Food vs. Fuel

Some call it the perfect storm. Others refer to a silent tsunami.As the Western world anxiously calls out for relief from soaring gasoline and grocery prices and developing countries riot over food shortages, a growing chorus of critics is questioning the wisdom of government energy policies they say are responsible for destroying precious rainforests, accelerating global warming and driving up the cost and availability of food as farmers divert crops to fuel.

Barbara McClellan

June 1, 2008

15 Min Read
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Some call it the perfect storm. Others refer to a silent tsunami.

As the Western world anxiously calls out for relief from soaring gasoline and grocery prices and developing countries riot over food shortages, a growing chorus of critics is questioning the wisdom of government energy policies they say are responsible for destroying precious rainforests, accelerating global warming and driving up the cost and availability of food as farmers divert crops to fuel.

Caught up in the gathering clouds of doubt, the United Nations is being urged to call for a biofuels moratorium as 37 countries face a crisis over food.

At the same time, the European Union is rethinking the role of plant-based fuels in its efforts to slash tailpipe emissions, while in America voices grow louder for Congress to adjust downward President Bush's mandate for the blending of 36 billion gallons (136 billion L) per year of alternative fuels into gasoline by 2022.

The result is a universal damning of biofuels for the world's ills at the same time they are being hailed by scientists as a first step toward renewable energy and away from oil dependency. Unfortunately, it is not a one-solution-fits-all problem, begging the question whether the pain is worth the gain.

The answer is critical to the global automotive industry as it searches for alternative-fuels that will help increase fuel economy while reducing greenhouse-gas emissions. Taking the road less traveled also will determine the direction of future powertrain development.

Tens of millions of dollars already have been spent by U.S. auto makers to produce vehicles capable of running on 85% ethanol blended with 15% gasoline. General Motors Corp., alone, has more than 4 million flex-fuel cars and trucks on U.S. roads, with 20 models sold globally.

The drive toward biofuels wins praise from a high-ranking U.S. Department of Energy official who recently painted a daunting picture ahead for world energy demand, calling on the auto industry to lead America away from its dependency on imported oil.

John F. Mizroch, principal deputy assistant secretary-Office of Energy Efficiency and Renewable Energy, tells automotive engineers at this year's SAE World Congress in Detroit the U.S. currently accounts for 25% of the world's vehicles and oil use, but just 5% of its population.

Only eight countries control 80% of the world's oil supply, he says. The solution will be in providing multiple transportation options, from fuel-cell and battery-powered vehicles to biofuels.

To that end, the DOE has earmarked $1 billion to assist in the development of second-generation (non-food) cellulosic ethanol, with private industry expected to match that level of funding. “We'll spend more than any other country on cellulosic ethanol in the next few years,” Mizroch says.

U.S. companies already are in queue, with GM leading the way. The auto maker last January partnered with Chicago-based Coskata Inc. to develop the rapid commercialization of a 3-step gasification process that it says affordably and efficiently makes cellulosic ethanol from almost any renewable source, including wood, garbage, manure, old tires and factory waste.

GM followed that initiative earlier this month in a strategic tie-up with Boston-based Mascoma Corp. to develop cellulosic ethanol using a unique thermo-chemical process that affords a single-step biochemical conversion of non-grain biomass, such as switch grass, corn stover, cane waste and woodchips.

“Taken together, these technologies represent what we see as the best in the cellulosic-ethanol future and cover the spectrum in science and commercialization,” says GM President and Chief Financial Officer Fritz Henderson. “Demonstrating the viability of sustainable non-grain based ethanol is critical to developing the infrastructure to support the flex-fuel vehicle market.”

Mascoma Chairman and CEO Bruce Jamerson says his company has raised significant equity from venture capital investments and secured more than $60 million in state and federal funds, including a $26 million grant from the DOE. Mascoma and Coskata complement one another, he says, and unlike some industries, he welcomes more players.

“There are no commercial (cellulosic-production) facilities in the world,” Jamerson says, noting the industry is growing rapidly yet remains small. The overall goal is to produce 100 billion gallons (378.5 billion L) of ethanol annually, which he says would be equal to two-thirds of current gasoline consumption.

However, second-generation ethanol won't begin to flow into the marketplace until at least 2010 or later. Because GM is anxious to see commercialization gain traction, it's partnering with leading-edge companies to help speed development, says Mary Beth Stanek, GM's director-Environment & Energy Policy and Commercialization.

“We would like to see predictable prices at the pumps by having a domestic source of fuels while meeting carbon-dioxide emissions,” she says. “This industry is in its infancy. In five years, you'll see true competition. It's going to be breathtaking.”

At an SAE conference held in Washington in May, auto industry officials and policy makers also say they are moving quickly to second-generation cellulosic ethanol.

Keith Cole, GM director-legislative and regulatory affairs, along with other attendees, downplays the growing argument that distilling ethanol from corn is causing a food shortage, calling it irrelevant in light of second-generation technology that uses non-food sources. “We see that as an argument about the past,” Cole says. “That is yesterday's technology.”

John Reese, adviser-fuels project management at Shell Products U.S., a division of Royal Dutch Shell plc, tells attendees the energy giant is working on its own ethanol projects.

Shell operates the largest retail gasoline network in the U.S. and while it expects hydrocarbon fuels to pay a major role in the future, it sees ethanol's penetration growing to 2,400 metric tons (2,177 t) by 2030.

Like GM, Reese says Shell is concentrating on second-generation ethanol to skirt the food vs. fuel debate. The company recently invested in Iogen Corp., a Canadian biotechnology firm that opened a cellulosic ethanol plant in Ottawa in 2004 and will partner with Shell and Volkswagen AG to build a second facility in Germany.

Another Shell partnership with Choren Industries GmbH, which focuses on distilling ethanol from wood chips, will bring a demonstration plant on line in Germany later this year. A third Shell partnership with Madison, WI-based Virent Energy Systems Inc. skips ethanol altogether to create hydrocarbon fuel from non-food sugar enzymes.

“That's just in the research and development stage,” Reese says of the hydrocarbon project, “but it's exciting stuff and may have a lot of potential. Ultimately, the system would turn sugar, or be used with biomass, to make this hydrocarbon that is completely compatible with gasoline and its infrastructure.”

That would be a big breakthrough because ethanol creates numerous storage, mixing, shipment and distribution challenges.

“But in general, we believe ethanol will play an increasingly important role in meeting the energy challenge — energy security through energy diversity,” Reese says. “There's an economic benefit, as well, and compared to other alternative fuels, biofuels are easier to implement. Hydrogen, for comparison, would be much more difficult.

“And we're focusing on feedstocks that don't compete with the food chain,” he says.

Zia Haq, a chemical engineer with the DOE, says although ethanol presently occupies the core of the department's biofuels research, after 2009 it will expand its interest into other alternatives, such as green diesel and Fischer-Tropsch liquids. Fischer-Tropsch creates hydrocarbon fuels from coal, natural gas or biomass through a catalyzed chemical reaction.

“They might in many ways be better than cellulosic ethanol,” he says. “We just don't know. We need to look at the entire slate of alternative fuels to identify the top 10, or the top five, so that we can prioritize.”

Meanwhile, ethanol advocates insist the first-generation, grain-based fuel is being unfairly cast as a villain. While biofuels may be a factor in the escalating food crisis, they say inflation; corruption; hoarding, climate change in some producing nations; growing demand for grains from China and India; and the relentless surge in oil prices all play far more significant roles.

Even John Holmes, U.N. under-secretary general for humanitarian affairs, who is leading an international taskforce on the global food-price crisis, warns against a knee-jerk reaction.

“Biofuels were developed in response to a very serious problem, which is the need to mitigate the effects of climate change and reduce emissions,” Holmes says in a U.N. report. “Clearly, this is something that needs a new look in present circumstances,” he adds, calling for a “careful, sophisticated and differentiated” approach.

While rising food prices are problematic for the U.S., Americans are not suffering from famine as a result of crops being shifted to fuels, as are poorer nations where roughly 1 billion people are said to live on $1 a day. In a reversal of fortune, many industry observers consider ethanol a moderating influence on both the supply and cost of gasoline.

In a recent letter to the nation's governors, the American Coalition for Ethanol argues high oil costs are the primary reason for climbing food prices in the U.S. and that taking ethanol out of the fuel supply would mean a gasoline-price hike of $0.29 to $0.50 per gallon.

While the foods vs. fuels debate rages on, a recent international study reveals a global biofuels supply market is taking shape and expected to emerge in the next five years.

This finding by Accenture, a U.S.-based global management consulting firm, along with a follow-up study on advanced biofuels technology and infrastructure, will be presented at the 19th World Petroleum Congress to be held in Spain in late June.

Accenture's 10-member team analyzed developing supply-side biofuels markets in 20 countries from 2006-2007 that revealed infrastructure is on the rise and will become a significant part of the world's vehicle-transportation mix.

In addition to the U.S., the study includes Argentina, Australia, Brazil, China, France, Germany, India, Italy, Japan, Nigeria, Poland, Slovakia, South Africa, Spain, Sweden, Thailand, the U.K. and Ukraine.

“The precise direction of the alternative-fuels push is still being decided and probably will take some time to be fully realized,” Richard Spitzer, global industry managing partner of Accenture's Automotive and Industrial Equipment practices, tells Ward's.

“But our study indicates there are encouraging signs the automotive industry will have a global biofuels market to draw on…It would take $200 billion in subsidies for infrastructure to make fuel-cell vehicles happen,” he adds. “Blended fuels are far easier to accommodate.”

Nevertheless, the Accenture report does not skirt the painful issues.

“Scientists dismiss first-generation biofuels as a non-starter, a necessary evil that creates market pull in order to produce something better” as cellulosic fuels are developed, says Accenture Energy Strategy Group partner Melissa Stark, who initiated the biofuels study.

“Everybody would like to see biofuels created using wastes and not food,” she tells Ward's. “The people who are producing first-generation ethanol are capable of upgrading to gen-2 cellulosic. It will be a seamless transition from first to second.”

Nevertheless, food vs. fuel has been “more painful than we thought,” Stark admits. “Biofuels is just one option in transportation diversity,” and because it is developing, “it's victim of a boom. People did not consider land use properly. In the early days, everyone was looking at how to reduce the impact of CO2.

“We still need diversity,” she says. “We can't replace 50% of the oil we use. The biofuels industry is sustainable at 15%, but we have to deal with some hard things first.”

Dale A. Gardner, associate director-renewable fuels science and technology at the National Renewable Energy Laboratory, agrees. “We didn't do a good job of studying the (grain-ethanol) impacts,” he says at the recent SAE gathering in Detroit.

“What we need to do with cellulosic ethanol is examine the lifecycle assessment. We need to find the potholes now, so we can fill them in or go around them. We have to start working on the issues, so we get ahead of the power curve, rather than behind the power curve — which is where we are now with corn ethanol.”

Stark says biofuels sustainability depends on the wise use of land. At least 15% of farmable land in developing nations should be set aside for growing food.

Many countries have relied on cheap, subsidized grain imports from the U.S. and Europe, instead of improving their cultivation processes and feeding their own people. Others have slashed and burned rainforests without considering the long-term consequences.

“Until we deal with the local supply (of food) vs. demand (for biofuels), there will be an unbalance,” she warns. “Africa, Mexico, the Philippines should be able to produce the foods they consume, such as corn and rice. They need to develop their agriculture.

Rough roads lie ahead, even in America, the land of plenty, which currently has an estimated 150 (mostly corn) ethanol plants, up from less than 70 five years ago.

Total U.S. capacity is topping 8.5 billion gallons (32 billion L) per year, according to a recent Reuters report, which says it will take more than 12 billion (45 billion L) gallons to convert the entire gasoline supply to E10, the initial goal toward Bush's mandate.

The price of corn is rising so rapidly worldwide “that it is being mentioned by analysts in the same breath as the soaring gold price,” one published report says.

Indeed, a new study commissioned by the U.S. National Chicken Council, National Turkey Federation and American Meat Institute says the U.S. biofuels policy is costing the poultry, livestock and ethanol production industries billions of dollars annually by driving the price of feed, primarily corn, to stratospheric levels.

The study predicts higher feed prices in the September 2008-August 2009 grain year will cost the poultry industry an additional $8 billion after a rise of nearly $6 billion in the 2007-2008 period. Additional feed costs for the pig industry will hit $3.6 billion after a nearly $3 billion increase a year earlier, while added cost for cattle is estimated at $3 billion following a $2.2 billion rise in the prior year.

Input costs for ethanol distilleries will jump to more than $8 billion, following a $4.5 billion increase in the 2007-2008 grain year, the study says. Ethanol distilleries operating in the next year will require up to 5.5 billion bushels of corn a year by 2009, but only 4 billion bushels will be available, causing the distilleries to operate at 75%-80% capacity.

Until next-generation cellulosic ethanol begins to flow, critics say the U.S. must develop strategies to curtail grain-based biofuels production. Some, including Arizona Sen. John McCain, the presumptive Republican presidential candidate, favor scrapping the $0.51 per gallon ethanol tax credit and a $0.54 per gallon tariff imposed on most imported ethanol.

Advocates say this would allow a steady flow of Brazilian sugarcane-based ethanol, which requires far less energy and resources to produce than corn-derived ethanol. About 85% of cars sold in Brazil run on the fuel.

Still others urge government and industry to abandon biofuels all together in favor of electric plug-in vehicles as a mid-term solution until hydrogen fuel-cell technology can be fully developed.

Not so fast, says Loren Beard, Chrysler LLC senior manager-Environmental and Energy Planning, who warns the biofuels industry faces many adversaries.

Big Oil, Big Agriculture and auto makers that think they have the silver bullet for solving fuel-economy issues, extreme environmental groups and the Organization of the Petroleum Exporting Countries all are trying to undermine progress in the development of alternative fuels for self-serving reasons, Beard tells attendees at last summer's annual Traverse City, MI, Management Briefing Seminars.

All alternative fuels threaten Big Oil's lifeblood, he says. But the creation of special blends that combine regular fuels with biofuels, such as ethanol and biodiesel, also complicate production and distribution of its regular products. That raises costs and cuts into profit margins.

Big Agriculture only favors the use of certain feedstocks, Beard says, such as corn and soybeans, and some agribusiness factions oppose financial incentives for promising new technology that might someday impinge on current subsidies.

There is no consensus on exactly when the world will begin running seriously short of oil, he concludes. But because oil will run out someday, and so much petroleum currently is controlled by regions hostile to the U.S., efforts to create an infrastructure to produce and distribute alternative fuels must continue.

The Accenture report makes clear biofuels are here to stay, driven by market forces rather than government mandates.

“It's a viable industry. You can't just walk away from it,” says Accenture's Spitzer. “The challenge is figuring out what the alternative-fuels mix is going to be. But we're never going back.”

Stark agrees. “Biofuels will be part of the future transportation mix, along with hybrids, electric and fuel-cell cars,” she says. “There potentially will be different blends of biofuels and percentages of energy. There will be a whole bunch of choices and players.”

But while grain-based ethanol will stay in the game, investment already is trailing off as venture capitalists train their sights on emerging cellulosic processes.

“We don't believe all the (first-generation) capacity announced in the U.S. and Europe will be built,” Accenture's Stark says, noting the U.S. is at its cap of about 12 billion-15 billion gallons (45 billion-57 billion L).

“Nothing stays the same in biofuels,” she adds. “There is the intended and unintended. Plan one thing and five things happen as a result. For a while, it's going to be really painful.”
with James M. Amend in Washington

GM Doubles Cellulosic Ethanol Wager

DOE Calls on Auto Industry to ‘Fix’ U.S. Energy Outlook

GM Partners With Coskata to Produce Cellulosic Ethanol

Global Auto Makers Brace for Coming Eco-Fuel Mandates

GM Promotes Non-Food Cellulosic Ethanol to Reduce Dependence on Oil

BioMass to Ethanol Technologies

Mascoma Consolidated Bio-Processing

Lowers cost using simpler process consisting of a mild pretreatment, followed by the introduction of ethanol-fermenting microbes that both hydrolyze and ferment the sugars into ethanol.

Coskata 3-Step Gasification

Uses cellulose and non-cellulose material, such as tires, in a heat process that produces syngas. The syngas is reacted with a catalyst to make a mixture of alcohols, including ethanol. The alcohols go through a separation sequence in order to obtain pure ethanol.

Traditional Processes

Seeks to unlock sugar from cellulosic biomass through a multi-step process that can include harsh mechanical or chemical pretreatment. This is followed by the addition of externally produced enzymes prior to lignin filtration and separate fermentation of the sugar to ethanol.

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