AIPG Position Statement - Domestic Energy: BioFuels
AIPG Position Statement - Domestic Energy: BioFuels
By Keith Long, MEM-0795
Other Resources Subcommittee, Energy Subcommittee, AIPG
Reading the pros and cons of biofuels from different viewpoints reveals numerous claims and counterclaims. This paper examines testable hypotheses from these claims and reports results of studies that may prove or disprove these hypotheses. Definitive proof is largely elusive due to limitations of data, research methodology, and poor handling of uncertainty. Costs and benefits of biofuels production and use are almost entirely estimated using assumptions, approximations, and rapidly obsolescing data. Unfortunately, these estimates are usually reported as single values, giving the reader no indication of the degree of uncertainty or range of likely values involved. Thus, the reliability of estimates is difficult to assess. The ethanol industry is undergoing a period of rapid expansion and technological innovation. Like other new industries in the past, innovation will lead to lower costs of production, lesser environmental impacts, and increasing efficiency at all levels, from crop production to consumption. Many problems cited below are likely to be solved or mitigated in the next 25 or even 10 years. The future of the industry depends on how well it can compete with other energy sources. The value to society of these subsidies and government policies that support the industry will only be definitively determined with better research that rigorously addresses the uncertainties involved.
Description of Resource
A biofuel is any fuel, in solid, liquid, or gaseous state, that is derived from recently dead biological materials. Fossil fuels, derived from long-dead biological materials, are not biofuels. There are many varieties of biofuel, ranging from dried animal dung used as a cooking fuel in some traditional societies to experimental advanced biofuels derived from algae. This paper will treat those biofuels of current and foreseeable future significance to meeting the energy needs of industrialized societies. These are (1) biodiesel, a fatty-acid methyl-ester derived from animal fats, vegetable oils, and a wide variety of plants, suitable for use as a diesel fuel; (2) bioalcohols, mainly ethanol derived from corn and other crops, used as a transportation fuel; (3) biogas, chiefly methane derived from landfills and processing of organic wastes; and (4) various advanced biofuels, such as that derived from algae, currently under development.
Biofuels are directly derived from biological materials and hence are a renewable energy resource. However, significant amounts of non-renewable resources are used in the production of biofuels. The most important are agricultural land, non-renewable fuels used in planting and harvesting, mineral-based fertilizers for the production of biological materials, metals and other minerals used for production and transportation facilities, and the energy used to process and transport biofuels, which may not be from a renewable source.
The technology of biofuel production and use is diverse and complex and is the subject of ongoing research and innovation. Two technologies, however, dominate current and near-term biofuel production. The first technology is to develop and grow crops high in sugar or starch and use yeast fermentation to produce ethanol. The second technology is to grow crops with high oil content which are processed to produce biodiesel and related fuels. The technology for producing ethanol from plant cellulose, which could make use of significant amounts of agricultural waste, is not currently technically feasible but many promising approaches are under investigation. Research into the production of biofuel from algae is at a very early stage but is promising.
As of March 31, 2009, the United States had a production capacity, installed or under construction, totaling about 14.4 billion gallons per year ethanol. To produce this much ethanol requires consumption of about 5.1 billion bushels of corn, approximately 20 percent of the US corn crop. Some ethanol plants use cereal grains instead of corn as a raw material and a few pilot plants use corn stover [those parts of the corn plant remaining after harvesting] and other cellulosic feed stocks. The Energy Independence and Security Act of 2007 sets a target of 36 billion gallons of domestic biofuel production by 2022.
To meet increasing demand for corn as an ethanol feed stock, acres of corn planted in the US expanded from 317,000 square kilometers in 2006 to 376,000 square kilometers in 2007, a 19 percent increase that came largely at the expense of soybean planting, which decreased 17 percent during the same period. It had been expected that much or most of the land added for corn production would come from land idled for the Conservation Reserve Program rather than land used for other crops. However, due to the high cost of restoring long fallow land to production and of the acquisition of additional machinery, most land owners have opted to keep these marginal farmlands in the Conservation Reserve Program (Tomson, 2006).
Fuel is required for the boilers used in producing ethanol, to power other plant machinery and infrastructure as well as for transportation of corn into the plant and ethanol to markets. Natural gas and coal are low-cost fuels suitable for ethanol production, electricity provides the balance of plant power and diesel is the principal transportation fuel. Biomass has been proposed as an alternative boiler fuel.
Ethanol plants require 12 to 19 liters of good quality water per liter of ethanol produced. This translates to 1.0 billion to 1.7 billion liters of water per year for an 340 million liter per year ethanol plant. Most of the water used is released as water vapor from the boiling process, making recycling difficult. Table 1 compares water consumption for ethanol fuel production with that of other major fuels.
32,300 to 375,900
530 to 2,100
2,970 to 3,400
15,500 to 31,200
31,000 to 74,900
Table 1. Comparison of water consumption for ethanol fuel production with that of other fuels (Hill and Younos, 2008).
According to the Renewable Fuels Association (www.ethanolrfa.org/industry/statistics), as of March 31, 2009, the United States had 193 ethanol production facilities with a design capacity of 12.4 billion gallons of ethanol yearly. Some 24 plants then under construction would add 2.1 billion gallons-per-year ethanol capacity. Domestic production of ethanol in 2008 was 9 billion gallons, more than double the 3.9 billion gallons produced in 2005.
Ethanol is highly corrosive and must be transported by truck or rail using special stainless steel tankers. Pipeline transportation is not technically possible due to water contamination. Hence, ethanol plants must be located where ready access to railroads and highways is available. Given that corn is the largest cost in the production of ethanol, location of ethanol plants near to sources of corn, namely the corn-producing belts in the Midwest is economically advantageous.
Ethanol plants use large amounts of water (Table 1) which is mostly vented to the atmosphere as steam. The remaining water is waste that is discharged. The distillation process and burning fuel for boilers generates carbon dioxide which is vented into the atmosphere. Other greenhouse gases emitted from ethanol plants are methane and nitrous oxide. Growing corn and other feedstock crops with fertilizer produces nitrogen pollution of surface waters and some emission of greenhouse gases.
Khanna and Dhungana (2007) estimate carbon emissions from ethanol production from corn as 5.25 kilograms equivalent carbon dioxide per gallon of ethanol, compared with 7.15 kilograms per gallon of gasoline. They show that the use of switchgrass or miscanthus would result in a net carbon credit to ethanol production. These kinds of estimates are subject to considerable uncertainty and variation, depending on assumptions made and how much of the overall life-cycle of ethanol production is analyzed. In theory, burning biomass should have no net impact on carbon emissions because during their life the biomass absorbs as much carbon dioxide as it gives off when burned. Practical mass production of biofuels, however, leads to positive carbon emissions due to energy consumed during production, transportation, and from clearing of grasslands and forests to expand land under biomass cultivation.
Burning of biofuels does result in significantly less SO2 emissions than for fossil fuels. However, much of this advantage may be lost through a complicated system of biofuels production and distribution dependent on fossil fuels. Biofuels could displace nonrenewable fossil fuels, improving sustainability, but again this depends on the amount and nature of the energy used in the production and distribution of ethanol. Net energy ratio (NER) is the ratio of biofuel energy content to energy consumed for its production and distribution. Positive environmental benefits are obtained when the ratio exceeds one. Estimates of NER for biofuels vary, with some production systems achieving an NER less than one, meaning more energy is consumed to produce biofuels than is obtained from it (Johnson, 2006). In even the best of circumstances, NER for biofuels is significantly less than that for gasoline (about 5) and other fossil fuels. Variation in NER for biofuels is chiefly due to fuels consumed for transportation, with varying transportation distances, which have often been underestimated (Wakeley and others, 2009). In fact, long-distance transportation of ethanol can negate the economic and environmental benefits of using ethanol.
The effects of widespread ethanol production and consumption on ozone layer depletion, acid rain, heavy metal and dioxin emissions, and increased pesticide and fertilizer use have not been adequately evaluated.
Hauser (2007) reports an estimated break even wholesale price for ethanol as of 2007 at US$ 1.62 to US$ 2.07 per gallon when corn costs US$ 4.00 per bushel, or US$ 0.86 to US$ 1.31 per gallon when corn costs US$ 2.00 per bushel. These estimates factor in a Federal ethanol subsidy of US$ 0.51 cents per gallon paid as a tax credit to distributors. In general, cost of feed stock accounts for about 40 percent of the final of cost of ethanol, making the industry vulnerable to swings in raw materials prices (Petrou and Pappis, 2008).
Although the Federal ethanol subsidy is paid directly to distributors as a tax credit, the benefits of the subsidy are widely distributed between producers and consumers. The amount of subsidy captured by producers or consumers depends on relative bargaining positions. Those persons owning the scarcest resource, in this case agricultural land, which is often not the farmer, can be expected to have the best bargaining position. Other Federal subsidies include renewable fuel standards, the small producer ethanol credit, tax credits for ethanol infrastructure, oxygenated fuel requirements, and tariffs and quotas on imported ethanol.
Data on capital costs for new ethanol production capacity are elusive. A review of financial statements and public announcements of leading ethanol producers revealed little useful information in this regard. Eidman (2007) estimates investment costs of US$ 8.65 per liter of design capacity for a 150 million liter per year ethanol plant and US$ 6.92 per liter of design plate capacity for a 385 million liter per year ethanol plant. At that time (2006) capital costs were rapidly escalating due to increasing costs of materials for construction, fuel, and labor.
The most recent study (Perrin and others, 2009), using data from the latest ethanol plants built in the US, found that these plants were earning more than enough to recoup their capital investments prior to the collapse in oil prices during the second half of 2008. With the drop in oil and ethanol prices, operating margins are now about zero, despite subsidies. This latest generation of plants, however, is significantly more efficient than those built in the past, and better than previously estimated, consistent with the expectation that ongoing technological innovation will reduce operating costs over time.
Data on production capacity and local economic benefits have been made available by operators. A typical example is a plant recently completed in Madison, Illinois, with a capacity of 340 million liters per year ethanol, produced from cereal grains. The plant has a foot print of 32 hectares, employs 60 persons with a combined annual payroll of US$ 4 million. The plant will consume 870,000 metric tons per year of grain (Abengoa Bioenergy press release, September 9, 2008). The plant received a US$ 4 million grant from the Illinois Renewable Fuels Development Program, equivalent to the first year’s payroll. Low and Isserman (2007) notes that the small positive economic impact of these plants may not warrant significant subsidies or enticements by local governments.
Many studies (such as Goldemberg and Guardabassi, 2009) show dramatic improvements in efficiencies and environmental impacts from using sugar cane as a feed stock instead of corn. In fact, ethanol produced from sugar cane in Brazil is the only form of ethanol currently produced that is proven competitive with gasoline without subsidies (Henniges and Zeddies, 2007). Simply put, it makes more economic sense to produce the world’s ethanol from sugar cane in Brazil and other sugar cane growing countries than from domestically produced corn. Such a strategy would reduce costs to US consumers and taxpayers as well as provide substantial benefits to poorer sugar cane producing countries, particularly Colombia and the Caribbean islands.
Costs and Benefits
The long-run price of corn averaged about US$ 2.40 per bushel until about 2006 when increasing production of ethanol and other factors pushed the long-term equilibrium price of corn to an estimated US$ 3.50 per bushel, a 50 percent increase (Good and others, 2007). The net effect of this increase in corn prices is to increase food prices, in particular for meat, and reduce production of other crops, such as soybeans, wheat, and cotton, decreasing exports of those crops. A fundamental assumption of this estimate is that the acreage of suitable farm land is fixed, particularly in the short run, otherwise overall farm output would rise to meet the combined demand for ethanol and food without increasing prices of either.
This estimate of future prices, even if the assumption of a fixed supply of land holds, is subject to a high degree of uncertainty. Factors that could significantly influence long-run prices of corn, grain, and ethanol include crude oil prices, foreign demand for food crops, variations in foreign crop production, adoption of further ethanol usage requirements, changes to subsidies and import tariffs. An increase in the ethanol yield, from the current 2.8 gallons per bushel to perhaps 3.1 gallons per bushel, an 11 percent increase, would reduce the pressure for additional corn acreage. Likewise, average yields of corn per acre can be expected to continue to increase, again reducing demand for corn acres.
Given the relative inelasticity of demand for corn by ethanol producers, short-run volatility in corn prices will significantly increase. Increasing corn prices and ethanol subsidies can be expected to bid up the price of agricultural land.
Large scale ethanol production from food products carries a risk of short- and long-term reduction in global food production. Assessing this risk requires making many assumptions and forecasts. Goldemberg and Guardabassi (2009) posit a plausible scenario for greatly expanded production of Brazilian ethanol, holding US ethanol production at current levels, without any significant effect on world food supplies. Ethanol production can only be expanded at a limited rate, hence effects on food supplies might only become gradually apparent. All agricultural commodities, including derived products such as ethanol, are subject to weather and climate risks, which raise serious questions about the reliability of ethanol supply.
Agricultural land of sufficient quality for production of biofuel feedstocks is the scarcest resource for biofuel production. According to the 2007 Census of Agriculture, total cropland in the United States was about 163 million hectares, down from about 174 million hectares in 2002. These figures include land used for everything directly connected to farming, from harvested cropland to farm buildings, pasture to wind breaks, and so on. Some 124 million hectares were devoted to harvested crops, of which about 35 million hectares were used for corn. A bit over 14 million hectares of farmland was enrolled in the Conservation Reserve Program as of September 30, 2006. About 9 million hectares of farmland was devoted to soybeans in 2007. Given that lands in the Conservation Reserve Program are either unsuited or too costly for corn production, and assuming substantial conversion of soy to corn production, an upper limit of 36 to 40 million hectares of corn can be planted. With a hectare producing about 505 liters of ethanol, and using the entire corn crop for ethanol, ultimate production capacity would be about 127 billion liters per year, assuming one crop per year. It is difficult to envision how a 138 billion liter ethanol requirement can be met by 2022 or at any time given these limitations on available acreage.
Around the world, farmland is largely devoted to food production. A recent study has estimated available abandoned agricultural lands globally at 385 to 472 million hectares, which could be used for the production of at most 8 percent of current global energy requirements through biofuels (Engelhaupt, 2008).
No studies could be found of the net impact of increased ethanol production from corn and other biomass upon demand for phosphate and other mineral fertilizers or on any other mineral product used for ethanol production.
Countries with well developed agricultural, food processing, and chemical industries will have no problems securing capable and experienced labor and management for a biofuels industry. Examples include Brazil, which has been a pioneer in the production of ethanol from sugar cane.
The current recession has reduced demand for gasoline to such an extent that it is doubtful that Federally-mandated ethanol usage can be met using the current standard of 10 percent ethanol in gasoline. It is generally thought that cars and trucks designed to use gasoline cannot tolerate more than 10 percent ethanol in gasoline. Pure ethanol has a very high octane rating of 106, hence engines designed for lower octane gasoline will perform more poorly, in terms of fuel efficiency, energy output, and other factors, when using gasoline with significant additions of ethanol. Ethanol producers are lobbying for the EPA to increase the mandated use of ethanol in gasoline from 10 to 15 or 20 percent or more. These producers cite studies that found that some cars can tolerate up to 60 percent ethanol before the check engine light comes on due to a fuel mixture fault. The National Renewable Energy Laboratory (Knoll and others, 2009) recently tested 16 representative gasoline vehicles with up to 20 percent ethanol in gasoline. With a 20 percent blend, the average loss of fuel economy was 7.7 percent and exhaust emission temperatures (which may affect catalytic converter and exhaust system performance) increased by up to 70°C, but no significant changes were found in regulated tailpipe emissions and no durability or material compatibility problems were found during life-cycle testing of engines. More extensive testing with a larger sample of vehicles is probably required before performing a nationwide experiment with higher ethanol contents in fuels.
Given limitations on available domestic crop land, it is difficult to foresee how domestic production can meet the EPA’s long-term ethanol usage requirements regardless of the price of ethanol. In the short- and medium-terms, consumers would be better served by lower prices, and ethanol usage perhaps expanded beyond EPA requirements, by importing lower-cost ethanol from sugar-cane producing countries. In the long-term, a viable domestic ethanol industry that does not constrain food production may be possible based on production of ethanol from agricultural waste, cellulosic materials and algae.
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