieved with smaller lighter less safe cars unless diesel powered vehicles can be made available. The many different grades of gasoline required in various states and cities only increase cost of production and distribution.

2007 May 03 11:06 PM