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March 2007

Cellulosic ethanol boosters tout benefits

Corn stalks, rice straw, wood chips – many materials often regarded as wastes – are all possible sources for the Holy Grail of renewable energy: cellulosic ethanol.

Proponents of cellulosic ethanol promise that the biofuel would greatly increase the volume of ethanol that could be produced in the United States, decreasing the demand for oil from foreign countries and reducing greenhouse gas emissions as well.

The boom in the construction of corn-based ethanol plants over the last few years has pushed corn prices higher, over $4 a bushel this winter, boosting the allure of cellulosic ethanol, said Matt Drinkwater, a London-based analyst at New Energy Finance Ltd., a specialist provider of information and research for investors in renewable energy.

"Cellulosic ethanol would enable you to use other feedstocks that aren't part of the food chain," Drinkwater said. Because of the high cost of corn, now pushing the price of tortillas up by 400 percent in some instances, protestors have hit the streets in Mexico. "You wouldn't have this conflict" with the production of cellulosic ethanol, he said.

Ethanol production in 2006 reached a record high of an estimated 4.9 billion gallons, according to the Renewable Fuels Association. The Washington DC-based trade group reports that there are currently 111 biorefineries in operation in 19 states with the capacity to produce more than 5.4 billion gallons annually. Another 78 biorefineries are under construction and 7 are expanding to add another 6 billion gallons.

While the production of corn-based ethanol is expanding, cellulosic ethanol has yet to be commercialized. Drinkwater said the sugars in cellulosic ethanol are more complex and harder to break down. "There is a lot of research and a lot of money being spent on engineering these metabolic pathways in the microbes," Drinkwater said.


Iogen Corp., based in Ottawa, Canada, is working on technology to produce cellulosic ethanol. The company reports that public and private investment in Iogen has totaled approximately $130 million over the past 25 years. It has built and operates a demonstration-scale facility to produce cellulosic ethanol. The company is currently in the process of looking for locations to build the world's first commercial prototype.

In the long-term, Iogen wants to commercialize its cellulose ethanol process by licensing its technology through turnkey plant construction partnerships. License fees and the supply of enzymes to the licensees' plants will then generate income for Iogen.

New York-based Goldman Sachs & Co. invested $30 million in Iogen's renewable cellulosic ethanol technology last year, giving it a minority stake in privately-held Iogen, which said the funds would be used to accelerate commercialization.

Iogen produces a million gallons annually of cellulosic ethanol from wheat, oat and barley straw at its facility in Canada, according to estimates by the Renewable Fuel Association. The trade group also reports that there are several existing plants in the United States that are engaged in research in conjunction with the United States Department of Energy.

"Nobody has yet got it to a level where you can get enough ethanol at a high enough concentration that it is going to be economical to produce it on a commercial basis," Drinkwater said. When then will cellulosic ethanol be ready for the commercial marketplace? "People often talk about 2012 and it could be 2012. It could be sooner and it could be later. It really depends on what happens in the labs," Drinkwater said.

Politicians, meanwhile, are intervening to boost the prospects.

"It's in our vital interest to diversify America's energy supply; the way forward is through technology. We must continue investing in new methods of producing ethanol, using everything from wood chips to grasses, to agriculture wastes," President George W. Bush said during his nationally televised State of the Union Address in January.

"We must increase the supply of alternative fuels, by setting a mandatory fuels standard to require 35 billion gallons of renewable and alternative fuels in 2017, and that is nearly 5 times the current target," President Bush told legislators.

The President's call for an increase in alternative fuels during the address will increase demands for alternative fuels, such as cellulosic ethanol, said Elizabeth Marshall, a senior economist at the World Resources Institute, an environmental think tank in Washington DC. But she said the President's call "may open the door for such environmental dead-ends as liquid fuel derived from coal, which over its life cycle produces roughly twice as many greenhouse gas emissions as gasoline."

Therefore the details of the proposal are critical, Marshall said. "It will be important to implement the new standard in a way that specifically encourages sustainable, and renewable, fuels, perhaps by setting aside a portion of the standard that can only be met through cellulosic feedstocks and providing additional incentives for the use of feedstocks that have been produced using sustainable agricultural practices."

California Governor Arnold Schwarzenegger's call during his State of the State Address in January for the state's petroleum refiners to cut emissions of greenhouse gases by 10 percent by 2020 may also help the prospects of cellulosic ethanol, Marshall said.

"Providing incentives for alternative fuel use that are tied to the environmental performance of the fuel, such as the low carbon fuel standard proposed in California is a great way to integrate environmental considerations into our efforts," Marshall said.

"If we hope to maximize both environmental and energy security benefits in the effort to extricate ourselves from our addiction to oil, we are going to need more of those types of creative and flexible policy ideas. Many people are watching California closely to see how they implement that standard and what we can learn from their process."

Not everyone thinks the government should be in the business of picking winners and losers in the race for renewable fuels, however. Jerry Taylor, a senior fellow at the Cato Institute, a public policy think tank in Washington DC, said the government has a history of botching energy policy decisions with taxpayer dollars.

"Politicians are rewarded by embracing politically popular programs, not necessarily economically viable programs or promising programs," Taylor said.

"Private investors don't have to care about politics. All they have to care about is making a buck. They have every incentive to make the shrewdest choices."

Taylor said the costs for producing cellulosic ethanol are extravagant. He noted that according to the Energy Information Administration, the statistical arm of the United States Department of Energy, the capital costs associated with building a cellulosic plant are about five times the capital costs of associated with building a similar corn ethanol plant.

Taylor said, quoting the United States Department of Agriculture, that the capital costs of building a corn ethanol plant are about a $1.50 a gallon, before feedstock costs. Therefore, if the capital costs of cellulosic ethanol are 5 times a $1.50 per gallon, using cellulosic ethanol would cost $7.50 a gallon, before feedstock costs.

"The costs of cellulosic ethanol are so high at the moment it is hard to imagine a scenario where they come down into a competitive arena with gasoline, near or even mid term. But then again it is impossible to foresee the process in technology," Taylor said.

"Just because something is new on the horizon doesn't mean that its costs are going to collapse in the near term with just a little research and development. We've been spending a lot of money on a lot of things for a long time and it hasn't changed cost structures. So, it's unclear whether cellulosic ethanol has a lot of promise."


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