Tide turns against corn ethanol
Biofuel subsidy sees limited extension in US tax bill as opposition grows.
Buffeted by the economic crisis and a drop in the oil price, US producers of corn ethanol are encountering increasing scepticism from the legislators on Capitol Hill even as producers of the 'greener' cellulose-derived ethanol struggle to move beyond basic research and development.
Producers of ethanol from corn (maize) starch got what they needed out of a tax package enacted by the US Congress last week: a year's extension of the subsidies and protections granted under current law. But they had been hoping for a longer extension, to avoid a similar battle next year, and industry officials say the government still is not giving advanced ethanol companies the kind of support they need to scale up their technologies and bring down costs.
The tax package brokered by US President Barack Obama focused on tax-cut extensions and unemployment benefits, but it also included a host of incentives for energy development. Among them was a one-year extension of a tax credit giving refiners nearly 12 cents of federal cash for every litre of corn ethanol they blend into gasoline. A tariff of more than 14 cents per litre on imported ethanol was also extended through 2011.
These are shorter times than industry wanted, marking a victory for environmentalists and budget hawks who see the roughly US$6-billion-a-year benefit as wasteful spending on a mature industry. Critics say the corn ethanol credit eats up scarce federal resources and puts cellulosic ethanol at a competitive disadvantage.
"I think one year is still a huge waste of money, but they were asking for five," says Nathanael Greene, director of renewable energy policy for the Natural Resources Defense Council in New York. "There's a sort of belief in Washington that corn ethanol is one of these topics where everyone has to toe the line, so I think it's definitely a big fall for them."
Although a longer extension would have been preferable, one year at least allows time for "a more logical conversation about how we reform energy tax policy," says Matt Hartwig, a spokesman for the Renewable Fuels Association in Washington, DC.
Salo Zelermyer, who represents ethanol producers for the legal firm Bracewell and Giuliani in Washington, DC, warns against reading too much into this year's debate. Next year the politics of the next presidential election will begin, he notes, and candidates will begin making trips — and promises — to corn-growing country, just like they always have. "Rumours of the tax credit's demise may be a little bit premature," he says.
The mandated levels of biofuel production in the United States will increase to 53 billion litres in 2011 — about 8% of the country's total fuel consumption — and will ramp up to more than 136 billion litres by 2022. Around 90% of the biofuel will come from conventional corn ethanol next year, with the remainder coming from biodiesel and other "advanced biofuels". Last month, however, the US Environmental Protection Agency pulled back the 2011 requirement for cellulosic biofuels from 946 million to 25 million litres, citing delays in scaling up production.
Hartwig says that cellulosic producers have been hampered by the economic crisis and a lack of financing to scale up basic research and development (see 'Biofuel blues', left). The US Department of Energy has supported biofuels through research grants, including $30 million for research into "next generation" biofuels announced last week, but has yet to finalize any loan guarantees for companies wanting to build pilot plants. Although industry officials say that the programme's requirements for granting loans are too burdensome, others say that the delays are primarily due to technical issues that companies have yet to resolve.
The basic scientific challenge hasn't changed. Cellulosic ethanol producers are trying to generate fuel from biomass such as leaves and branches. These feedstocks have the advantage that they are plentiful and do not compete for land with food, but the cellulose they contain is hard to break down.
Scientists know how to convert these materials into simple sugars, but doing so requires energy and specialized enzymes, or both. Mark Bünger, research director for Lux Research in San Francisco, says that most companies are still struggling with the basics: identifying cheaper and more durable enzymes, optimizing reactions, coaxing digesting bacteria to work harder and longer — and to produce new hydrocarbon products. "It's not a lack of interest or a lack of feedstock or anything like that," Bünger says. "The technology is just not quite ready to scale up."
Steve Long, a crop scientist and deputy director of the Energy Biosciences Institute in Urbana, Illinois, says companies are struggling to overcome a suite of financial, technical and even regulatory hurdles as they scale up. But he says the technologies are progressing, citing oil giant BP's decision to purchase cellulosic ethanol technology from the Verenium Corporation, based in Cambridge, Massachusetts, and to push forward with a new demonstration plant in Florida.
"This isn't something where you need a miracle to get there," Long says. "The processes are there. You really need incremental improvements so that the technology can eventually stand on its own legs without subsidy."