The Great Cellulosic Hope

As corn-based ethanol grows radioactive, hopes for an alternative intensify

CHICAGO -- Remember switchgrass? Made famous in President George W. Bush's 2006 State of the Union address, he boasted of increased federal funding for new ethanol feedstocks, including wood chips, stalks and yes, switchgrass.

Cellulosic ethanol--created from feedstocks such as corn cobs and husks, sawdust and chips, and "energy grasses" such as switchgrass--has been hyped as heir apparent of corn-based ethanol for several years. Problem is, it's not any closer to hitting the market than it was back in 2006.

Mackinnon Lawrence, a senior analyst with clean-tech market research firm Pike Research, Boulder, Colo., said cellulosic ethanol has been "late to its own party," and noted feedstock and financing issues. "On the feedstock side, certainly these technologies have been proven--we can do it in labs, on a pilot scale," Lawrence told CSP Daily News. "But ramping up to a commercial-scale capacity takes a lot of money and it's not until you get to that point that economies of scale make it an attractive solution in terms of price."

At the same time, the 2005 Energy Policy Act had originally mandated that the United States be using 1 billion gallons of cellulosic ethanol by 2013. The U.S Environmental Protection Agency (EPA), however, has had to drop its targets from 250 million gallons in 2011 to only 6.5 million. The proposed target for 2012: 12.9 million gallons.

"You have two gas stations in Chicago doing 12 million gallons next year," said Dan Gilligan, president of Petroleum Marketers Association of America (PMAA). "It's such a tiny, miniscule amount for the money put into it."

"We haven't had one gallon of commercially viable cellulosic ethanol produced yet, yet the mandate for cellulose started 2 years ago," said John Eichberger, vice president of government relations for NACS. "Instead of deleting the mandate or recalculating the RFS, EPA punted and delayed the application of the mandate, so when cellulose is ready, rather than being able to come in with 100 billion gallons one year, it's like 1 billion. We've been waiting to sell this for 30 years, and it's still not there."

Tom Buis, CEO of ethanol industry group Growth Energy, Washington, D.C., argued for more patience, noting the economic headwinds all businesses have faced during the recession. "We had the biggest worldwide economic collapse since the Great Depression in 2008," he said. "We had a lot of investors and lenders who sat on the sidelines. We're just now starting to see some of that fall."

Buis noted that about a half-dozen companies have announced plans to build commercial cellulosic ethanol refineries in the coming year, and he is optimistic that the fuel will soon come online.

For example, Poet Ethanol, a major refiner of corn-based ethanol, operates a pilot-scale plant and this past fall received a loan guarantee from the U.S. Department of Energy for a 25 million-gallon-per-year cellulosic ethanol plant in Emmetsburg, Iowa.

"You can make the argument that corn ethanol production in the beginnings in the '70s wasn't energy--or economically efficient," Buis said, "but with investment in facilities, trial and error, investment in research, today it's one of most competitively priced fuels in the world. In fact, we're exporting us corn-based ethanol to Brazil."

Pike Research lowered its projection for cellulosic ethanol production over the next three to five years.

The industry is entering a turbulent time, said Lawrence, with capacity coming online as plants become technologically obsolete the moment they start operation; however, the firm considers it's a viable option that will gain traction over the long-term as plant capacity scales up.

"The implications could be massive, or they could be nothing," said Lawrence of the delay thus far. "It could be the government and financial community sour on cellulosic and settle on other technology."

No matter when cellulosic ethanol hits the market, it will still require a price spread to make it competitive with regular unleaded. The common refrain is "ethanol is ethanol"--regardless of the feedstock, any ethanol contains about 34% less energy per unit volume than gasoline, said Lawrence.

Buis said automakers are designing higher-compression engines for flex-fuel vehicles (FFVs) that will more efficiently use the increased octane of high-ethanol blends, which will in turn narrow the "mileage drag." But economics--be it in the case of E85 simply as a replacement for corn-based ethanol--will determine the victor, said Lawrence.

"One big issue with biofuels in general is they struggle to compete on price parity with petroleum-based fuels, and so that's a big market limitation," he said. "In terms of assessing cellulosic vs. corn-based ethanol, whatever competes best in price is what will lead the market."

[Read more about the latest hurdle hitting ethanol blends--the expiration of the VEETC credit--in the February issue of CSP magazine, or click here.]

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