Biofuels Done Right?

Images from the “slow-motion catastrophe” that began last week 50 miles off the coast of Louisiana brought to mind a bit of sarcasm I offered to a colleague almost exactly a year ago. The NRDC was running the below ad on Capitol Hill, saying, “Biofuels. If we’re going to use them, let’s do it right,” with a picture of the deforestation that many assumed would occur from use of biofuels.

NRDC-- Biofuels Done Right Ad

My facetious idea was to run a counter ad, with pictures from the Exxon Valdez disaster, asking NRDC if they considered “biofuels not done at all” to be done right. And perhaps that ad could have been rerun on March 31, as the Obama administration announced with purely Orwellian logic that plans for expanding offshore oil drilling were “part of a broader strategy that will move us from an economy that runs on fossil fuels and foreign oil to one that relies on homegrown fuels and clean energy.”

Now, of course, 5,000 barrels of oil each day are spilling into the Gulf of Mexico from the ruptured pipes of a deep sea oil well, creating an oil slick covering 400 square miles. While not yet rivaling the Exxon Valdez disaster, where 258,000 barrels leaked, the threat to wildlife and sensitive wetlands still exists. And consider, an estimated 90 rigs drilling in the Gulf of Mexico provide 1.7 million barrels of oil a day, nearly one-third of total US production.

Today, President Obama is touring a POET biorefinery in Missouri and talking about the need for increased biofuel production:

For decades, we’ve talked about how our dependence on oil from other countries threatens our economy. But usually our will to act kind of rises or falls depending on the price at the pump. We talked about how it threatens future generations, even as we witnessed some funny things going on in terms of our climate change, and recognizing the environmental costs of relying on fossil fuels, but, frankly, we always said we’ll get to it tomorrow. We talked about how it threatened our security, but we’ve grown actually more dependent on foreign oil every single year since Richard Nixon started talking about this danger of dependency on foreign oil.”

But of course, cellulosic and advanced biofuel production has fallen short of goals, primarily due to a lack of capital needed for rapid scale up. Investor confidence in the sector was undermined in 2008 and 2009 by a combination of the economic recession, wild volatility in feedstock costs, and predictions of impending doom by opponents of biofuels.

Investor confidence may be slowly recovering, according to recent indications, but the overall mood still remains skeptical. A few of the more choice pronouncements indicate the general mood.

Want to become a millionaire investing in publicly traded advanced biofuel stocks? One way would be to start as a multi-millionaire.”

“Very few investors in any cleantech sector are going to be investing the amounts of capital we saw at the height in 2008,” when venture capitalists were investing in production facilities, says Dallas Kachan, managing director of the Cleantech Group, a research and consulting firm that tracks venture-capital spending in green technology.

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Ways and Means Should Include Job Creation of Advanced Biofuels and Bioproducts in Green Jobs Leg

On Wednesday, April 14 the House Ways and Means Committee will hold a hearing on Energy Tax Incentives Driving the Green Job Economy. The focus of the hearing is to examine the effectiveness of current energy tax policy and identify additional steps that the Committee can take to ensure continued job growth in this area while at the same time advancing national energy policy focus on a discussion of current and proposed energy tax incentives. Witnesses for this hearing have not been announced and we do not know how much of the hearing will focus on transportation fuels however, energy tax incentives for biofuels and biobased products should be a significant area of focus for this round of green jobs legislation. These technologies are ready to deploy and create near term job opportunities.

Industrial biotechnology is the key enabling technology for producing biofuels and biobased products like bioplastics and renewable chemicals to aid in reducing our dependence on foreign sources of oil, thereby reducing greenhouse gas emissions. They also have the ability to crate jobs, jobs that are currently moving overseas due to their reliance on petroleum as a feedstock or more favorable economic or political environments.

The United States has invested considerable amounts of taxpayer dollars to try to revive our economy. Too often, though, the resulting jobs are being created overseas, as other countries invest in green technology deployment. As a result, the opportunity to improve our economic competitiveness is lost. The United States is a leader in the research and development of green technologies, but to maintain that lead we must invest in the companies that are putting that green technology to work in our economy. These industries have shed hundreds of thousands of domestic jobs over the past two decades, as petroleum producing countries have attracted more capital investment. For example, U.S. chemical and plastics companies have increased capital investment outside the United States by 32 percent over the past decade, while increasing investment within U.S. borders by only 2 percent.

The Renewable Fuel Standard (RFS) enacted as part of the Energy Independence and Security Act of 2007 sets the minimum level of renewable fuel that must be produced and blended into the US transportation fuel supply at 36 billion gallons by 2022. 21 billion gallons of that requirement must be cellulosic or advanced biofuels. Direct job creation from the advanced and cellulosic biofuels volumes in the RFS could reach 29,000 by 2010, rising to 190,000 by 2022. Total job creation could reach 123,000 in 2010 and 807,000 by 2022. Jobs will be across many sectors of the economy. Some projected job creation sectors are: labor/freight, mixing and blending machine operators, shopping/receiving/traffic clerks, truck drivers, chemical equipment/technicians, chemical plant/system operators/electrical, sales etc.

The Ways and Means Committee can aid in accelerating this job creation by incentivizing biorefinery construction here in the United States. In 2008 Congress enacted a cellulosic biofuels production tax credit and enhanced depreciation for advanced biofuels facilities as part of the 2008 Farm Bill, both of which are scheduled to expire on December 31, 2012. Due to an overall downturn in the worldwide economy, this tax credit has not yet been utilized by cellulosic biofuels producers. This credit needs to be extended now in order to signal to investors that a plant being constructed this year, will have certainty in the availability of that tax credit once the plant begins to produce the advanced biofuel. A tax credit that expires before or shortly after production begins, does not create economic security for a yet to be built advanced biofuel biorefinery looking for funding. Furthermore, capital costs for construction of next generation biorefineries, which utilize renewable biomass to produce next generation biofuels and biobased products, are a substantial barrier to commercialization. Congress should provide an investment tax credit to help accelerate construction of next generation biorefineries and speed deployment of next generation fuels, chemicals and products.

Historically, the U.S. chemicals and plastics industry was the envy of the world. At its peak in the 1950s, the industry was responsible for over 5 million domestic jobs and a $20 billion positive trade balance for the United States. Jobs associated with the industry were typically among the highest paid in U.S. manufacturing. However, the petro-chemicals and plastics industries are now hemorrhaging jobs overseas. Conversely, biobased products and chemicals production, like domestically produced biofuels, will stay in the U.S., in close proximity to their biomass feedstocks. Total US employment in the chemicals industry declined by over 20% in the last two decades and is projected to decrease further. The US is a world leader in industrial biotechnology with a wide range of companies pioneering new, renewable pathways to traditional petroleum-based chemicals and plastics.

The potential job creation from bio-products is immense. Consider that the nascent biobased products industry employed over 5,700 Americans at 159 facilities in 2007 and every new job in the chemical industry creates 5.5 additional jobs elsewhere in the economy. Currently the biobased products portion represents only about 4 percent of all sales for the industry. Congress should create targeted production tax credits that can help them to expand their share of the market and grow additional domestic jobs. With an industry with the potential to grow by over 50% per year, bio-products can form the basis for a strong employment growth engine for the US.

Clearly commercializing the advanced biofuels and biobased products industries is an integral solution to creating high caliber domestic green jobs in the United States that will catapult this country to be a leader in successful high tech, sustainable technologies. BIO will be urging the Ways and Means Committee through written comments to recognize that innovations such as these are some of the most promising sources of green jobs and economic growth for the future.

Weekly Blog Wrap Up

There’s a lot going on in the blogosphere about the world of biofuels this week. Yesterday, the World Wildlife Fund released a report,which according to NCTechnews.com,

“concludes that industrial biotechnology can provide dramatic reductions in greenhouse gas emissions and provide strong progress toward a green and sustainable economy. WWF calls for increased political backing for the industry to leverage the positive environmental effects. The findings are based on peer-reviewed research from Novozymes, the world leader in bioinnovation, as well as contributions from experts and WWF”

Renewable Energy World writes about the “The Algal Advantage.” Algae is big because,

“The big pay-off in algae biofuels will be as drop-in replacements for gasoline or jet fuel. Successful test flights have already been run on mixtures of petroleum and algal-based jet fuels. Chisti says, “generally, only a portion of the crude algal oil is suitable for making biodiesel, but all of it can be used to make gasoline and jet fuel.” For this, the fatty acids in the algal oils are refined by hydrogenation and hydrocracking.”

Algae is also big because, Sapphire Energy has developed a car that runs on algae derived fuel, that can cross the country on just 25 gallons of fuel. The Singularity Hub writes about the car, called Algaeus and has this to say,

“According to the press release, the coast to coast trip will be a ten day journey (September 8 -18) that culminates in the nationwide premier of the new movie Fuel by Josh Tickell of Veggie Van fame. See the trailer below. While the media coverage of the movie is sure to be hyperbolic, I’m much more interested in the premises behind Sapphire Energy. This San Diego based company hopes to use its algae-based fuel to work in the three major petrol markets: gasoline, diesel, and jet fuel. They plan on ramping up production to a rate of than 2 million gallons of diesel per year in the next two years. That’s a small blip on the petroleum market, but a blip that is arriving much sooner than many expected.”

Still in the world of biofuels, Green Tech writes about making better biofuels,

“Research on nuclear energy and hydrogen has yielded what backers say is a technology that could replace U.S. oil imports with biofuels made from agricultural by-products.
Scientists at Idaho National Laboratory have been working for the past year and a half on a process to convert biomass, such straw or crop residue, into liquid fuels at a far higher efficiency than existing cellulosic ethanol technologies.”

“The key advantage is that bio-syntrolysis would extract far more energy from available biomass than existing methods, said research engineer Grant Hawkes. Using traditional ethanol-making techniques, about 35 percent of the carbon from wood chips or agricultural residue ends up in the liquid fuel. By contrast, the bio-syntrolysis method would convert more than 90 percent of that carbon into a fuel, he said.”

The New Energy World Network, picks up the story with a post about Continental airlines,

“Biofuels are increasingly being seen as a viable alternative to conventional jet fuel in the US, according to Continental Airlines’ managing director for Global Environmental Affairs, Leah Raney. The Houston-based carrier has also been implementing its green initiatives across its ground services fleet in its major hubs in Houston, Newark and California by switching to electric vehicles and related infrastructure and using biodiesel in cold weather locations.”

Do you like dates, the fruit, not the social activity? Can you imagine those little packages of sweetness being turned into biofuel? They can in Iraq.

According to the Bioenergy Site,

“Iraq’s prime minister has approved a project by a United Arab Emirates-based company to make biofuel from dates that would otherwise be wasted because they have started to perish, Iraqi officials said on Sunday.”

“Faroun Ahmed Hussein, head of the national date palm board, said the Emirati company would produce bioethanol from dates that farmers cannot export because they are starting to rot. It would be used domestically at first, then possibly later exported.

He declined to name the company, estimate the cost of the project or say how much bioethanol it was expected to produce.

He said Iraq produces 350,000 tonnes of dates annually, a sharp fall from 900,000 tonnes produced before the US-led invasion to oust Saddam Hussein but still more than the 150,000 tonnes it currently consumes. Some are fed to animals, he said.

“They can’t export the left over quantities owing to their poor quality,” Hussein said. “Farmers will be happy to sell their rotten dates instead of throwing them away.”

And finally the world of biofuels winds up with a serious policy issue, that is a “Greater Distinction Needed for Biofuels as Fuel Component under Cap and Trade,” writes 25x’25, they go on to say,

“As Congress continues its debate on comprehensive climate legislation, any measure adopted must adequately recognize and incentivize the extensive benefits biomass and the production of biofuels can provide to address global climate change. The 25x’25 Carbon Work Group has recently reemphasized the need for policy makers to modify pending cap-and-trade provisions to more clearly recognize those agricultural and forestry practices that can contribute to climate change regulation and make those practices eligible as offset projects. Policy makers also should make clear in a final climate change bill that biofuels, including the biofuel component of fuels blends, are not obligated under the emissions cap and are a preferred alternative to fossil carbon-based transportation fuels.”

That’s it for this week. See you next week.

Data Also Disproves Food v. Fuel Claims

The Wall Street Journal’s Scott Kilman reported earlier this week on a letter sent by General Mills, the Grocery Manufacturers Association and Kraft Foods to Ag. Sec. Tom Vilsack, asking for reduction of trade tariffs on sugar. From Kilman’s article and the letter, it’s clear that grocery manufacturers are once again trying to distract public attention from their price increases by pointing a finger of blame at biofuels.

Last year, you may recall, Roll Call exposed the Grocery Manufacturers Association’s plan to use the food vs. fuel debate to cover their industry’s price increases.

Kilman writes:

Prices are up because the world is consuming more sugar than farmers are producing. One big factor: The world’s largest sugar producer, Brazil, is diverting huge amounts of its cane crop to making ethanol fuel. Likewise, the food industry has complained bitterly in recent years about the U.S. ethanol industry’s ravenous appetite for corn, which helped push up prices for that key ingredient too.”

Sugarcaneblog provides the real explanation for current, temporary sugar price increases – rain has slowed the pace of harvesting – even while Brazil’s sugar production is up 15 percent this year.

Reuters reporter Brad Dorfman provides much more thorough, clearer analysis on the claims made by the grocery manufacturers:

Food industry analysts say inflation should be contained for an industry that sharply increased prices in the past year as costs for commodities such as vegetable oil, wheat and corn surged.
“Many commodity prices have retreated, and manufacturers are trying to defend the price increases as consumers and retailers try to rein in costs in a weak economy.”

The Consumer Price Index shows that food prices have actually declined a percentage point over the first half of this year, after rapid increases in the past two years. The data also show that the increases in the past year were out of proportion to inflation in other categories.

CPI Percent increase/decrease

2002

2003

2004

2005

2006

2007

2008

2009

Food

1.5

3.6

2.7

2.3

2.1

4.9

5.9

-1.1

Energy

10.7

6.9

16.6

17.1

2.9

17.4

-21.3

14.8

Other Goods

1.9

1.1

2.2

2.2

2.6

2.4

1.8

2.3

Source: Bureau of Labor Statistics.

Neither biofuels nor energy provide a good explanation for increases in food prices.

Increases in food price inflation do not correlate well to either biofuel production or energy price data.

Increases in food price inflation do not correlate well to either biofuel production or energy price data.

Even a Congressional Budget Office study requested by Members of Congress who wanted to make a case that biofuels’ were raising the cost of government food programs could only find a 10 percent to 15 percent impact on food prices from biofuels. That study showed that nearly two-thirds of the price increases could not be explained by either biofuels or energy prices.

Of the 5.1 percent CPI increase for food between April 2007 and April 2008, energy had a larger effect than biofuels. But even together, they account for a fraction of food price inflation:

Biofuels

0.5 to 0.8

10 to 16%

Energy

1.1

22%

Other Causes

3.2 to 3.5

62 to 68%

Source: Congressional Budget Office, “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions,” April 2009

So why is GMA resurrecting its campaign to blame biofuels for food price increases? (See also their letter to Sen. Boxer from a few weeks ago.) Likely because it was a very profitable strategy for them last year and it continues to work, at least with half the time.

Land O’Lakes

16%

Kraft Foods

21%

Sara Lee

55%

General Mills

61%

Kellogg Co.

9%

Source: 2020 Project, FoodPriceTruth.org.

Opportunity Costs

The Washington Post this week reported on a carbon-credit proposal being put forward by Ecuador for consideration in UNFCCC Climate Change Talks. Ecuador is asking for carbon credits in exchange for leaving undisturbed one-fifth of its petroleum reserves, which are located beneath a protected national park that is part of the Amazon rainforest.

The proposal is similar to one put forward by Brazil last August, called the Amazon Fund, which asks foreign countries to donate money for investment in Brazilian businesses that would conserve the Amazon rather than cut it down – rubber production, for instance, rather than timber, cattle, and agriculture.

The Intergovernmental Panel on Climate Change recognizes natural and managed forests as potential carbon sinks, but not untapped petroleum reserves.

Ecuador’s proposal highlights one of the more obscure calculations in the life cycle emissions of biofuels included in the EPA’s proposed rule — namely “foregone sequestration.” Because natural forests store more carbon than managed agricultural land, biofuels are assessed an opportunity cost stemming from conversion of forest or grassland to agriculture. This is not actual carbon released from the forest or grassland, but a penalty for not preserving a carbon sink (or, in the case of grassland, not converting it to a forest).

The EPA has assumed and applied to biofuels a constant rate of foregone sequestration over a period of 80 years. In fact, the cumulative calculated emissions of corn ethanol include only this opportunity cost after the 20 year mark. The rate is equal to nearly half the calculated emissions of the gasoline baseline. The inclusion of this factor more than doubles the calculated emissions per acre of converted Brazilian forest land assumed to be caused by U.S. biofuel production.

A similar opportunity cost should arguably be applied to petroleum, particularly if Ecuador’s proposal moves forward and the international community recognizes untapped petroleum reserves as potential carbon sinks. In the case of Ecuador, this opportunity cost might include both the emissions that could have been avoided by leaving fossil carbon in the ground and the deforestation caused as roads, pipelines, and drilling sites are cleared from the Amazonian forest.

Don’t Worry, Be Happy

The EPA has released its long-awaited proposed rules for the Renewable Fuel Standard, including calculations of the lifecycle greenhouse gas emissions for various biofuels. Unlike California, the EPA is proposing to “discount” the greenhouse gas emissions of both biofuels and the baseline petroleum gasoline. The discount rate that EPA uses for most of the calculations it presents is 2 percent over 100 years, although it also proposes using a 0 percent discount rate and a 30-year time span and is taking comments on other combinations. Biofuel critics immediately decried the use of the 100-year timeframe because the resulting calculation produces a better outcome for biofuels.

Denver Post columnist Vincent Carroll writes:

But the mere fact that it would consider measuring ethanol’s carbon impact over 100 years — or should we say guessing at it? — is evidence enough of the ethanol lobby’s stature.”

And the Washington Post’s Juliet Eilperin and Steve Mufson report:

The EPA raised the possibility of computing greenhouse gas costs over a 100-year period instead of a 30-year period. The longer time frame would make the benefits of corn-based ethanol seem greater while discounting the initial costs, such as the loss of untilled land, over time. For example, the EPA said corn-based ethanol is 16 percent better than regular gasoline if its costs are calculated over 100 years, but 5 percent worse over 30 years.
‘EPA has left open the option that an exception to good science could be made in the case of a favored special interest,’ said Frank O’Donnell, who heads Clean Air Watch.”

Both biofuel supporters and detractors should be wary of these calculations and of the precedent they could set. It’s abundantly clear that few people understand what the numbers mean.

The timeframe being discussed is for application of a “foregone sequestration” penalty — the number of years that converted land is considered to be foregoing its preferred use for carbon sequestration as forest or grassland. This penalty is added over and above the initial assumed release of carbon from conversion of the land (and note that there is no comparable penalty for not leaving petroleum carbon “sequestered” underground). Under normal circumstances, industry would prefer a short timespan – fewer than 30 years. After this period, the land would be considered agricultural land rather than former forest and would no longer accumulate a carbon penalty.

The choice of a discount rate is intended to measure present day valuations of costs and benefits over time. So, what are the costs and benefits of reducing greenhouse gas emissions that EPA is discounting? In the analysis, it is the cost of converting forest and grassland to agricultural land in order to obtain the benefit of reducing greenhouse gas emissions from transportation in the future – the “payback”. What the EPA should have measured, though, is the cost of converting our petroleum-based system of transportation to a biomass-based one versus the benefits of reducing greenhouse gas emissions.

The results in the EPA’s proposed rule are skewed by two indefensible assumptions. First is the assumption that the baseline for greenhouse gas emissions from petroleum should be discounted. The law requires establishment of a baseline for gasoline in 2005. To apply a discount rate assumes that the baseline will improve by some rate of change over time. And since petroleum is not assessed a foregone sequestration penalty, the cost of taking carbon from well below ground and putting it into the air is essentially free.

A positive discount rate says that future reductions in greenhouse gas emissions are less important to Americans than the present day costs. Since EPA applies the discount to the petroleum baseline, it is in effect saying that Americans will care less and less about reducing greenhouse gas emissions over time if it means that they have to change their driving habits today. In other words, don’t worry, keep using petroleum and be happy.

Second is the assumption that biofuels are causing land conversion around the world and that the land conversion is always and everywhere accomplished by burning the ground cover and immediately releasing massive amounts of carbon. This unfounded and unproven assumption skews the results of the analysis to the point that the application of a highly unfavorable discount rate appears to benefit the industry and draws the wrath of environmental advocates.

But the reaction from O’Donnell and Carroll shows that biofuel opponents will decry any outcome as politics trumping science — unless it’s their politics that trump science.

Comparing Energy Sources

Stanford University Professor Mark Z. Jacobson recently published a new paper in the journal Energy & Environmental Science, “Review of solutions to global warming, air pollution, and energy security.” According to Stanford News Writer Louis Bergeron,

Jacobson has conducted the first quantitative, scientific evaluation of the proposed, major, energy-related solutions by assessing not only their potential for delivering energy for electricity and vehicles, but also their impacts on global warming, human health, energy security, water supply, space requirements, wildlife, water pollution, reliability and sustainability.”

The paper claims to demonstrate that wind and solar power are preferable options to nuclear power and biofuels. Of course, Professor Jacobson makes all the best-case assumptions in favor of wind and solar power and all the worst-case assumptions about biofuels and nuclear power, saying, for example, that there is a limit of 30 percent market share for biofuels but no limit to other technologies. In his words, wind and solar power “could theoretically power the entire US onroad vehicle fleet.” He takes this assumption despite the significant hurdle and cost to consumers of replacing that entire internal combustion fleet with electric vehicles.

The comparison of fuels is skewed, to say the least.

More interesting though is Jacobson’s views on how costs and benefits should be weighed when considering investment in technology to address climate change. His views are relevant to the discussion of discount rates that the EPA is currently considering in its ANPR on Regulating Greenhouse Gas Reductions Under the Clean Air Act and the delayed NOPR on the Renewable Fuel Standard. (See earlier post on the growing debate of discount rates.)

Jacobson offers reasoning that makes a case against the application of a discount rate in the NOPR:

Costs are not examined since policy decisions should be based on the ability of a technology to address a problem rather than costs (e.g., the U.S. Clean Air Act Amendments of 1970 prohibit the use of cost as a basis for determining regulations required to meet air pollution standards) and because costs of new technologies will change over time, particularly as they are used on a large scale. Similarly, costs of existing fossil fuels are generally increasing, making it difficult to estimate the competitiveness of new technologies in the short or long term.”

In other words, the benefits of implementing a technology now should not be discounted because its costs can be expected to fall while oil’s costs rise. Further on, he makes a statement that seemingly belies his analysis that solar and wind for electric vehicles are preferred to biofuels:

The investment in an energy technology with a long time between planning and operation increases carbon dioxide and air pollutant emissions relative to a technology with a short time between planning and operation. This occurs because the delay permits the longer operation of higher-carbon emitting existing power generation, such as natural gas peaker plants or coal-fired power plants, until their replacement occurs. In other words, the delay results in an opportunity cost in terms of climate- and air-pollution-relevant emissions. In the future, the power mix will likely become cleaner; thus, the opportunity-cost emissions will probably decrease over the long term.”

Biofuels are available today and can immediately reduce greenhouse gas emissions from fossil fuels. Solar- and wind-fueled electric vehicles will take time to implement, representing what Jacobson clearly considers an opportunity cost.

According to the EPA’s arguments, a positive discount rate should be applied to greenhouse gas reduction technologies, such as biofuels, because investing in them today represents an opportunity cost to save that money and invest in cleaner technologies at a later date. Further, because there will be only small benefits today compared to increased benefits in the future, their value to the current generation is less.

It will be interesting to see how the incoming Obama administration treats the discount rate issue. Clearly they accept that greenhouse gas emissions are an immediate challenge requiring a variety of technologies, each representing part of the solution. That should say that it is inappropriate to discount the value of any technology that can be implemented immediately.