The ‘holy grail’ of biofuels now in sight

As of right now, “we’re not on track” to produce 1 billion gallons of biofuel annually by 2013, says Thomas Foust, biomass technology manager at the National Renewable Energy Laboratory in Golden, Colo. “Obviously, the credit crunch and recession have put dampers on and delayed commercial plants. But a number of companies are still pursuing it very vigorously. We’re doing the same.”

Next year, the POET company will begin construction of its first 25-million-gallon commercial-scale cellulosic plant dubbed “Liberty” in Emmetsburg, Iowa, Stowers says.

The DOE is paying for 40 percent of the $200 million facility, expected to open in 2011. After that, POET plans to “bolt on” similar corn-cob-munching cellulosic factories at its 26 conventional corn-based ethanol production facilities, he says.

Not to be outdone, Range Fuels, a Broomfield, Colo., company, last month won an $80 million loan guarantee from the US Department of Agriculture for the nation’s first commercial-scale cellulosic ethanol plant, now under construction in Soperton, Ga. It aims to begin production next year.

‘Blend wall’ may crimp ethanol
To succeed, cellulosic will have to buck not only low oil prices, the credit crunch, and recession, but also uncertain demand – thanks to the “blend wall.”

The RFS today requires refiners to blend into gasoline about 14 billion gallons of ethanol – about 10 percent of US gasoline consumption. But with ethanol production capacity near that level now, cellulosic producers may not find many buyers – unless the national blend mandate for ethanol is raised to 15 percent or higher, which is what ethanol producers and farmers would like.

“The blend wall has a huge potential impact on cellulosic ethanol development,” Foust says. “The No. 1 issue is a stagnant economy. But next to that, the issue that won’t resolve itself is the blend wall.”

Some environmental groups worry that this means traditional corn-based ethanol will benefit more than environmentally friendly cellulosic. Others say older vehicles’ emissions systems will be damaged by a higher percentage of alcohol in fuel, thus worsening air pollution.

Low oil prices hurt ethanol
“We can’t afford to play fast and loose with Clean Air Act protections,” says Nathanael Greene, senior policy analyst at the Natural Resources Defense Council (NRDC), an environmental activist group.

Another huge hurdle is cost-competitiveness. Cellulosic ethanol requires a more complex process that uses costly enzymes. At present, a gallon of cellulosic ethanol costs about $2.25 a gallon to produce: That’s 40 to 50 cents more than corn ethanol and 75 cents more than gasoline. But under Sandia’s projections, cellulosic ethanol’s retail cost could fall to just $1.72 a gallon without any incentives or taxes and still be competitive with gasoline – if oil costs $90 per barrel.

But with a barrel of crude now selling for roughly $40, it’s difficult for cellulosic or even corn ethanol to compete. Still, POET, Foust, and others are looking ahead to when the global economy stabilizes and oil bounces back to around $90 a barrel.

Economy’s long shadow hurts, too
Recession and the credit crunch are the deepest shadows over cellulosic development, Foust says. Of the 20 or so investment banks that financed billions in corn-ethanol development over the past decade, only five are still in business. And with oil cheap and ethanol demand weak, investor appetite for more ethanol production is tepid.

That may change. The new stimulus bill has $500 million allocated for the development of "leading edge biofuels."

Besides economics, critical environmental concerns remain. Key among them: Which method is the most environmentally friendly?

Environmentalists like Mr. Greene aren’t eager to support cellulosic ethanol unless it can be proved that the impact from its development – including US and EU policies – is a clear plus for the environment.

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