Thursday, January 31, 2008

Cellulosic One-Upsmanship

In the course of sifting through the various energy proposals from this year's crop of presidential candidates, I've been somewhat surprised by the reliance several of them have placed on the as-yet unproven technology of cellulosic ethanol. Without taking anything away from the game-changing potential of advanced biofuels--as distinct from the incremental energy and greenhouse gas benefits associated with corn ethanol--the 2007 Energy Bill's four-fold expansion of the existing biofuels mandate, to 36 billion gallons per year by 2022, already looked like a mighty big bet on a still-theoretical source of supply. Suddenly, a figure of 60 billion gallons per year by 2030 is being bandied about as if it only required the application of some off-the-shelf technology and a bit of capital. Until the first wave of industrial-scale cellulosic ethanol facilities has been started up, debugged, and thoroughly analyzed, we should be cautious about which biofuel chickens we count before they have hatched.

To understand just how ambitious these goals are, you need to dissect the new Renewable Fuel Standard. It increases the ultimate US output of conventional biofuels (corn ethanol and vegetable-oil-based biodiesel) to 15 billion gallons per year (BGY) by 2015, compared to the roughly 6.5 BGY actually produced in 2007. That matches consensus assessments of how much corn ethanol the US could produce, based on current agricultural practices and markets, and the maximum amount of ethanol that can be blended into the national gasoline pool without selling significant quantities of E-85. Importantly, this entire segment is based on modern refinements of basic technology that has been understood for ages, using crops that have been staples of American agriculture since colonial times. While many observers argue about the merits of stretching corn ethanol output that far, few suggest it can't be done at some price--including its impact on global and domestic food prices.

By contrast, the Energy Bill's mandated expansion of cellulosic ethanol and other advanced biofuels takes them from essentially zero volume today to a target equal to four times the 2007 output of conventional biofuels, within 15 years. Because this is not a simple extension of existing, proven technology to a new market, no one should regard the achievement of that goal as a slam-dunk. Consider all of the elements that must come together in order for this to happen:
  • Researchers must find efficient, cost-effective and scalable processes for breaking down plant structures that have evolved for millions of years to resist such digestion.
  • These processes must be applied at scales many orders of magnitude greater than in the laboratory, and ultimately at least comparable to a conventional corn ethanol facility, producing 50-100 million GPY.
  • These new facilities must be technically successful, capable of continuous production with high on-stream availability. They must also be commercially viable, capable of earning a profit for their owners under expected market conditions.
  • Although the quantities of biomass to feed these facilities look feasible, this will require farmers shortly to begin planting and harvesting new crops such as switchgrass and Miscanthus, with which most will have had little experience, while navigating the same uncertainties of climate and market that affect other crops.
  • The capacity for gathering, storing and transporting harvested biomass must expand significantly, as must the capacity for shipping ethanol and its co-products to end-markets, increasing the strain on existing road and rail networks.

We're really describing the creation of an entirely new process industry and agricultural sector within a decade or so. If all of the above steps can be mastered within the next few years, then it ought to be feasible to grow this new industry fast enough to produce the targeted 21 billion GPY of biofuel by 2022, assuming its economics (including subsidies) look attractive enough. At the same time, however, it's not hard to imagine scenarios in which one or more of these elements fails to mature as fast as the others, or worse yet, stalls. I don't think we can even realistically assess the odds of complete success until we see the first commercial-scale plant and begin to get a sense for how the various supply networks that must surround it will take shape.

So if our recently-established biofuel target of 21 billion GPY from non-traditional sources is subject to a wide range of uncertainties affecting its ultimate magnitude and timing, how should we regard the idea of tacking on a further doubling of that target by 2030, before the first cellulosic ethanol plant is up and running? For me, that depends on the stakes involved in that bet. If it's a matter of laying out a possible pathway for reducing oil consumption and emissions, with any decisions about it deferred until after we learn from the experience of the initial commercial-scale non-grain ethanol facilities, then it's a useful option. If, however, it becomes the base-case energy supply assumption and a trumping argument against the need to expand other domestic energy sources, then it looks no more prudent than some of the risky lending practices that have landed the economy in its current pickle.

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