Biofuels Market Breakthrough Opens Way to Cellulosic Fuels Revolution

(by Patrick Mazza) -For biofuels these are breakthrough times. Driven by volatile energy markets and new public policy initiatives, biofuels
production is booming and production capacity is rapidly growing.
For the first time since petroleum emerged as the overwhelmingly
dominant vehicle fuel around a century ago, oil’s near monopoly on
the market is breaking while farmers and rural communities are
discovering a new source of prosperity – all good news.

At the same time a biofuels backlash is mounting. Record high corn
prices are raising worries about food supplies. A new energy demand
for agricultural products is bringing to the fore long-time concerns
about soil erosion as well as use of chemicals, fertilizers, water
and genetically modified crops. Fears that oil crop demand will
decimate tropical forests are also appearing. An old debate over
whether biofuels really reduce energy use and global warming
emissions continues. Some biofuels critics are even calling for
outright opposition to biofuels growth.

Yet a halt to rapid biofuels industry ramp-up is unlikely for
reasons given by one of the industry’s harshest critics, Lester
Brown of the Earth Policy Institute. “Investment in crop-based fuel
production, once dependent on government subsidies, is now driven by
the price of oil,” Brown writes. “With the current price of ethanol
double its cost of production, the conversion of agricultural
commodities into fuel for cars has become hugely profitable. In the
United States, this means that investment in fuel distilleries is
controlled by the market, not by the government.”

Evidence for this comes from the acceleration of biofuels capacity
growth far in excess of the federal Renewable Fuels Standard for 7.5 
billion gallons per year (BGY) by 2012. A.G. Edwards projects U.S.
ethanol capacity will reach 13-14 BGY by 2009.

A combination of high corn prices and not quite high enough oil
prices might result in some slowing of growth. Even now there is
talk of a slowdown in ethanol plant construction. But in a world
where petroleum demand is accelerating while new supplies are
becoming increasingly difficult and expensive to recover, the
long-term trend seems clear. The question is not whether there will
be significantly larger biofuels production. That combine has left
the barn. The significant issues now circle around how the industry
will grow – how much it will contribute to global environmental
sustainability as well as the economic sustainability of rural
communities. To these issues biofuels advocates and critics alike
must now turn, to enacting the public policies and devoting the
resources needed to make this new fuels market pay for both the
planet and farmers.

The fact that biofuels are securing a place of their own in the
market provides the opportunity to put a growing biofuels industry
on a sustainable basis. Industry observers are in general consensus
that corn-starch ethanol, well over 90 percent of all biofuels
produced in the U.S. today, will reach its production limit
somewhere in the area of 15 BGY, with the highest projections just a
few billion gallons above. Some analysts place ultimate corn
capacity significantly below these levels. But at some point,
interactions with food and animal feed markets will make corn
economically impractical as a feedstock.

Beyond that point, it is generally agreed, biofuels growth will
depend on new feedstocks of cellulose and hemicellulose, of which
most of the plant world is constituted. The most important way corn
ethanol provides a transition to the environmentally preferable
cellulosic ethanol is by creating market growth and certainty. On
this foundation are emerging both the powerful market drivers and
the strong political constituencies required to move ethanol to the
next stage.

Cellulosic biofuels offer tremendous environmental and economic
sustainability advantages. They can be produced from organic
residues that are now often a waste management and pollution
problem, though care must be taken to leave sufficient residues to
retain soil fertility. Another source is perennial grasses that
dramatically reduce soil erosion, and chemical and water use while
providing wildlife habitat. This opens serious opportunities to
restore native grassland ecosystems. A recent University of
Minnesota study reported in Science finds that high-diversity
grasslands can produce biofuels in ways that actually remove carbon
from the atmosphere, by sequestering carbon in soils and roots while
yielding up to 238 percent more energy than monoculture

The biofuels world is starting the transition to cellulose. Emerging
cellulosic ethanol technologies are coming on two tracks. In one,
biological processes such as enzymatic digestion break the tough
molecular bonds of plant matter into fermentable sugars. The other
uses heat to convert cellulose into gas from which it can be
transformed into a number of fuel products including ethanol,
synthetic gasoline and renewable diesel. Cellulosic feedstocks are
much more abundant and cheaper than grains, but processing
technologies are still more expensive.

While cellulosic ethanol costs have dropped from $5.66 a gallon in
2001 to $2.26 in 2005, according to the U.S. Department of Energy,
conventional ethanol production costs range around one-third to one-
half less. Public support will be needed to develop both cellulosic
technologies and markets. One proposal by the farmer-led 25x’25 
Coalition proposes $7.5 billion in new federal funding over the next
five years to research, develop and demonstrate cellulosic
technologies and build new markets. 25x’25, which aims to produce
25% of U.S. energy from farm-based sources by 2025, also proposes
$14 billion over five years to build up sustainable bioenergy
crops. These proposed budgets total less than one month’s U.S. oil
import bill, and would pay many times over in improved energy
security and rural economic revival, not to mention reduced

Biofuels are only one piece of an agenda to reduce petroleum use and
pollution in transportation. Other priorities include more
efficient vehicles with an average U.S. new car standard of 40 mpg
by 2015, as well as increased use of fully electric and plug-in
hybrid vehicles fueled with renewable energy. More compact land use
patterns with much improved walkability and improved transit service
are also a requisite. Biofuels can make an important contribution
to this agenda, particularly if we enact the policies and devote the
resources needed to accelerate the commercialization of cellulosic


Patrick Mazza is Research Director for href=”” target=”new”>Climate
, This is the first of a series of articles
that explore ways to build a sustainable biofuels industry. Please
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