Monday, March 21, 2011

Carbon-Neutral Gasoline

I see that Google's venture capital fund is investing in a startup company that would produce hydrocarbon fuels from cellulosic plant matter, with the added twist of sequestering carbon in soil. This is another signpost of the growing interest in non-alcohol biofuels, often referred to as "drop-in" fuels, for both oil replacement and climate mitigation. With cellulosic ethanol developers having mainly disappointed for the last several years, and with so much current policy focus on electric vehicles and their infrastructure, I find it reassuring that there are smart people out there working on alternative fuels that fit today's cars, with today's infrastructure. That's important not just for the obvious reasons, but because the end result of energy policy must create successful business models, not just neat technology.

I haven't delved deeply enough into the technology of CoolPlanetBioFuels to form an opinion about its potential, though I do have some questions about how their front-end "thermal/mechanical processor", which will apparently be produced in 1-million gallon-per-year modules, would mesh with the catalytic fuel production processes needed to turn its output into consumer-ready fuels. Those processes normally operate at scales 100 times larger than CoolPlanet's processor, and when it comes to the efficiency of industrial chemistry, smaller is rarely better. However, if their technology works as advertised, the company's pursuit of the mainstream fuel market looks like a smart business decision.

A few years ago, the main buzz in alternative fuels concerned the production of ethanol from cellulose, and companies large and small were pouring money and resources into different ways to do this, as were governments. That's still happening, despite many of the companies involved missing their early production targets so badly that the Environmental Protection Agency twice had to revise its annual Renewable Fuel Standard (RFS) mandate to compensate for the shortfalls. However, the bigger worry about cellulosic ethanol might not be its production, though that is quite challenging enough, but its ultimate market. That's because corn ethanol has effectively filled up the easiest outlet, consisting of the 10% of a gallon of ordinary gasoline that ethanol can occupy without potentially compromising the fuel systems of cars not designed as flexible fuel vehicles, as well as refueling infrastructure that appears not to be up to handling more ethanol. The EPA has approved a 15% blend, but it faces both litigation and significant practical constraints.

Then there's E85, the 85% ethanol/15% gasoline blend that was expected to provide all the market headroom that ethanol producers would need, when the RFS goals were enacted in 2007. Yet despite generous tax incentives for E85 station conversions and a price that currently averages 53¢ per gallon less than regular unleaded gasoline on a volumetric basis--though still about 50¢/gal. more on an equivalent energy basis-- E85 remains something of a dud, even in the heart of corn country. E85 sales set a record last year in Iowa, but the 9 million gallons sold through 138 outlets there accounted for just 0.7% of the gasoline sold in the state in 2010.

If you want to make money selling motor fuel--or as in the case of CoolPlanet making the hardware for making fuels--then you must come to grips with the commodity nature of its markets. After water, motor fuels are probably the world's largest commodity business. That means that volume, rather than high margins, is the main driver of revenue and profits. The major oil companies struggled with this for decades, pursuing the last penny a gallon of margin by means of additives and advertising. Many of them have left this segment entirely to franchisees, because it's typically not profitable enough to compete with their other investment opportunities. Niche markets can be attractive if they offer unusually high margins, such as those available in the 200 million gallon-per-year aviation gasoline business, which supports just a few players. However, it's not obvious that ethanol and E85 fall into that category. So if you want to develop your business based on its growth potential, and your technology gives you a choice between selling into an at least temporarily saturated ethanol market or the much larger market for fuels that don't require special infrastructure or dedicated fleets, opting for the latter looks like a no-brainer.

The extra angle CoolPlanet offers comes in the form of its sold carbon byproduct called "biochar". This is sometimes referred to as "terra preta", which was a pre-Columbian charcoal-based fertilizer used in South America. The idea is that by returning this product to the soil, rather than allowing the carbon of the biomass to decay into CO2 and enter the atmosphere, the entire process can be made carbon neutral or even carbon negative, sequestering as much or more carbon as the liquid fuels produced will emit when burned. Terra preta is something of a hot topic lately, though the logic of burying solid carbon in one location at the same time that others are mining solid carbon--a.k.a. coal--from the earth elsewhere somewhat escapes me. Nor would the gasoline produced from CoolPlanet's process be any more carbon neutral in effect than conventional gasoline produced by a company that scrupulously bought matching emissions offsets for its products, which could currently be had for a cost of around 9¢ per gal. via an organization like

It's hard to assess the value of the climate-friendly aspects of CoolPlanet's technology in the US, given the uncertainties about pending EPA greenhouse gas regulations and Congressional legislation. However, the attractiveness of a renewable energy technology that unlike wind, solar and geothermal power could actually displace oil on a barrel-for-barrel basis, and that isn't subject to ethanol's limitations and drawbacks, is understandable. All that remains is for CoolPlanet to demonstrate that their device really works and that they can bring it to market at a price that allows the fuels it would produce to compete with commodity fuels from petroleum. That would be big news, indeed.

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