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Cheap Oil Could Kill Off Cellulosic Ethanol

Inexpensive oil could increase the pressure to reduce mandates for biofuels.
December 3, 2014

The plunge in oil prices, accelerated by a recent OPEC decision to maintain production targets, will deal a new blow to efforts to commercialize advanced biofuels such as ethanol made from woody plant waste, or diesel made from plant oils. Lower oil prices may also help strengthen the case for scaling back the federal regulations requiring the use of biofuels.

Progress in commercializing advanced biofuels such as cellulosic ethanol has been slow despite federal rules mandating the use of such fuels. Earlier this year a few large-scale cellulosic ethanol plants, including ones operated by Poet-DSM, DuPont, and Abengoa, became operational. All were planned when oil was above $100 a barrel. A number of other projects were canceled even before the recent oil price plunge.

Now that oil is below $70 a barrel, down from a high of $115 earlier this year, new plants simply won’t get built, says Wallace Tyner, an agriculture and energy economist at Purdue University.

Federal biofuel mandates were created with an energy bill passed by the U.S. government in in 2005. Signed into law by President Bush, the standards were meant to promote energy independence, requiring ever-increasing numerical gallon requirements for the use of ethanol and advanced biofuels in transportation fuels.

In 2013, the U.S. Environmental Protection Administration scaled back requirements for the total volume of biofuels that must be added to transportation fuels. The EPA cited market saturation due to lower-than-expected demand for gasoline, limiting the amount of ethanol that can be blended (see “Oil Companies Happy, Biofuels Companies Distraught Over New EPA Rules”).

Updated requirements are expected from the EPA early next year. If the mandates are repealed, says Tyner, “then cellulosic biofuels and biodiesel would cease to exist.”

Cheap oil’s effects elsewhere in clean-tech are likely to be more limited. “Very little oil is used in the production of electric power, so the plunge in oil prices primarily impacts the transportation sector,” says Massoud Amin, director of the Technological Leadership Institute at the University of Minnesota, and a former executive at the Electric Power Research Institute, a utility-funded research group.

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