WSJ: The Cellulosic Ethanol Debacle

“Congress mandated purchase of 250 million gallons in 2011. Actual production: 6.6 million.”

The Wall Street Journal editorializes,

‘We’ll fund additional research in cutting-edge methods of producing ethanol, not just from corn but from wood chips and stalks or switch grass. Our goal is to make this new kind of ethanol practical and competitive within six years.”

—George W. Bush, 2006 State of the Union address

Years before the Obama Administration dumped $70 billion into solar and wind energy and battery operated cars, and long before anyone heard of Solyndra, President Bush launched his own version of a green energy revolution. The future he saw was biofuels. In addition to showering billions of dollars on corn ethanol, Mr. Bush assured the nation that by 2012 cars and trucks could be powered by cellulosic fuels from switch grass and other plant life.

To launch this wonder-fuel industry, the feds under Mr. Bush and President Obama have pumped at least $1.5 billion of grants and loan subsidies to fledgling producers. Mr. Bush signed an energy bill in 2007 that established a tax credit of $1.01 per gallon produced.

Most important, the Nancy Pelosi Congress passed and Mr. Bush signed a law imposing mandates on oil companies to blend cellulosic fuel into conventional gasoline. This guaranteed producers a market. In 2010 the mandate was 100 million barrels, rising to 250 million in 2011 and 500 million in 2012. By the end of this decade the requirements leap to 10.5 billion gallons a year.

When these mandates were established, no companies produced commercially viable cellulosic fuel. But the dream was: If you mandate and subsidize it, someone will build it.

Guess what? Nobody has. Despite the taxpayer enticements, this year cellulosic fuel production won’t be 250 million or even 25 million gallons. Last year the Environmental Protection Agency, which has the authority to revise the mandates, quietly reduced the 2011 requirement by 243.4 million gallons to a mere 6.6 million. Some critics suggest that even much of that 6.6 million isn’t true cellulosic fuel.

The EPA has already announced that the 2012 mandate of 500 million gallons is unattainable, so it is again expected to lower the mandate to fewer than 12 million gallons for next year.

One reason the mandates can’t be met is the half-dozen or so companies that received the first round of subsidies to produce cellulosic fuel never got off the ground. Some 70 million gallons, or 70% of the cellulosic supply to meet the 2010 mandate, was supposed to come from Alabama-based Cello Energy. Incredibly, those projections were made before Cello had built its plant to produce the fuel and before the technology was proven to work.

In 2009 a jury in a civil fraud case ruled that Cello had lied about how much cellulosic fuel it could produce. Some of the fuel that Cello showed to investors was derived from petroleum, not plants. The firm produced little biofuel and in October 2010 it declared bankruptcy.

It gets worse. Because there was no cellulosic fuel available, oil companies have had to purchase “waiver credits”—for failing to comply with a mandate to buy a product that doesn’t exist. In 2010 and this year, the EPA has forced oil companies to pay about $10 million for these credits. Since these costs are eventually passed on to consumers, the biofuels mandate is an invisible tax paid at the gas pump.

And for what? An October 2011 report on biofuels by the National Academy of Sciences concluded that the mandates “may be an ineffective way to reduce global greenhouse gas emissions.” Because production is so low, advanced cellulosic fuels also do very little to reduce U.S. dependence on foreign oil. The report notes that “currently, no commercially viable biorefineries exist for converting cellulosic biomass to fuel.”

Why? Because of what the National Academy report calls “the high cost of producing cellulosic biofuels compared with petroleum-based fuels, and uncertainties in future biofuel markets.” The report does say that technological breakthroughs could make cellulosic fuels cost-competitive in the future, but that same leap of faith has driven subsidies to alternative energy for 40 years.

Still, the subsidies roll on. In August 2011 the Obama Administration funded a $510 million program in partnership with the Navy to produce advanced biofuels for the military. In September the feds loaned $134 million to Abengoa Bioenergy to build a cellulosic plant in Kansas. The optimistic forecast is that this plant will produce about 23 million barrels a year—a fraction of what Washington promised in 2006. In September the Department of Energy provided POET, which advertises itself as the “world’s largest ethanol producer,” a $105 million loan guarantee for cellulosic.

To recap: Congress subsidized a product that didn’t exist, mandated its purchase though it still didn’t exist, is punishing oil companies for not buying the product that doesn’t exist, and is now doubling down on the subsidies in the hope that someday it might exist. We’d call this the march of folly, but that’s unfair to fools. [Emphasis added]

9 thoughts on “WSJ: The Cellulosic Ethanol Debacle”

  1. Rich – repeating incorrect statements doesn’t make them any more incorrect. Since you can’t remember what the actual data says I suggest you research it again – you’ll look a lot less silly.

    Unless you are Pimentel or Patzek, or one of their supporters, whose alleged “studies” have been repeatedly and thoroughly debunked and refuted, even corn based ethanol has a net positive energy balance. And cellulosic offers a substantially higher net energy return.

    According to many published and peer reviewed reports corn based ethanol generates a net energy balance of approx. 1.6 BTU of energy created for each 1 btu of energy expended in production. Cellulosic generates well over 5 btu’s for evey 1 btu expended in production, and is expected to go significantly higher as production processes mature.

    In addition – per Argonne Labs: “… 1 bushel of corn used for ethanol ALSO produces 1.5 lbs. of corn oil, 18 lbs. of high-protein animal feed (called DDGS), and 2.6 lbs. of corn meal.”

    Corn oil can be used for food or as a petroleum replacement – making plastics and similar. Distillers Dried Grain Solids are a high energy, high value replacement for the feed corn used to produce ethanol.

    The 2007 total corn crop was a record 13.1 billion bushels. Appx. 23%, or a little over 3 billion bushels, were used for ethanol production. As a byproduct of that ethanol production approx. 575 million corn equivalent bushels of distillers dried grain solids were also produced. But those DDGS have higher protein and fat content than straight corn. When adjusted for the higher feed value that 575 million bushels become appx 2,133 million adjusted corn equivalent bushels of DDGS produced. Doing simple math shows the equivalent value of the high quality distillers dried grains produced replaces 71% of ALL corn used to produce ethanol.

    Put another way – for 3,013 million bushels of corn used for ethanol, if I did my math correctly the following was produced:

    – appx. 6.8 billion gallons ethanol
    – appx. 4.5 billion lbs corn oil
    – appx. 7.8 billion lbs corn meal AND
    – appx 2,133 million bushels equivalent feed value in Distiller Dried Grains (71% of the total bushels of actual corn used for ethanol production.)

    Additionally, DDGS have proven to be a lower cost product for feed than corn, plus it is more easily digestible for the animals with lower starch content.

    A VERY large part of the reason ethanol has not proceeded quicker is the near collapse of the economy in 2008 along with the higher gas prices. Driving miles dropped dramatically at the same time funding for any type investment all but disappeared. At exactly the worst time for the ethanol industry. They were in a highly capital intensive “start up” phase – building plants and infrastructure, and cellulosic was still in the “smaller than commercial scale” development stage. In both instances there was little revenue yet and significant expenses. When capital disappeared they simply went under.

    I am not in any way involved in the industry, and I do believe we should be using our fossil fuels – however it is inevitable we will eventually someday run out, and as such we should be looking for realistic alternatives.

    Ethanol from CORN and other sources is not a full replacement but it has put a far more meaningful dent in our reliance on fossil fuels and more importantly imported fossil fuels, than any other technology.

    I believe its extremely important to have the facts – and not trumped up inaccurate hype.

  2. We already know that corn based ethanol is an economic non-starter. Cellulosic ethanol is even worse. It will NEVER be economically viable. I can’t remember the figures off hand but the costs in energy to produce it makes it a completely worthless undertaking….that is unless the ones promoting and producing it can keep feeding at the public trough.

  3. Michael is mistaken about “The governments problem is that it is expecting immediate results.” They did get immediate results: the votes of midwest corn farmers. That’s all this was ever about. Alcohol is gasoline is an inert filler.

  4. Cellulosic ethanol is only five years from commercial success.

    The problem is that is has been “only five years away” for at least 10 years now (since I first heard Iogen in Canada come up with this number).

    Not sure when wind/solar first started saying “five years from commercial success”, but that could be even longer.

    I am very supportive of cellulosic ethanol and biodiesel research as they are the best options for high energy dense fuels needed for transport – once oil and gas really do start running out. However, this “running out” has been “five years” away for even longer (the 1970s) and I still don’t see any evidence for it.

  5. Why would big Oil spend their time and money building an ethanol plant? Petroleum engineers aren’t farmers, and roughneck drillers don’t know switchgrass from ragweed. Anheisser Busch is more qualified than Exxon in this matter.

  6. The Oil industries core business is Oil of all things. Imagine that. It is not their responsibility to produce ethanol from any source. Why is it that renewable energy sources always seem to be promised for future years as apposed to the present. It could’nt possibly have to do with all the promise of subsidies for failed “technology” that will never produce anything except a bill to the taxpayers and a dribble of energy. Good ideas promote themselves. Bad ideas historically die. Unfortunately subsidies are providing life support for some time to come.

  7. The ethanol lobby’s problem is it wants the government to interfere in a market matter. The government can and should coordinate big science, like space exploration, nuclear weapons, etc., but its involvement in consumer driving behavior smacks of interference, or, perhaps, try “micro-management,” an old buzz word for meddling.

  8. The governments problem is that it is expecting immediate results. It took years for the farmers of Minnesota to start the corn based ethanol industry and get it so that we finally had viable plants in the late 1980’s. It is going to take time to get cellulosic going. POET Bio-refining has had an experimental cellulosic plant operating since 2008. The first commercially viable corn stover cellulosic plant will be opened by POET bio-refining in the coming year.
    As far as punishing big oil, I’m all for it. They are the only ones who really had the money to get a cellulosic plant running. They have been getting government subsidies for years. They can give some of that money back.

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