Substituting for Oil
Option 2. Substituting biofuels and biomaterials
Liquid fuels made from farming and forestry wastes, or perhaps from energy crops, are normally considered to offer only a small potential at high cost. For example, classic ethanol production from corn, which now provides ethanol oxygenate equivalent to 2% of U.S. gasoline,477 could expand by only about half by 2025 if not subsidized. Modern production plants of this type, especially if highly integrated,478 yield net energy, but need favorable resale prices for their byproducts (mainly distiller's dried grains and, in other countries, electricity) to compete with gasoline. And gasoline, as noted on pp. 20–21, is already rather heavily subsidized.
However, that widely held perspective, reflected in our Conventional Wisdom biofuels portfolio (Fig. 30a), is outdated. When the National Academies' National Research Council found in a 1999 study that biofuels could profitably provide 1.6 Mbbl/d by 2020,479 new methods of converting cellulose- and lignin-rich (woody) materials into liquid fuels, e.g. using genetically engineered bacteria and enzymes, were just emerging. Five years later, even newer State of the Art technologies now permit biofuels by 2025 to provide 4.3 Mbbl/d of crude-oil equivalent at under $35/bbl ($0.75/gal gasoline-equivalent). Of that amount, 3.7 Mbbl/d is competitive on the short-run margin with EIA's projected $26/bbl oil (Fig. 30b), or more to the extent one counts oil's subsidies and externalities.
The ultimately profitable potential is even larger; NRC found it exceeded 8 Mbbl/d by the end of the century. But just the State of the Art 2025 potential, shown in Fig. 30b, is major—13% of EIA's projected 2025 oil demand before (or 18% after) fully applying oil's end-use efficiency potential.481 Our conclusion, detailed in Technical Annex, Ch. 18, is also consistent with the finding by Battelle Memorial Institute's Joint Global Change Research Institute that 9.5 quadrillion BTU/y of biomass energy482 could be provided without large impacts on the current agricultural system, yielding a few percent more biofuel at SOA conversion rates (4.6 Mbbl/d at $36/bbl) than shown in Fig. 30b. Taking a global view, a 2004 IEA biofuels report estimates that "...a third or more of road transportation fuels worldwide could be displaced by biofuels in the 2050–2100 time frame."483 And a study for DoD of how to relieve U.S. oil dependence, like many others lately, recommended a large-scale initiative in cellulosic biomass.484
Of the State of the Art potential, 99% is from ethanol, largely from lignocellulosic feedstocks. The new technologies often use very efficient enzymes (many but not all from genetically modified bacteria, and the best about tenfold cheaper than they were two years ago) for both digesting cellulose and hemicellulose into sugars and then fermenting them. Other paths include thermal processes demonstrated at pilot-plant scale, such as the Pearson Gasification process, which produces Fischer-Tropsch ethanol from synthesis gas. (The F-T process connects small hydrocarbon molecules into long chains, produces a zero-sulfur and zero-aromatics synthetic diesel fuel completely compatible with existing infrastructure, and can be applied to syngas made from any hydrocarbon or carbohydrate.) Collectively, such innovations roughly double the yields, greatly reduce the energy inputs, and often reduce the capital costs of classical corn-ethanol processes. They also offer greater scope for coproducing valuable tailored biomaterials. The other 1% of the State of the Art biofuel potential is biodiesel, an ester normally made by reacting an alcohol with vegetable oil; it too is becoming cheaper, and should soon compete in pretax price when using the cheaper kinds of feedstocks—especially those which, like used cooking oil, are often currently a disposal cost. Comparable bio-oils usable as diesel fuel can also be produced thermally from a wide range of feedstocks, as noted below, potentially increasing their fraction and the total size of the biofuel potential beyond that examined here.
Both ethanol and esterified biodiesel have been proven in widespread use, ethanol typically in 10–85% blends with gasoline and biodiesel in 2–100% blends with diesel oil.485 Brazil's 29-year-old ethanol program is now the world's low-cost producer. Using cheap sugar cane, mainly bagasse (cane-waste) for process heat and power, and modern equipment, it provides a ~22% ethanol blend used nationwide, plus 100% hydrous ethanol for four million cars.486 The Brazilian ethanol program provided nearly 700,000 jobs in 2003, and cut 1975–2002 oil imports by a cumulative undiscounted total of $50 billion (2000 US$)—more than ten times its total undiscounted 1975–89 real investment,487 and ~50 times its cumulative 1978–88 subsidy.488
The Brazilian government provided three important initial drivers: guaranteed purchases by the state-owned oil company Petrobras, low-interest loans for agro-industrial ethanol firms, and fixed gasoline and ethanol prices where hydrous ethanol sold for 59% of the government-set gasoline price at the pump.489 These pump-primers have made ethanol production competitive yet unsubsidized (partly because each tonne of cane processed can also yield ~100 kWh of electricity via bagasse cogeneration—a national total of up to 35 billion kWh/y, ~9% of national consumption).
In recent years, the Brazilian untaxed retail price of hydrous ethanol has been lower than that of gasoline per gallon. It has even been cheaper than gasoline—and has matched our 2025 cellulosic ethanol cost—on an energy-equivalent basis for some periods during 2002–04.490 Ethanol has thus replaced about one-fourth of Brazil's gasoline, using only 5% of the land in agricultural production. Brazilian "total flex" cars introduced by VW and GM in mid-2003 can use any pure or blended fuel from 100% gasoline to 100% ethanol, and are welcomed because they maximize customers' fuel choice and flexibility.491 (In contrast, the ~3 million "flex-fuel" vehicles now on U.S. roads, marketed partly to exploit a loophole in CAFE efficiency standards but seldom actually fueled with ethanol, can't go beyond the "E85" blend of 85% ethanol with 15% gasoline.)
With such a mature sugarcane-ethanol industry, Brazil is gearing up for ethanol exports that could reach 9 million tonnes a year by 2010, over half of it to Japan (the world's largest ethanol importer in 2003) and a sixth to the U.S. The main obstacles are import tariffs designed to protect existing corn-ethanol industries. The U.S. charges 54¢/gal, raising ethanol's landed East Coast price from $1.00 to $1.54/gal, and Europe charges 38¢/gal, but the U.S. tariff wall is leaking. Cargill proposes to dehydrate Brazilian ethanol in El Salvador for tariff-free export to the U.S. under an exception in the Central America Free Trade Agreement, despite heavy opposition from the U.S. corn lobby. Peru is about to open a 25–30,000 bbl-ethanol/d export facility that would be tariff-free under the Andean Trade Preference Act. Meanwhile, China is exploring major investments in Brazil to produce both ethanol and castor oil or biodiesel for shipment to China.492
Europe produced 17 times as much biodiesel in 2003 as the United States did, and the EU is demonstrating that a transition to biodiesel is feasible. European countries place high taxes on transportation fuels (as high as 74% of the UK's $5.5/gal price for diesel fuel493), but have been able to implement partial (UK, France) and even full (Germany, Austria, Italy, Spain) biodiesel de-taxation.494 This makes biodiesel competitive with traditional diesel fuel and supports bio-oil feedstock producers as their agricultural subsidies are phased down. In addition, the European Commission Directive of 2003 established biofuel targets of 2% energy content of all transport fuel by 2005 and 5.75% by 2010.495 Unsubsidized cost-effectiveness will continue to be difficult for biodiesel, however, as competition for feedstocks increases and as prices for the byproduct glycerin fall with increased supply (unless those lower prices elicit major new glycerin markets).
The biofuels transition already underway will have significant impacts on its related industries. Fuel standards will force the development of new relationships among automakers, engine makers, and fuel suppliers in order to evaluate biofuels' impacts on automobile engines and their warranties (such as the Volkswagen/DaimlerChrysler/CHOREN Industries renewable fuels collaboration). European automakers have already approved biodiesel blends of up to 5% and are reportedly evaluating blends up to 30%. Retail fuel distribution will probably remain the same, but the dominant players in the distribution chain may change. Germany has seen BP and Shell become the dominant distributors of biofuels, while independent companies like Greenergy have taken the lead in the UK by selling branded biofuel products through supermarkets and hypermarkets.
In the U.S., the combination of vehicle efficiency and ethanol output analyzed here suggests that by 2025, the average light vehicle's fuel will contain at least two-fifths ethanol, rising thereafter—even more if ethanol is imported. To accommodate regional variations on this average, "flex-fuel" vehicles accepting at least E85 should therefore become the norm for all new light vehicles not long after 2010. "Total flex" vehicles like those now sold in Brazil would further increase the potential to accelerate ethanol adoption and to manage spot shortage of either gasoline or ethanol. In short, many of the fuel-system, commercial, vehicle-technology, and production developments that the U.S. would need for a large-scale biofuel program have already succeeded elsewhere; the main shift would be using modern U.S. cellulosic ethanol conversion technologies.
477. In 2003, 2.8 billion gallons of ethanol were produced, vs. 137.1 billion gallons of gasoline (EIA 2004d, Table 3.4).
478. E.g., Dakota Value Capture Cooperative's single-site closed-loop project in Sully County near Pierre, South Dakota, combining a cattle feed mill, feedlot, anaerobic digester, cogeneration plant, and ethanol plant, and exports ethanol, CO2, wet distillers byproducts, liquid fertilizer, compost, and cattle. See www.dakotavcc.com.
479. NAS/NRC 1999.
480. The conversion rate of 1.23 gallons of ethanol per gallon of gasoline is calculated as follows: ethanol contains only 67.7% of the heat content of gasoline (84,600 BTU/gal [Higher Heating Value] divided by 125,000 BTU/gal [also HHV]). However, Wyman et al. (1993, p. 875) maintain that, "a 20% gain in engine
efficiency can be obtained relative to gasoline in a well-designed engine." Therefore, multiplying 67.7% by 1.2 equals 0.812 gallon of gasoline per gallon of ethanol or inversely, 1.23 gallon of ethanol per gallon of gasoline.
481. I.e., 3.7 Mbbl/d divided by EIA's projected 2025 oil demand of 28.3 Mbbl/d is 13%, and is 18% when divided by the remaining oil demand of 20.8 Mbbl/d after State of the Art efficiency savings.
482. Smith et al. 2004. Assuming our State of the Art conversion rate of 180 gal ethanol/dry short ton (dt), this equates to 4.6 Mbbl/d. The intermediate price is $36/bbl crude oil, but unlike ours, is not converted on the short-run margin from the retail product price.
483. This IEA study predicts a post-2010 price for cellulosic ethanol of $0.19/L or $0.72/gal (IEA 2004a, Table 4.5, p. 78)—higher than our predicted State of the Art price of $0.61/gal ethanol ($0.75/gal gasoline-equivalent), or slightly lower if Table 4.6 (IEA 2004a, p. 79) is correct in labeling the IEA figures as gasoline-equivalents. The IEA price is based on an NREL estimate (as quoted in IEA 2000), that assumed an ethanol conversion rate of 112 gal/ton vs. our SOA conversion rate of 180 gal/ton. Substituting the 180 gal/ton rate into the IEA calculation results in a price of $0.57/gal ethanol, which is actually lower than our predicted SOA price.
484. Petersen, Erickson, & Khan 2003.
485. However, not all U.S. biodiesel is blendable with petroleum diesel. Moreover, Congress has at times defined biodiesel (chiefly to promote certain subsidies) as involving only certain feedstocks (such as virgin vegetable oils—excluding, e.g., used cooking oils and animal tallow), or being esterified with only certain alcohols (such as methanol to the exclusion of ethanol and others), or requiring transesterification (thus excluding equivalent fuels that remove long-chain fatty acids' carboxyl group by a thermochemical process instead). Such exclusive definitions may make sense for soybean producers and others seeking favorable treatment for their own option, but make no sense for a country seeking to maximize deployment of and competition between different bio-oils that are equally functional for displacing diesel fuel.
486. Wyman 2004; Goldemberg et al. 2004. The blend is nominally sold as 22% ethanol (range 20–26%), the rest gasoline, while the neat hydrous ethanol is 95.5% pure ethanol and ~4.5% water.
487. Goldemberg et al. 2004.
488. WBCSD 2004, p. 107.
489. Goldemberg et al. 2004.
490. Table 4.4 on p. 77 of IEA 2004a shows that in fact, in mid-2002 and early 2004, Brazilian bioethanol (at ~$0.72/gal gasoline-equivalent) achieved our 2025 bioethanol price of $0.75/gal gasoline-equivalent. See Goldemberg et al. 2004.
491. IPS 2003. McClellan (2004) estimates a ~70% market share for "total flex" vehicles by 2007 in Brazil.
492. Bio-era 2004.
493. Calculated from the
June 2004 supermarket price of £0.795/L or £3.01/U.S. gallon (Automobile Association 2004),
converted at the approximate June 2004 exchange rate of £0.55/$.
494. Automobile Association 2004. The favored feedstocks are rather costly: U.S. biodiesel made from canola (called "rapeseed" in Europe) costs ~$60/bbl
on the short-run margin.
495. European Parliament 2003.
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