The Price of Biofuels
The irrational exuberance over ethanol that swept through the American corn belt over the last few years has given way to a dreary hangover, especially among those who invested heavily in the sprawling production facilities now dotting the rural landscape. It’s the Midwest’s version of the tech bubble, and in some ways, it is remarkably familiar: overeager investors enamored of a technology’s seemingly unlimited potential ignore what, at least in retrospect, are obvious economic realities.
More than a hundred biofuel factories, clustered largely in the corn-growing states of Iowa, Minnesota, Illinois, Indiana, South Dakota, and Nebraska, will produce 6.4 billion gallons of ethanol this year, and another 74 facilities are under construction. Just 18 months ago, they were cash cows, churning out high-priced ethanol from low-priced corn, raising hopes of “energy independence” among politicians, and capturing the attention–and money–of venture capitalists from both the East and West Coasts.
Now ethanol producers are struggling, and many are losing money. The price of a bushel of corn rose to record highs during the year, exceeding $4.00 last winter before falling back to around $3.50 in the summer, then rebounding this fall to near $4.00 again. At the same time, ethanol prices plummeted as the market for the alternative fuel, which is still used mainly as an additive to gasoline, became saturated. In the face of these two trends, profit margins vanished.
The doldrums of the ethanol market reflect the predictable boom-and-bust cycle of any commodity: high prices drive increased production, and soon the market is oversupplied, causing prices to crash. But the large-scale use of corn-derived ethanol as a transportation fuel has economic problems all its own. Even though crude oil is at near record prices, and companies that use ethanol in their gasoline receive a federal tax credit of 51 cents per gallon, ethanol struggles to compete economically. And with limited infrastructure in place to distribute and sell the biofuel, demand will remain uncertain for the foreseeable future.
For more information read Technology Review's special report on biofuels.
More alarming, the boom in ethanol production is driving up the price of food. Of the record 93 million acres of corn planted in the United States in 2007, about 20 percent went to ethanol. Since most of the rest is used to feed animals, the prices of beef, milk, poultry, and pork are all affected by increases in the cost of corn. The international Organization for Economic Coöperation and Development (OECD) recently warned that the “rapid growth of the biofuels industry” could bring about fundamental shifts in agricultural markets worldwide and could even “cause food shortages.”
All this comes at a time when the need for alternatives to petroleum-based transportation fuels is becoming urgent. At press time, the price of crude oil was near $90 a barrel. And worries about the impact of greenhouse-gas emissions from the roughly 142 billion gallons of gasoline used every year in the United States are deepening. Expanded use of biofuels is central to the federal government’s long-term energy strategy. In his State of the Union speech on January 23, 2007, President Bush set the goal of producing 35 billion gallons of renewable and alternative fuels by 2017, citing the need for independence from foreign oil. The U.S. Department of Energy has set the similar goal of replacing 30 percent of gasoline use with biofuel use by 2030.
Boom or Bust? (PDF: Charts and graphs of the economics of biofuels)
See images of high-protein grains and the production of hydrocarbons.
University of Minnesota researchers explore the future of biofuels.
C. Ford Runge explains the problems of corn ethanol.
Venture capitalist Vinod Khosla details the market potential of alternative energies.
Hitting both targets, however, will require significant technological breakthroughs. In the United States, for now, ethanol means the corn-derived version. (Brazilian producers were expected to make 4.97 billion gallons of ethanol in 2007, mostly from sugarcane; but that semitropical crop is agriculturally viable in only a few parts of the United States.) Even proponents of corn ethanol say that its production levels cannot go much higher than around 15 billion gallons a year, which falls far short of Bush’s goal.
While President Bush and other advocates of biofuels have often called for ethanol to be made from alternative feedstocks such as switchgrass–a plant native to the U.S. prairie states, where it grows widely–the required technology is, according to most estimates, at least four to five years from commercial viability. Meanwhile, advanced biological techniques for creating novel organisms that produce other biofuels, such as hydrocarbons, are still in the lab. So far, researchers are making quantities that wouldn’t even fill the tank of a large SUV.
The economic woes and market limitations of corn ethanol are a painful reminder of the immense difficulties facing developers of new biofuels. “The bottom line is that you’re going to have to make fuel cheap,” says Frances Arnold, a professor of chemical engineering and biochemistry at Caltech. “We can all make a little bit of something. But you have got to make a lot of it, and you have got to make it cheaply. The problem is so huge that your technology has to scale up and do it at a price that is competitive. Everyone is going to be competing on price alone.”
There may be no better place to get a realistic appraisal of biofuels than the Department of Applied Economics at the University of Minnesota. The large campus housing the department and the rest of the university’s school of agriculture lies on a low hill in a quiet St. Paul neighborhood. Acres of fields where experiments are conducted spread out from the edge of the university. Nearby are the grounds of the Minnesota State Fair, a 12-day event that draws more than a million and a half visitors at the end of the summer.
The state is the fourth-largest producer of corn in the U.S., and much of its economy, even its culture, is intimately tied to the crop. The run-up of corn prices has been a boon for Minnesota’s rural agricultural communities. And the governor and other state politicians have strongly pushed the use of ethanol as a transportation fuel. Still, you won’t find much cheerleading for corn ethanol in the plain brick building that houses the department.
In his orderly office with its neat stacks of technical papers and farm reports, Vernon Eidman, an emeritus professor of agricultural economics, combines the authority of a scholar with the sternness of a Midwestern banker. “We could see this coming,” he says, describing the current market plight of the ethanol producers. “It’s not like [producers] didn’t know it was coming. At least, they should have known it.” In 2006 they “made profits like they never had before,” Eidman says. “And that’s a major factor that led to this tremendous buildup.”
The numbers speak for themselves. Eidman’s calculations show what it costs, given varying prices of corn, for a new, moderate-size facility to produce ethanol. At $4.00 a bushel of corn, ethanol production costs $1.70 a gallon; to gain a 12 percent return on equity, the producers need to sell ethanol at $1.83 a gallon. Then Eidman shows his figures for the prices that petroleum companies are paying when they buy ethanol to blend with their gasoline: this December, prices were about $1.90 a gallon, and bids for 2008 range between $1.75 and a $1.80 a gallon. In other words, the profit margins for ethanol producers are extremely tight. To make matters worse, Eidman says, production capacity, which was around 5.4 billion gallons at the beginning of 2007, is expected to reach 12.5 billion gallons by 2010.
While swelling ethanol production has led to worries about oversupply, the other side of the market equation is actually a cause for greater concern: the future demand for ethanol fuel is by no means certain. In a few parts of the country, particularly in the corn-belt states, drivers can buy fuel that’s 85 percent ethanol. But for the most part, petroleum companies use ethanol at a concentration of 10 percent, to increase the oxygen content of their gasoline. Not only is such a market limited, but the 10-percent-ethanol blend delivers slightly reduced gas mileage, potentially damping consumer appetite for the fuel.
It is not just the short-term economics of ethanol that concern agricultural experts. They also warn that corn-derived ethanol is not the “green fuel” its advocates have described. That’s because making ethanol takes a lot of energy, both to grow the corn and, even more important, to run the fermentation facilities that turn the sugar gleaned from the corn kernels into the alcohol that’s used as fuel. Exactly how much energy it takes has been the subject of intense academic debate in various journals during the last few years.
According to calculations done by Minnesota researchers, 54 percent of the total energy represented by a gallon of ethanol is offset by the energy required to process the fuel; another 24 percent is offset by the energy required to grow the corn. While about 25 percent more energy is squeezed out of the biofuel than is used to produce it, other fuels yield much bigger gains, says Stephen Polasky, a professor of ecological and environmental economics at Minnesota. Making ethanol is “not a cheap process,” he says. “From my perspective, the biggest problem [with corn ethanol] is just the straight-out economics and the costs. The energy input/output is not very good.”
The high energy requirements of ethanol production mean that using ethanol as fuel isn’t all that much better for the environment than using gasoline. One might think that burning the biofuel would release only the carbon dioxide that corn captures as it grows. But that simplified picture, which has often been conjured up to support the use of ethanol fuel, doesn’t withstand closer scrutiny.
In fact, Polasky says, the fossil fuels needed to raise and harvest corn and produce ethanol are responsible for significant carbon emissions. Not only that, but the cultivation of corn also produces two other potent greenhouse gases: nitrous oxide and methane. Polasky calculates that corn-derived ethanol is responsible for greenhouse-gas emissions about 15 to 20 percent below those associated with gasoline: “The bottom line is that you’re getting a slight saving in terms of greenhouse-gas emissions, but not much.”
If corn-derived ethanol has had little impact on energy markets and greenhouse-gas emissions, however, its production could have repercussions throughout the agricultural markets. Not only are corn prices up, but so are soybean prices, because farmers planted fewer soybeans to make room for corn.
In the May/June 2007 issue of Foreign Affairs, C. Ford Runge, a professor of applied economics and law at Minnesota, cowrote an article titled “How Biofuels Could Starve the Poor,” which argued that “the enormous volume of corn required by the ethanol industry is sending shock waves through the food system.” Six months later, sitting in a large office from which he directs the university’s Center for International Food and Agricultural Policy, Runge seems bemused by the criticism that his article received from local politicians and those in the ethanol business. But he is steadfast in his argument: “It is clearly the case that milk prices, bread prices, are all rising at three times the average rate of increase of the last 10 years. It’s appreciable, and it is beginning to be appreciated.”
The recent OECD report, released in early September, is just the latest confirmation of his warnings, says Runge. And because a larger percentage of their income goes to food, he says, “this is really going to hit poor people.” Since the United States exports about 20 percent of its corn, the poor in the rest of the world are at particular risk. Runge cites the doubling in the price of tortillas in Mexico a year ago.
All these factors argue against the promise of corn ethanol as a solution to the energy problem. “My take,” says Polasky, “is that [ethanol] is only going to be a bit player in terms of energy supplies.” He calculates that even if all the corn planted in the United States were used for ethanol, the biofuel would still displace only 12 percent of gasoline consumption. “If I’m doing this for energy policy, I don’t see the payback,” he says. “If we’re doing this as farm support policy, there may be more merit there. But we’re going to have to go to the next generation of technology to have a significant impact on the energy markets.”
Since the oil crisis of the 1970s, when the price of a barrel of petroleum peaked, chemical and biological engineers have chased after ways to turn the nation’s vast reserves of “cellulosic” material such as wood, agricultural residues, and perennial grasses into ethanol and other biofuels. Last year, citing another of President Bush’s goals–reducing U.S. gasoline consumption by 20 percent in 10 years–the U.S. Department of Energy (DOE) announced up to $385 million in funding for six “biorefinery” projects that will use various technologies to produce ethanol from biomass ranging from wood chips to switchgrass.
According to a 2005 report by the DOE and the U.S. Department of Agriculture, the country has enough available forest and agricultural land to produce 1.3 billion tons of biomass that could go toward biofuels. Beyond providing a vast supply of cheap feedstock, cellulosic biomass could greatly increase the energy and environmental benefits of biofuels. It takes far less energy to grow cellulosic materials than to grow corn, and portions of the biomass can be used to help power the production process. (The sugarcane-based ethanol produced in Brazil also offers improvements over corn-based ethanol, thanks to the crop’s large yields and high sugar content.)
But despite years of research and recent investment in scaling up production processes, no commercial facility yet makes cellulosic ethanol. The economic explanation is simple: it costs far too much to build such a facility. Cellulose, a long-chain polysaccharide that makes up much of the mass of woody plants and crop residues such as cornstalks, is difficult–and thus expensive–to break down.
Several technologies for producing cellulosic ethanol do exist. The cellulose can be heated at high pressure in the presence of oxygen to form synthesis gas, a mixture of carbon monoxide and hydrogen that is readily turned into ethanol and other fuels. Alternatively, industrial enzymes can break the cellulose down into sugars. The sugars then feed fermentation reactors in which microörganisms produce ethanol. But all these processes are still far too expensive to use commercially.
Even advocates of cellulosic ethanol put the capital costs of constructing a manufacturing plant at more than twice those for a corn-based facility, and other estimates range from three times the cost to five. “You can make cellulosic ethanol today, but at a price that is far from perfect,” says Christopher Somerville, a plant biologist at the University of California, Berkeley, who studies how cellulose is formed and used in the cell walls of plants.
“Cellulose has physical and chemical properties that make it difficult to access and difficult to break down,” explains Caltech’s Arnold, who has worked on and off on the biological approach to producing cellulosic ethanol since the 1970s. For one thing, cellulose fibers are held together by a substance called lignin, which is “a bit like asphalt,” Arnold says. Once the lignin is removed, the cellulose can be broken down by enzymes, but they are expensive, and existing enzymes are not ideal for the task.
Many researchers believe that the most promising way to make cellulosic biofuels economically competitive involves the creation–or the discovery–of “superbugs,” microörganisms that can break down cellulose to sugars and then ferment those sugars into ethanol. The idea is to take what is now a multistep process requiring the addition of costly enzymes and turn it into a simple, one-step process, referred to in the industry as consolidated bioprocessing. According to Lee Lynd, a professor of engineering at Dartmouth College and cofounder of Mascoma, a company based in Cambridge, MA, that is commercializing a version of the technology, the consolidated approach could eventually produce ethanol at 70 cents a gallon. “It would be a transformational breakthrough,” he says. “There’s no doubt it would be attractive.”
But finding superbugs has proved difficult. For decades, scientists have known of bacteria that can degrade cellulose and also produce some ethanol. Yet none can do the job quickly and efficiently enough to be useful for large-scale manufacturing.
Nature, Arnold explains, offers little help. “There are some organisms that break down cellulose,” she says, “but the problem is that they don’t make fuels, so that doesn’t do you much good.” An alternative, she says, is to genetically modify E. coli and yeast so that they secrete enzymes that degrade cellulose. But while many different kinds of enzymes could do the job, “most them don’t like to be inserted into E. coli and yeast.”
Arnold, however, is optimistic that the right organism will be discovered. “You never know what will happen tomorrow,” she says, “whether it’s done using synthetic biology or someone just scrapes one off the bottom of their shoe.”
She didn’t quite scrape it off her shoe, but Susan Leschine, a microbiologist at the University of Massachusetts, Amherst, believes she just might have stumbled on a bug that will do the job. She found it in a soil sample collected more than a decade ago from the woods surrounding the Quabbin Reservoir, about 15 miles from her lab. The Quabbin sample was just one of many from around the world that Leschine was studying, so it was several years before she finished analyzing it. But when she did, she realized that one of its bacteria, Clostridium phytofermentans, had extraordinary properties. “It decomposes nearly all the components of the plant, and it forms ethanol as the main product,” she says. “It produces prodigious amounts of ethanol.”
Leschine founded a company in Amherst, SunEthanol, that will attempt to scale up ethanol production using the bacterium. There’s “a long way to go,” she acknowledges, but she adds that “what we have is very different, and that gives us a leg up. We already have a microbe and have demonstrated it on real feedstocks.” Leschine says that other useful microbes are probably waiting to be discovered: a single soil sample, after all, contains hundred of thousands of varieties. “In this zoo of microbes,” she says, “we can think that there are others with similar properties out there.”
Whether ethanol made from cellulosic biomass is good or bad for the environment, however, depends on what kind of biomass it is and how it is grown.
In his office in St. Paul, David Tilman, a professor of ecology at the University of Minnesota, pulls out a large aerial photo of a field sectioned into a neat grid. Even from the camera’s vantage point far above the ground, the land looks poor. In one plot are thin rows of grasses, the sandy soil visible beneath. Tilman says the land was so infertile that agricultural use of it had been abandoned. Then he and his colleagues scraped off any remaining topsoil. “No farmer has land this bad,” he says.
In a series of tests, Tilman grew a mixture of native prairie grasses (including switchgrass) in some of the field’s plots and single species in others. The results show that a diverse mix of grasses, even grown in extremely infertile soil, “could be a valuable source of biofuels,” he says. “You could make more ethanol from an acre [of the mixed grasses] than you could from an acre of corn.” Better yet, in a paper published in Science, Tilman showed that the prairie grasses could be used to make ethanol that is “carbon negative”: the grasses might consume and store more carbon dioxide than is released by producing and burning the fuel made from them.
The findings are striking because they suggest an environmentally beneficial way to produce massive amounts of biofuels without competing with food crops. By 2050, according to Tilman, the world will need a billion hectares more land for food. “That’s the land mass of the entire United States just to feed the world,” he says. “If you did a lot of biofuels on [arable] land–it is very easy to envision a billion hectares for biofuels–you will have no nature left and no reserve of land after 50 years.” Instead, Tilman argues, it makes sense to grow biomass for fuels on relatively infertile land no longer used for agriculture.
But down the hill from Tilman’s office, his colleagues in the applied-economics department worry about the practical issues involved in using large amounts of biomass to make fuel. For one thing, they point out, the technology and infrastructure that could efficiently handle and transport the bulky biomass still need to be developed. And since the plant material will be expensive to move around, biofuel production facilities will have to be built close to the sources of feedstock–probably within 50 miles.
The amount of biomass needed to feed even one medium-size ethanol facility is daunting. Eidman calculates that a facility producing 50 million gallons per year would require a truck loaded with biomass to arrive every six minutes around the clock. What’s more, he says, the feedstock is “not free”: it will cost around $60 to $70 a ton, or about 75 cents per gallon of ethanol. “That’s where a lot of people get fooled,” he adds.
Since no commercial cellulosic facility has been built, says Eidman, it is difficult to analyze the specific costs of various technologies. Overall, he suggests, the economics look “interesting”–but cellulosic ethanol will have to compete with corn-derived biofuels and get down to something like $1.50 a gallon. Eidman believes it will be at least 2015 before biofuels made from cellulose “are much of a factor” in the market.
While chemical engineers, microbiologists, agronomists, and others struggle to find ways of making cellulosic ethanol commercially competitive, a few synthetic biologists and metabolic engineers are focusing on an entirely different strategy. More than fifteen hundred miles away from the Midwest’s corn belt, several California-based, venture-backed startups founded by pioneers in the fledging field of synthetic biology are creating new microörganisms designed to make biofuels other than ethanol.
Ethanol, after all, is hardly an ideal fuel. A two-carbon molecule, it has only two-thirds the energy content of gasoline, which is a mix of long-chain hydrocarbons. Put another way, it would take about a gallon and a half of ethanol to yield the same mileage as a gallon of gasoline. And because ethanol mixes with water, a costly distillation step is required at the end of the fermentation process. What’s more, because ethanol is more easily contaminated with water than hydrocarbons are, it can’t be shipped in the petroleum pipelines used to cheaply distribute gasoline throughout the United States. Ethanol must be shipped in specialized rail cars (trucks, with their relatively small payloads, are usually far too expensive), adding to the cost of the fuel.
So instead of ethanol, the California startups are planning to produce novel hydrocarbons. Like ethanol, the new compounds are fermented from sugars, but they are designed to more closely resemble gasoline, diesel, and even jet fuel. “We took a look at ethanol,” says Neil Renninger, senior vice president of development and cofounder of Amyris Biotechnologies in Emeryville, CA, “and realized the limitations and the desire to make something that looked more like conventional fuels. Essentially, we wanted to make hydrocarbons. Hydrocarbons are what are currently in fuels, and hydrocarbons make the best fuels because we have designed our engines to work with them.” If the researchers can genetically engineer microbes that produce such compounds, it will completely change the economics of biofuels.
The problem is that nature offers no known examples of microörganisms that can ferment sugars into the types of hydrocarbons useful for fuel. So synthetic biologists have to start from scratch. They identify promising metabolic reactions in other organisms and insert the corresponding genes into E. coli or yeast, recombining metabolic pathways until they yield the desired products.
At LS9 in San Carlos, CA, researchers are turning E. coli into a hydrocarbon producer by reëngineering its fatty-acid metabolism (see “Better Biofuels,” Forward, July/August 2007). Stephen del Cardayré, LS9’s vice president of research and development, says the company decided to focus on fatty acids because organisms naturally produce them in abundance, as a way of storing energy. “We wanted to take advantage of a pathway that [naturally] makes a lot of stuff,” del Cardayré says. “Just grab your middle.” Del Cardayré and his coworkers use many of the existing pathways in E. coli’s fatty-acid metabolism but divert them near the end of the metabolic cycle. Since fatty acids consist of a hydrocarbon chain with a carboxyl group, it is relatively straightforward to make the hydrocarbon fuels. “Think of it as a highway,” says del Cardayré. “Near the end of the highway, we add a detour, a pathway we designed and stuck there, so the fatty acids have a better place to go. We pull them off and chemically change them, using this new synthetic pathway that takes them to products that we want.”
Amyris, too, is taking the synthetic-biology approach, but instead of tweaking fatty-acid metabolism, it is working on pathways that produce isoprenoids, a large class of natural compounds. So far, however, both LS9 and Amyris are making their biofuels a few liters at a time. And while the companies have ambitious schedules for commercializing their technologies–both claim that their processes will be ready by 2010–improving the yield and the speed of their reactions remains a critical challenge. “It’s where most of the biological work is going on,” says Renninger. “We still have a little way to go, and that little way is very important.”
If eventually commercialized, the hydrocarbon biofuels made by LS9 and Amyris could overcome many of the economic disadvantages of ethanol. Unlike ethanol, hydrocarbons separate from water during the production process, so no energy-intensive distillation step is necessary. And hydrocarbon biofuels could be shipped in existing petroleum pipelines. “It’s all about cost,” says Robert Walsh, president of LS9. But a critical factor will be the price of feedstock, he says. “We want dirt-cheap sugars.”
Indeed, the synthetic-biology startups face the same problem that established ethanol producers do: corn is not an inexpensive source of biofuels. “The next generation [of feedstock] will be cellulosic,” says John Melo, CEO of Amyris. “But we are not sure which cellulosic technology will emerge as the winner.” Whichever technology prevails, Melo says, Amyris expects to be able to “bolt it” onto its fermentation process, giving the company the advantages of both cheap cellulosic feedstocks and practical hydrocarbon fuels.
For now, though, the lack of an alternative to corn is driving Amyris right out of the country. The company, which plans to retrofit existing ethanol plants so that they can make hydrocarbons, will initially work with Brazilian biofuel facilities that are using sugarcane as a feedstock. Given the price of corn and the amount of energy needed to produce it, Melo says, Brazilian cane offers the most “viable, sustainable” way to make biofuels today.
Even in a Silicon Valley culture that reveres successful venture capitalists, Vinod Khosla has a special place of honor. A cofounder of Sun Microsystems in the early 1980s, Khosla later joined the venture capital firm Kleiner Perkins Caufield and Byers, where in the late 1990s and early 2000s he gained a reputation for ignoring the dot-com excitement in favor of a series of esoteric startups in the far less glamorous field of optical networking. When several of the startups sold for billions of dollars to large companies gearing up their infrastructure for the Internet boom, Khosla became, in the words of one overheated headline of the time, “The No. 1 VC on the Planet.”
These days Khosla, who is now among the world’s richest people (the Forbes 400 lists him at 317, with a net worth of $1.5 billion), is putting most of his investments in alternative energies. He counts among his portfolio companies more than a dozen biofuel startups–synthetic-biology companies LS9 and Amyris, cellulosic companies like Mascoma, and corn ethanol companies like Cilion, based in Goshen, CA. But to call Khosla simply an investor in biofuels would greatly understate his involvement. In the last several years, he has emerged as one of the world’s leading advocates of the technology, promoting its virtues and freely debating any detractors (see Q&A, March/April 2007).
Khosla seems exasperated by the biofuels naysayers. Climate change, he says, is “by far the biggest issue” driving his interest in biofuels. If we want to head off climate change and decrease consumption of gasoline, “there are no alternatives” to using cellulosic biofuels for transportation. “Biomass is the only feedstock in sufficient quantities to cost-effectively replace oil,” he says. “Nothing else exists.” Hybrid and electric vehicles, he adds, are “just toys.”
In particular, argues Khosla, any transportation technology needs to compete in China and India, the fastest-growing automotive markets in the world. “It’s no big deal to sell a million plug-in electrics in a place like California,” he says. The difficulty is selling a $20,000 hybrid vehicle in India. “No friggin’ chance. And any technology not adoptable by China and India is irrelevant to climate change,” he says. “Environmentalists don’t focus on scalability. If you can’t scale it up, it is just a toy. Hence the need for biofuels. Hence biofuels from biomass.”
In a number of opinion papers posted on the website of Khosla Ventures, a firm he started in 2004 that has invested heavily in biofuels and other environmental technologies, Khosla envisions biofuel production rapidly increasing over the next 20 years. According to his numbers, production of corn ethanol will level off at 15 billion gallons a year by 2014, but cellulosic ethanol will increase steadily, reaching 140 billion gallons by 2030. At that point, he predicts, biofuels will be cheap and abundant enough to replace gasoline for almost all purposes.
While Khosla readily acknowledges the limitations of corn-derived ethanol, he says it has been an important “stepping-stone”: the market for corn ethanol has created an infrastructure and market for biofuels in general, removing many of the business risks of investing in cellulosic ethanol. “The reason that I like [corn ethanol] is that its trajectory leads to cellulosic ethanol,” he says. “Without corn ethanol, no one would be investing in cellulosics.”
But back in the Midwest, there is a “show me” attitude toward such blue-sky projections, and there are lingering questions about just how the nation’s vast agricultural infrastructure will switch over to biomass. If Khosla’s projections prove out, “then wonderful,” says the University of Minnesota’s Runge. “Meanwhile, we’re stuck in reality.” Perhaps the main point of contention, Runge suggests, is whether corn ethanol will in fact lead to new technologies–or stand in their way. “It is my opinion that corn ethanol is a barrier to converting to cellulosics,” he says, pointing to the inertia caused by political and business interests heavily invested in corn ethanol and its infrastructure.
Runge is not alone in his skepticism. “Unless the cost is reduced significantly, cellulosic ethanol is going nowhere,” says Wally Tyner, a professor of agricultural economics at Purdue University. Making cellulosic ethanol viable will require either a “policy mechanism” to encourage investment in new technologies or a “phenomenal breakthrough”–and “the likelihood of that is not too high,” Tyner says. Farmers and ethanol producers currently have no incentive to take on the risks of changing technologies, he adds. There is “no policy bridge” to help make the transition. “The status quo won’t do it.”
Despite the sharp differences of opinion, there’s still some common ground between people like Khosla, whose unbridled faith in innovation has been nurtured by the successes of Silicon Valley, and the Midwesterners whose pragmatism was forged by the competitive economics of agriculture. In particular, most observers agree that annual production of corn-derived ethanol will level off within a few years. After that, any growth in biofuel production will need to come from new technologies.
But if cellulosic biofuels are to begin replacing gasoline within five to ten years, facilities will need to start construction soon. This fall, Range Fuels, a company based in Broomfield, CO, announced that it had begun work in Georgia on what it claims is the country’s first commercial-scale cellulosic-ethanol plant. The Range facility, which will use thermochemical technology to make ethanol from wood chips, is scheduled to reach a capacity of 20 million gallons in 2008 and eventually increase to 100 million gallons a year. Meanwhile, Mascoma has announced several demonstration units, including a facility in Tennessee that will be the first cellulosic-ethanol plant built to use switchgrass. But these production plants are federally subsidized or are a result of partnerships with state development organizations; attracting private investment for commercial-scale production will be another matter.
Indeed, ramping up the capacity of cellulosic-ethanol production will be a huge and risky challenge, says Colin South, president of Mascoma. “When people talk about cellulosic ethanol as if it is an industry, it is an unfair portrayal,” he says. “There are a number of pilot plants, but none of them have gotten out of the pilot scale. We still need to show we can actually run these in the form of an operating chemical plant.” South says that Mascoma hopes to begin construction of a commercial plant in 2009 and have it up and running by early 2011. But he adds that the company will only proceed when “the numbers are good enough.”
Perhaps the most crucial number, however, will be the price of crude oil. If it stays high, cellulosic-ethanol production could become economically competitive much sooner. But few people, least of all the investors who would risk hundred of millions of dollars on new plants, are willing to take that bet. Many remember the late 1970s, when the federal government earmarked roughly a billion dollars to fund biomass-related research, only to abandon it when crude-oil prices fell in the early 1980s. And while the price of a barrel of crude hovered in the mid-$90s this fall, and wholesale gas prices reached $2.50 a gallon, biofuel experts say they cannot count on such high prices. Many producers of next-generation biofuels say they want to be competitive with crude oil at around $45 a barrel to ensure long-term viability in the market.
Indeed, announcements about new cellulosic-ethanol plants tend to obscure the fact that the technology is still not economically viable. Gregory Stephanopoulos, a professor of chemical engineering at MIT, describes himself as “very optimistic” about the future of biofuels. But even he is quick to add that it will take another 10 years to optimize production processes for cellulosic biofuels. Among myriad other problems, he says, is the need for more robust and versatile microbes to make them.
In a small conference room outside his office, Stephanopoulos takes out a pencil and paper and begins to draw a series of circles. You can imagine, he says, a biorefinery surrounded by sources of different types of biomass. He connects the circles at a central point, making lines like spokes on a wheel. You could, he goes on, imagine pipelines from these sources. What if the biomass were treated and piped to the biorefinery as a slurry? Stephanopoulos would be the first to acknowledge that such an ambitious infrastructure would take years to put in place, and that the idea raises numerous technical and engineering questions. But for the rest of the interview, the drawing sits patiently on the table–a simple target.
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