Biofuels Perfect Storm

Never before has there been a time of big changes for the biofuel industry as today.
In 2009, the U.S. produced just over ten billion gallons of corn-based ethanol and no
cellulose-based (wood chips, grass, etc.) ethanol. Today, those numbers are fifteen
billion and two billion, respectively. We are producing more corn ethanol now than
the U.S. has or will ever be projected to produce. Conversely, the projected
cellulosic numbers were consistently increasing and reaching the same levels as
corn ethanol by 2022. Yet the industry is not making meaningful profit and not
without government subsidies. The journey has been difficult and the future seems
more uncertain with lower fossil fuel prices and no guarantee of continued
government incentives. The factors posing challenges as well as opportunities for
the industry are:
1. Inefficiency
2. Pollution
3. Leveled Playing Field
Two of the above are opportunities and one is a challenge. The key and this is the
most important point of this article is to overcome the challenge. I believe once this
is achieved, the industry can become self sufficient and biofuel can be cost effective
to produce. The good news is that there is much room for improvement.
Inefficiency:
In recent years, the costs of producing biofuel has been similar to its market price.
The technologies for making biofuel are the same ones that have been used for a
thousand years. The facilities for making biofuel is about the size of a football field
and the cost of building an average plant producing a hundred million gallons per
year is two hundred million dollars. A flow diagram connecting all the processing
equipments looks like a maze. It is a structural problem that needs upgrading
except there is no way for funding it. Investors are not willing to put additional cash
into the plants not earning their returns. Plants cannot look to cashflow as funding
to leverage external technologies or internal innovations, without which federal
grants will not be awarded. Producers are stuck with outdated, expensive, and
inefficient technologies without much hope for improvement. A good number of
them had no options but to cease operations. If the industry were to succeed at
advancing cellulosic biofuel, there needs to be not just structural changes but also
biochemical and biologic processing advances with roots in biotechnology. The
current equipments use too much energy and produce too much waste including
biomass waste that can be recycled and reused more effectively.
Pollution/Leveled Playing Field:
Biofuel has the advantage of being a cleaner, renewable source of alternative
transportation energy. Although the carbon emission benefit of biofuel is
contentious, a carbon credit called RINs (Renewable Identification Numbers) along
with tax credits are available to producers for every gallon they manufacture.
Biofuel also has the advantage of gaining popularity around the world. Vietnam, for

example, has recently mandated the use of E5 (five percent ethanol in petroleum)
gasoline in some parts of the country. In the U.S., E10 to E85 is currently available
but the lower limit of E15 is in the planning. In other parts of the world, Brazil has
E25-E100 and Australia, Thailand, Canada, China, and India all use E10. As the
worlds population size increases, there is also an increase in the demand for
energy, without which life would be bleak and harsh. While fossil fuel may be
present in some parts of the globe and absent in others, sunlight is everywhere and
as long as there is light, there is biofuel.