On Cellulosic Ethanol, Hope Still Outpacing Reality
Posted December 11, 2018
As debates continue over the Renewable Fuel Standard (RFS) and its ethanol mandates, let’s remember that when the RFS was enacted more than a decade ago it was supposed to jumpstart a commercially viable cellulosic ethanol industry – ethanol made from the leaves, stems and other fibrous parts of a plant.
This has not happened. Far from it. Despite increased mandates under the RFS for cellulosic ethanol, those mandates have dwarfed actual production. The result is a costly proposition for American consumers and an object lesson on what can happen when government tries to use policy to favor a certain technology. Let’s explore the issue.
EPA mandated that 311 million gallons of cellulosic biofuels be blended into the U.S. fuel supply in 2017. Actual production was just 10 million gallons. Still, when EPA revised its volume requirements in June, the cellulosic mandate for 2018 was lowered only slightly to 288 million gallons, and the 2019 mandate increased significantly to 381 million gallons. EPA may believe landfill biogas, which the agency reclassified as a cellulosic fuel in 2014, will build overall cellulosic volume. But landfill gas isn’t the technology breakthrough envisioned when the RFS was enacted. The fact is cellulosic fuel production from plant waste has significantly fallen short of original RFS targets.
While EPA data through the first three quarters of 2018 showed cellulosic ethanol production increased by 35 percent over the same period in 2017, it still was only 0.0025 percent of the 2018 mandate. The fact is EPA’s cellulosic mandates continue to be based on hopes, not reality, despite considerable investments in the technology.
The Biotechnology Innovation Organization (BIO) reports nearly $9 billion was spent on cellulosic ethanol production between 2004 and 2015, and this does not include public costs for additional incentives and tax credits. Although there have been five commercial startups, several plants have been shuttered. Among the four commercial-scale projects that were celebrated in 2014, only two remain: DowDuPont in Nevada, Iowa, and POET Biorefining in Emmetsburg, Iowa. Only POET’s plant is operating close to capacity, and DowDuPont has been trying without success to find a buyer for its plant.
What has gone wrong with cellulosic ethanol? Five fundamental problems:
- There wasn’t as much biomass feedstock as originally estimated, and the costs and challenges to collect, transport and store it were higher than expected;
- Moving fibers and sludge through a facility at industrial scale and extracting energy from it reliably and at scale proved difficult and required expensive pre-processing;
- Fundamentally, for the foreseeable future, cellulosic ethanol will be at a disadvantage to conventional corn ethanol and now must also compete for space that is limited by the ethanol blend wall;
- Ethanol’s overall market potential was limited by consumer preferences and concerns about potential harm to automobile, motorcycle, all-terrain vehicle, boat and outdoor power equipment engines that were not designed to use gasoline containing more than 10 percent ethanol; and,
- Regulatory uncertainty deterred investments that BIO estimated at more than $22 billion, which could have fostered the technology.
Some problems can be solved by throwing money at them, but that generally is not so when it comes to generating technology breakthroughs and promoting their spread. The U.S. energy revolution is a great example. Although some fundamental research was funded by the Energy Department, the critical mass of experimentation and market activity leading to breakthroughs occurred when natural gas prices spiked from around $3.40 per million btu (mmBtu) in 2002 to nearly $9.00 per mmBtu by 2005, and the Barnett shale in Texas began to take off.
Tight oil production using hydraulic fracturing came later and especially as oil prices hovered around $100 per barrel from 2011 to 2014. Of course, this same price environment spurred biofuel investments, but surging domestic energy production largely accomplished the original intent of the RFS to reduce U.S. oil imports – seen in the fact U.S. petroleum net imports in September were near their lowest levels in more than 50 years.
So why do unrealistic cellulosic ethanol mandates persist? Certainly, politics plays a role. So does hope – the aspirational goal for a renewable energy source that could deliver environmental benefits under the right circumstances.
Proponents of cellulosic ethanol seek policies that monetarily reward the environmental performance of cellulosic biofuels (relative to grain-based fuels and gasoline). However, even the staunchest proponents generally acknowledge environmental benefits are not guaranteed and instead hinge on which crops are cultivated, how they are managed, and where they are located.
The bottom line is that cellulosic ethanol has made progress but continually fallen short of expectations and struggled even to compete against ethanol made conventionally from corn. In fact, POET Biorefining’s cellulosic plant depends on being located next to a conventional corn-based ethanol plant and the use of leftover lignin and biodigested methane from the cellulosic process as a fuel source. So, the niches where cellulosic plants can be viable appear limited, unless and until further breakthroughs are made.
In the meantime, most cellulosic ethanol production basically has depended on loan guarantees (for which taxpayers ultimately become responsible) and generous compensation for each gallon produced. It’s a relatively expensive solution in search of a problem that domestic oil production, technology, and global market competition already appear to have solved.
About The Author
Dr. R. Dean Foreman is API’s chief economist, specializing in energy and global business. With a Ph.D. in economics from the University of Florida, he came to API from Saudi Aramco Strategy & Market Analysis in Dhahran, where he managed short-term market monitoring and the long-term oil demand outlook. Foreman has more than 20 years of industry experience in corporate strategic planning, forecasting, finance / risk management and regulatory policy at ExxonMobil, Talisman Energy and Sasol North America.
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