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Will Low Oil Prices Be the Downfall of Cellulosic Biofuels?

Submitted by on February 8, 2015 – 7:00 pmNo Comment

by Wally Tyner (The Conversation/Purdue University)  … One challenge to commercializing biofuel made from non-food sources — called cellulosic biofuels — has been cost.

Unlike ethanol made from corn, cellulosic biofuels are made from the inedible parts of plants or organic materials, so there isn’t competition between food and fuel. But given the rapid decline in crude oil prices since last summer, it is logical to ask what the impact of lower crude oil prices on future development of cellulosic biofuels will be.

As you might expect, plunging oil prices make it tougher for makers of cellulosic biofuels. But much of the uncertainty regarding the future stems from policies forged in Washington D.C.

The source material, or feedstocks, for cellulosic biofuels can be dedicated energy crops such as switchgrass, miscanthus or poplar trees. Or they can be crop residues, such as corn stover and wheat straw, or even residues from logging. Municipal solid waste also contains cellulosic components. In a 2011 study, Oak Ridge National Laboratory estimated that there is enough cellulosic biomass available in the US to displace about 30 percent of the country’s petroleum consumption.

In principle, the RFS (Renewable Fuel Standard) guarantees any cellulosic biofuel producer a market for what they produce. That is the case for biodiesel, corn ethanol, and sugarcane ethanol, which refiners purchase to blend with petroleum-based gasoline or diesel.

That is, an obligated party can pay about $1.45 per gallon in lieu of purchasing cellulosic biofuel. So the RFS is not an iron-clad guarantee of a market.

In essence, the out-clause puts a cap on the price of cellulosic biofuels. If the difference between the wholesale price of gasoline and the cost of the cellulosic biofuel is greater than $1.45, obligated parties will pay, instead of purchase the fuel.

First of all, my estimate is that it takes crude oil at about US$140 for most cellulosic biofuels to be economic without subsidies or mandates. Thus, without government intervention, there would be no future for cellulosic biofuels with crude oil prices well below US$100.

There is a temporary production tax credit for cellulosic biofuel of $1.01/gallon, but no guarantee how long it will last, so investors cannot count on it for the long term. READ MORE and MORE (Ethanol Producer Magazine)

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