Biomass Ethanol Production Faces Challenges Jadwiga Ziolkowska and Leo Simon

of pilot projects that generate small (FAPRI) that predict this development amounts of ethanol are underway, path will continue. Given the large While ethanol has been recognized and the first commercial-scale plant gap between the original targets and as an alternative to oil, the most is scheduled to open in 2012. The actual production, the Environmental viable source material for it remains expansion of biomass ethanol produc­ Protection Agency revised its targets a controversial topic. U.S. ethanol is produced primarily from a grain, corn, tion has been much slower than pro­ significantly downward, with a new which has a number of disadvantages. jected. Policymakers’ targets for levels 2022 target of 16 billion gallons. Cellulosic ethanol has been promoted of biomass ethanol production have One explanation for the slowness of as a replacement. We review some not been met, leading to serious ques­ this process is that subsidies for etha­ of the strengths and weaknesses of tions regarding whether or not biomass nol production have encouraged the cellulosic biomass ethanol, and discuss ethanol can play an important role in expansion of corn-based production its potential for becoming part of the supplying energy to the United States. and discouraged innovation regarding long-run solution for supplying energy Renewable Fuels Standards, set by alternative energy sources. A related to the United States. the federal government in 2007 as part explanation is that the benefits of bio­ of the Energy Independence and Secu­ mass ethanol, relative to corn ethanol rity Act, set a long-term goal of 21 bil­ produced from the starch included in lion gallons of ethanol to be produced the grain, are not captured by ethanol by biomass and other non-corn starch producers in the absence of subsidies or feedstocks in 2022. Biomass ethanol by a higher buyer willingness-to-pay for ellulosic biomass ethanol (also production was only eight million gal­ ethanol with superior environmental called biomass ethanol) is lons in 2010, far below the targeted benefits. Another is that the technology Cderived from lignocellulosic 100 million gallons. Figure 1 reports for producing biomass ethanol has faced or hemicellulosic matter and can be specific projections by the Food and many challenges in becoming com­ produced from various feed stocks, Agriculture Policy Research Institute mercially feasible. A fourth explanation including agricultural waste such as rice straw, forest waste such as mate­ Figure 1. U.S. Cellulosic Ethanol Production and Consumption vs. Renewable Fuels rial created by logging, and energy Standards in 2009–2019 crops grown specifically to produce 9000 biofuels, such as willows and other 8000 fast-growing trees and shrubs, switch- grass, and miscanthus. In general, the 7000 concept of producing a “green fuel,” 6000 by transforming waste into byprod­ ucts, is attractive to many policymak­ 5000

ers and environmentalists, and sup­ Million gallons 4000 ported by some scientists. Support 3000 also exists for producing green energy using targeted crops that require fewer 2000 inputs than corn, although there is 1000 also concern that these crops com­ pete with food crops for acreage. 0 6 In spite of the support for this

2011/12 2017/18 energy source, there is currently no 2009/10 2010/11 2012/13 2013/14 2014/15 2015/1 2016/17 2018/19 2019/20 commercial-scale production of cel­ Supply and use of cellulosic Renewable Fuels Standard ethanol (FAPRI projections) for use of cellulosic ethanol lulosic biomass ethanol. A number Source: FAPRI (2010)

Giannini Foundation of Agricultural Economics • University of California 5 cheaper to produce ethanol from corn producer within a grower’s region. If starch. Of course, this cost advantage this producer halts or reduces pro­ varies with the price of the feedstocks. duction, a grower may be left with Figure 2 presents a 2010 estimate of an unmarketable specialized energy total production costs and individual crop, whereas a grower who produces production cost components for corn corn has many marketing options. ethanol and cellulosic ethanol. The social desirability of corn etha­ The role of feedstock providers nol versus biomass ethanol involves varies by the type of feedstock. For many considerations. At the feedstock sources that are otherwise considered production level, one consideration is waste, whether or not it is supplied that biomass (miscanthus, specifically) for ethanol production will depend can produce more ethanol on a per- on whether the net revenue from sell­ acre basis than corn. Thus, less land is ing it is greater than the cost of dis­ required to produce a given amount of posing of it if it is not sold. Costs of ethanol from biomass, all else equal. marketing include transportation, and Similarly, as noted, less nitrogen fer­ may include collection and storage. tilizer is required per acre and per unit The tradeoff is very different for of ethanol produced. Nitrogen fertilizer potential producers of energy crops. In use can result in nitrate contamination general, the tradeoff involves the bene­ of groundwater and surface water. In Biomass ethanol production from crops such fits, costs, and perhaps the relative risks addition, fertilizer requires energy to as miscanthus grass, pictured above, confront of producing an energy crop and grow­ produce. Even taking into account the technological and economic challenges. ers’ most profitable alternative crop. ethanol that can be produced from the We focus here on the choice between corn plant material that is a byproduct is that the appearance of completely producing an energy crop and produc­ of grain production does not elimi­ new energy production technologies, ing corn. This choice involves a number nate the advantage of miscanthus. such as petroleum-like hydroprocess­ of considerations. Biomass has two A significant concern regarding ing and direct solar-to-fuel processes, production advantages relative to corn. corn ethanol production is that it com­ and their potential for commercial Corn for grain requires a substantial petes with other uses of corn, raising and political viability has discouraged amount of nitrogen fertilizer per acre. its price for uses in food directly and investment in biomass technologies. In comparison, the energy crop indirectly through raising the cost of miscanthus requires virtually no livestock production. To the extent Comparison of Biomass Ethanol nitrogen, and also generates sufficient that energy crops compete with food and Corn-based Ethanol biomass to produce much more etha­ crops for land, they may also raise food From the ethanol producer’s perspec­ nol per unit of production than corn prices, so that there is no clear advan­ tive, there are a number of compo­ grain. On the other hand, miscanthus tage for either feedstock in this regard. nents of ethanol production costs. requires more water than corn. This To the extent that energy crops can Feedstocks for biomass ethanol are can reduce its relative attractiveness be grown on marginal land not suit­ cheaper than corn on a per-unit basis. to growers who are dependent on able for food crop production, their Indeed, some of them currently have irrigation to meet crops’ water needs. effect on food prices will be lessened, no market value. More units of bio­ Thus, the relative attractiveness of increasing their social benefits relative mass are required to produce a gallon these crops for feedstock producers to corn ethanol production. Using mar­ of ethanol compared to corn, however, will depend in part on the costs of ginal lands for energy crop production so that the feedstock cost for corn these inputs and the precise relation­ may have other social costs, however, ethanol and biomass ethanol are quite ships between their input requirements such as replacing natural habitats. similar per gallon of ethanol. The cost under specific production conditions. An important environmental of converting biomass to sugar for Another consideration for grow­ advantage of biomass ethanol from use in ethanol is higher because the ers choosing whether to produce energy crops compared to corn etha­ complex carbohydrate nature of bio­ an energy crop concerns their “out­ nol is that it reduces emissions of mass requires a more expensive two- side options” for marketing. There greenhouse gases over the lifecycle of stage conversion process. Overall, it is may be only one biomass ethanol the fuel, from feedstock production

6 Giannini Foundation of Agricultural Economics • University of California Figure 2. Corn and Cellulosic Ethanol Production Costs

Other ­ Other 30.5% ­ 29.1% Feedstock 36.4%

Feedstock 5 7. 6%

Enzyme ­ 2.0% ­ Enzyme 14.5% Capital ­ Capital 9.9 % ­ 20.0% Corn ethanol = $1.65/gallon Source: Coyle (2010) Cellulosic ethanol = $2.65/gallon to final use. The advantage varies The government has also sought to plant biomass that is a byproduct of by feedstock. Switchgrass is consid­ influence ethanol production through corn grain production to be used for ered a relatively attractive option. regulatory mandates, such as blend­ ethanol production. This strategy can Summarizing, the attractiveness of ing requirements for automobile fuel. complicate procuring a range of biofu­ biomass ethanol as an alternative to As part of the implementation of the els while capturing the environmental corn ethanol depends on one’s per­ Energy Independence and Security Act benefits; planting energy crops in corn spective. Feedstock growers face a of 2007, the EPA introduced another production areas increases the likeli­ complicated tradeoff; and region- and mandate: biofuels must reduce green­ hood that these crops will compete individual-specific factors will play an house gas emissions over their “life directly with food crops for acreage. important role in determining which cycle,” including production. Specific type of feedstock is more profitable to mandates vary by source: the mandated Potential Alternatives produce. From the perspective of an reduction for biomass ethanol is much Researchers have moved beyond ethanol producer entering the market, greater than that for corn starch-based improving techniques for produc­ corn ethanol is a more attractive choice ethanol. This mandate adds to the chal­ ing cellulosic ethanol, and are inves­ economically. From society’s perspec­ lenge of developing economically viable tigating new technologies. These tive, benefits of biomass ethanol that commercial-scale production of bio­ potential alternatives are primarily are not captured by producers may mass ethanol. based on the possibility of geneti­ outweigh these private benefits. How­ cally modifying crops to consume ever, some government policies may Technology Development more carbon than is released when encourage the production of corn starch Challenges they are used as fuel. Effectively, the ethanol rather than biomass ethanol. From a production standpoint, bio­ process is to convert carbon dioxide mass ethanol production is more into carbon and oxygen. Thus, these Energy Policy and Biomass effective when a range of biomass alternatives are considered not only Ethanol Production sources are used simultaneously. renewable, but “carbon-negative.” Government policy has sought to Electing not to use a mix of fuels From a policymaker’s perspec­ encourage ethanol production in a reduces the economic viability of tive, encouraging further research number of ways, including providing production. However, capturing into these technologies may have a funds for research, grants and loans this benefit complicates the choice higher expected return to society than to producers, income tax credits, and of location for a commercial-scale funding additional research regard­ subsidies. Subsidies do not encourage plant and its procurement strategy. ing the improvement of technologies the use of biomass for ethanol produc­ Some supporters of corn-based etha­ for producing biomass ethanol. tion because they do not differentiate nol argue that there are complemen­ between sources. Volume-based sub­ tarities to be captured by co-locating a Future Prospects for sidies tend to encourage the produc­ plant that produces ethanol from corn Biomass Ethanol tion of ethanol from corn, which has a grain and a plant that produces ethanol Technological and economic chal­ higher yield and lower production cost. from biomass. Co-location allows corn lenges confront biomass, or cellulosic,

Giannini Foundation of Agricultural Economics • University of California 7 ethanol production. To date, its pro­ marketable byproduct for growers, and Past ARE Update Articles on duction has increased much more potentially aid in pest management. Ethanol and Biofuels slowly than projected. Biomass ethanol However, the various market consid­ available online at was originally seen as a more socially erations discussed above can limit the http://giannini.ucop.edu/are-update/ desirable alternative to corn ethanol. commercial viability of this strategy. While biomass ethanol has several Biomass ethanol’s potential to Zilberman, D. and G.Hochman. “Meeting a Growing Demand for advantages relative to corn ethanol, it be a substantial contributor to U.S. Food and Fuel in a Sustainable does not dominate corn ethanol in all energy needs is in doubt. At this Manner.” 2011. 14(4):5-8. time, corn ethanol dominates the respects. It is unclear whether invest­ Zilberman, D., G. Hochman, and D. ing additional resources into promoting U.S. market. Newer alternatives may Rajagopal. “Indirect Land Use: One biomass ethanol production through leapfrog biomass ethanol in attractive­ Consideration Too Many in Biofuel various policy initiatives is socially ness for commercial production. Regulation.” 2010. 13(4):1-4. desirable, or whether it should be left Pray, C.E. and D. Zilberman. “The entirely to private actors. To the extent Suggested Citation: Emerging Global Biofuel Industry: that the government involves itself The Biofuel Situation and Policies Ziolkowska, Jadwiga and Leo Simon. in Developing Countries.” 2009. in developing alternatives to oil as 2011."Biomass Ethanol Production 12(5):8-10. energy sources, it may be more desir­ Faces Challenges." ARE Update 14(6): able to invest in newer technologies. 5-8. University of California Giannini Lin, C.-Y. C., W. Zhang, O. Rouhani, Foundation of Agricultural Economics. and L. Prince. “The Implications of Nonetheless, biomass ethanol may an E10 Ethanol-Blend Policy for have a role in the future of U.S. energy, California.” 2009. 13(2):1-4. even if it is smaller than was once Jadwiga Ziolkowska was a post-doctoral scholar Sexton, S.E., D. Rajagopal, D. Zilber­ imagined. One possibility could be spe­ and Leo Simon is an adjunct professor, both in man, and G. Hochman. “Food cialized niches that generate specific the Department of Agricultural and Resource Versus Fuel: How Biofuels Make advantages for a production region. Economics, University of California, Berkeley. Food More Costly and Gasoline In California, for example, generating They can be contacted by e-mail at jadwiga. Cheaper.” 2008. 12(1):1-6. [email protected] and leosimon@ ethanol from rice straw could benefit berkeley.edu, respectively. Rajagopal, D. and D. Zilberman. rice producers. Historically, produc­ “The Use of Environmental Life- ers burned rice straw as part of their Cycle Analysis for Evaluating disease and pest-management strate­ Biofuels.” 2008. 11(3):5-8. gies. Environmental considerations Carter, C., G. Rausser, and A. Smith. have sharply curtailed this practice over For additional information, “The Food Price Boom and Bust.” 2008. 12(2):2-4. the past twenty years, and no loosen­ the authors recommend: ing of this restriction is anticipated. Coyle, W., 2010. “Next-generation Sexton, S.E., D. Rajagopal, D. Zilber­ man, and D. Roland-Holst. “The While to some extent rice produc­ Biofuels: Near-term Challenges and Implications for Agriculture.” Eco­ Intersections of Energy and Agri­ ers have been able to compensate for culture: Implications of Rising the loss of burning as an annual tool, nomic Research Serivce, USDA Outlook Report No. Bio-01-01 Demand for Biofuels and the the compensation is incomplete. For Washington D.C. www.ers.usda. Search for the Next Generation.” example, tadpole shrimp have increased gov/publications/bio0101/. 2007. 10(5):4-7. in importance as a pest of rice grown Food and Agriculture Policy Baka, J. and D. Roland-Holst. in the Sacramento Valley. Copper sul­ Research Institute. 2010. “FAPRI “Greener Pastures for Globaliza­ fate is a commonly used treatment for 2010 U.S. and World Agricultural tion: How European Farmers Can tadpole shrimp and algae, another rice Outlook.” FAPRI Staff Report Help Save the Planet as Well as the Doha Round.” 2007. 11(1):4-7. pest. There are concerns that large 10-FSR 1 Iowa State University and amounts of rice straw left in a field University of Missouri-Columbia. Sexton, S.E., L.A. Martin, and D. Zil­ January. www.fapri.org/out­ berman. “Biofuel and Biotech: A reduces the effectiveness of copper look/2010/text/Outlook_2010.pdf. Sustainable Energy Solution.” sulphate because it binds to the straw 2006. 9(3):1-4. rather than affecting the target pest. Developing commercial produc­ tion of biomass ethanol from rice straw in the Sacramento Valley would convert rice straw from waste into a

8 Giannini Foundation of Agricultural Economics • University of California