Despite its conservatism in other policy areas, the incoming Obama administration may not have much choice but to be radical in energy policy and climate change because existing policies are running up against their natural limits.
Despite its conservatism in other policy areas, the incoming Obama administration may not have much choice but to be radical in energy policy and climate change because existing policies are running up against their natural limits:
(1) The cyclical downturn has slashed oil prices by two-thirds since the summer and threatens to reverse the drive for improved efficiency and smaller cars unless the federal government responds by tightening fuel-economy standards or raising gasoline taxes.
(2) The volume of ethanol being blended into the domestic gasoline supply is rapidly approaching the technical limits of the existing car fleet (the so-called "blending wall").
(3) Production of ethanol from corn starch is running up against land constraints, so the administration needs to bring on the long-promised bbut much-delayed "second-generation" of biofuels made from municipal and farm waste (including corn stalks) or specially grown nonfood crops (including switchgrass).
The underlying problem is that a huge area of agricultural land is being used to grow crops that replace only a tiny fraction of U.S. fuel requirements.
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In 2007-08, some 27 million acres of corn were planted for ethanol, out of a total of 90 million acres planted to corn and 325 million planted to all major crops. But this corn (which used 8 percent of the total growing area) produced only 9 billion gallons of ethanol (displacing only 6 percent of the domestic gasoline supply).
The 2007 Energy Independence and Security Act (EISA) stipulates that ethanol blending must increase to 15 billion gallons by 2012 and an extraordinary 36 billion gallons by 2022.
To produce all that extra ethanol from corn would require sowing an extra 18 million acres by 2012 and 81 million acres by 2022 (https://customers.reuters.com/d/graphics/US_CRN0109.gif).
The total planted area would have to rise from 325 million to more than 400 million acres in little more than a decade - more than the United States has ever farmed in history. U.S. farmers would need to bring an area the size of the state of New Mexico or the whole of Great Britain and Ireland into cultivation for the first time. Clearly this is impractical.
Moreover, making ethanol from corn kernels is not a particularly efficient way to produce energy. Most studies show almost as much energy is used growing, transporting, and distilling the corn, then transporting the resulting ethanol as the ethanol itself contains, so the "net energy balance" is approximately zero.
Making ethanol from sugarcane or from municipal and farm waste has a much more favourable energy balance. Much of the energy required for distillation and processing can be supplied by burning the non-carbohydrate parts of the feedstock (which are not required for ethanol conversion) in highly efficient combined heat and power plants which provide the necessary heat and power to run the distilleries. This dramatically increases the net energy balance.
SECOND-GENERATION ETHANOL
EISA responded to these concerns by capping the amount of fuel ethanol that can be produced from corn starch at 15 billion gallons, out of the total 36 billion gallons eventually envisaged by 2022. From 2012 onwards, the majority of the new ethanol must come from "second-generation" biofuels derived from plant cellulose, municipal wastes and other crops.
As early as 2013, EISA envisages 1 billion gallons of ethanol will come from second-generation ethanol produced from cellulose, rising to as much as 16 billion gallons by 2022.
There is only one problem: the United States is not producing any second-generation non-corn ethanol in significant quantities at the moment. So a whole new industry will have to be brought into existence within less than four years and become one of the largest industries in the United States within the next 10 years.
Necessity is the mother of invention. But developing a major new industry based around cellulosic feedstocks able to operate on a semi-commercial basis in such a short period presents a huge technical and scientific challenge.
Work on second-generation ethanol has been under way for more than 20 years. But the biochemistry of producing ethanol from cellulosic feedstocks is more complex, and therefore expensive, than producing ethanol from corn starch.
Producing ethanol from corn starch essentially uses the same brewing and distilling techniques honed over the last 5,000 years for the production of beer and spirits.
Producing ethanol from agricultural waste, specialist crops and other sources of cellulose requires much more complex pre-processing. Pre-treatment is needed to break up the cellulose structures; separate the cellulose from the associated hemicellulose and lignin; convert the cellulose and hemicellulose into alcohols using separate enzymes for each; all the while handling the lignin which would otherwise retard the distillation process.
Processing techniques require large quantities of steam, acid, or both, and more specialist enzymes than typical in the brewing industry.
At a time when even corn-based ethanol is struggling to compete with fossil fuel gasoline at oil prices of less than $70 per barrel, the complex cost structure of the cellulosic ethanol industry is hopelessly uneconomic.
The federal government has guaranteed a market for cellulosic ethanol by including it as a separate item in the EISA mandate.
But the real problem is on the supply side. Federal support programmes aimed to cut production costs, making cellulosic ethanol more competitive.
The government has provided more than $1 billion in investment and loan guarantees to support basic research into second-generation biofuels and commercialisation of the technologies.
Research priorities include genetic engineering of crops to raise their cellulose content, and research to find improved enzymes for converting cellulose and hemicellulose to alcohol more efficiently and with less interference from lignin.
But so far all the plants remain at pilot or demonstration stage rather than full commercial production.
In 1997, the government's National Renewable Energy Laboratory projected the costs of producing ethanol from cellulosic feedstocks could be halved from $1.44 per gallon to just $0.80 per gallon by 2015 using improvements in crop yields, enzyme efficiency and economies of scale (figures are in 1997 constant dollars). But progress has been slower than the government hoped and production costs are still above $1.50 per gallon in most cases.
President-elect Barack Obama's choice of the Nobel Prize-winning Steven Chu as energy secretary, announced last month, is crucial because delivering cellulosic ethanol to the market in meaningful quantities within the next 5-10 years is basically a science and technology problem.
Cellulosic ethanol needs a massive programme of science - and almost certainly substantial subsidies and tax incentives - if it is to become a reality (essentially a reprise of the "infant industry" argument for subsidising and protecting new industries as part of the economic development process in emerging markets).
Chu is a notable advocate of tackling climate change and energy problems through a combination of tax increases to reduce demand and scientific and technical innovations to improve efficiency and increase the supply of renewable alternatives.
Moreover, while he has been a harsh critic of coal, and strong supporter of biofuels, Chu has been a critic of first-generation fuels based on corn starch and proponent of second-generation fuels based on other feedstocks.
Bringing a prize-winning scientist from one of the country's most prominent laboratories working on alternative fuels into cabinet is a signal the administration intends to prioritise finding a scientific solution with both funding and a focus at top level. It is also a signal that it is willing to push through major industrial change to realise its vision of a more energy efficient and lower fossil fuel future.
If its supporters are disappointed by the slow pace of change in other areas, this is one area where the Obama administration may prove to be more radical than expected.
-- John Kemp is a Reuters columnist. The opinions expressd are his own --
Sourced from the Thomson Reuters Carbon Markets Community - a free, gated online network for carbon market and climate policy professionals.
