Cellulosic Ethanol Is Getting a Big Boost from Corn, for Now

by Ryan Fitzpatrick (Third Way) Cellulosic fuels offer economic, environmental, and national security benefits, but scaling-up the technology has proven difficult and costly.

Companies with an extensive background in the corn ethanol industry are cracking the cellulosic code, with projects that account for more than 80% of commercial capacity in the U.S.

Continued investment from these companies in facilities and innovation is critical to growing U.S. cellulosic capacity, especially in the near term.

Certain proposals to reform the Renewable Fuel Standard would discourage engagement from the corn ethanol industry, delay the commercialization of cellulosic ethanol in the U.S., and steer this investment overseas.

Congress had several reasons to pursue this particular biofuel technology. Cellulosic fuels have a very small carbon footprint, emitting up to 115% less greenhouse gases than gasoline (compared to an average reduction of 34% from corn starch ethanol).⁶ They also can be produced from a wide variety of feedstocks, providing agricultural opportunities in regions across the country, on land that might not be suitable for other crops, and using biomass materials that are currently treated as waste.⁷ Finally, developing fuels from cellulosic plant materials would allow for increased levels of biofuel production while minimizing the diversion of grains like corn away from the livestock feed supply.⁸ Because of these superior characteristics, cellulosic fuels sidestep much of the criticism levied by opponents of biofuels in general and enjoy a broader base of political support.

Although attempts to harness the immense environmental, economic, and national security benefits of cellulosic ethanol have largely been thwarted, the U.S. might have found a partner that can help break the logjam—its corn ethanol industry.

Several small and upstart firms have successfully reached pilot phase and even completed small-scale demonstration projects, and they may still take their cellulosic technologies to the next level. But so far, getting to commercial-scale plants that can produce meaningful quantities of fuel has been less romantic than a Silicon Valley success story. For the most part, these larger plants have been spearheaded by established companies with a sizeable presence in the corn ethanol industry as producers, suppliers, or service providers. In fact, projects sponsored by three of these companies (Abengoa, POET/DSM, and Quad County Corn Processors) account for over 80% of total U.S. cellulosic ethanol capacity. That number will rise to 88% once a fourth company (DuPont) opens its cellulosic facility later this year.12

Third Way examined these four companies to determine what kinds of advantages their common background in first generation ethanol may have afforded them; how these types of companies could help the U.S. realize its cellulosic goals; and how their contribution to cellulosic development would be affected by certain RFS reform proposals.

Making cellulosic ethanol requires enzymes that can break down cell walls and access sugars in the cellulose of plant material.¹³ Developing the enzymes and other technologies to do this cost-effectively and at a large scale has proven to be a complex and costly endeavor—one that has stifled many an attempt to reach commercialization. Today’s cellulosic ethanol producers have addressed this issue by taking advantage of in-house R&D capabilities that they developed through their corn ethanol businesses, and by coaxing top biotechnology firms into strategic partnerships.

Like any “first of a kind” project, cellulosic facilities are expensive to build—roughly 5 times the per-gallon cost of a standard corn ethanol plant.²⁰ And because of the technology and regulatory risks associated with cellulosic projects, the few lenders who are willing to invest expect incredibly high returns.²¹ The first generation companies that have overcome this challenge used resources and expertise acquired from their corn ethanol businesses to secure financing and to cut their capital and production costs.

Since oil and gas companies have largely ceased this kind of major investment in advanced biofuels projects, the engagement of large, well-funded companies with existing interests in the biofuels industry is proving vital in helping to fill-in the investment gap.²⁹

In spite of its intense lobbying campaign against the RFS, the oil and gas industry actually wants ethanol—at least up to a certain point. This may seem counterintuitive, since biofuels compete with petroleum for space in the fuel tank. But because of its high octane content, ethanol is a desirable “oxygenate” and octane-boosting additive that improves the efficiency of gasoline combustion and reduces emissions of certain regulated pollutants.⁴⁵

From the oil industry’s perspective, the optimal mix of ethanol for this purpose is roughly 10%.⁴⁶ The U.S. consumed 137 billion gallons of gasoline in 2014.⁴⁷ So theoretically, there would have been demand for about 13.7 billion gallons of ethanol as an octane booster and oxygenate that year—even without the RFS. Because of its low price and availability, that ethanol demand would be met almost entirely by the 15 billion gallons of capacity at existing corn ethanol plants.⁴⁸ Export demand would occupy much of the remaining capacity not used for the octane/oxygenate market.⁴⁹ In essence, eliminating the corn ethanol portion of the RFS requirement would not significantly reduce corn ethanol production—unless cellulosic ethanol were available to economically meet the oil and gas industry’s octane boosting and oxygenate needs.⁵⁰ Producing this quantity of cellulosic ethanol in the near term would be a nearly impossible task. And, as explained in the next section, it would need to be accomplished without the help of companies engaged in corn ethanol production.

Replacing corn ethanol with cellulosic may sound like the perfect outcome to some supporters of corn-gutting policies. In practice, however, this approach is highly unlikely to produce the desired results. By disengaging first generation industry from the effort, it greatly reduces the odds of achieving substantial cellulosic ethanol production, especially in the near term. And without large quantities of cellulosic ethanol to serve as a substitute, current levels of corn ethanol will still be produced in order to meet the oxygenate needs of the gasoline supply. READ MORE and MORE (DomesticFuel.com) and MORE (Renewable Fuels Association) and MORE (Ethanol Producer Magazine)