Home' Technology Review : January February 2008 Contents FEATURE STORY
TECHNOLOGY REVIEW JANUARY/ FEBRUARY
While President Bush and other advocates of biofuels have
often called for ethanol to be made from alternative feedstocks
such as switchgrass---a plant native to the U.S. prairie states, where
it grows widely---the required technology is, according to most
estimates, at least four to five years from commercial viability.
Meanwhile, advanced biological techniques for creating novel
organisms that produce other biofuels, such as hydrocarbons,
are still in the lab. So far, researchers are making quantities that
wouldn't even fill the tank of a large SUV.
The economic woes and market limitations of corn ethanol are
a painful reminder of the immense di culties facing developers
of new biofuels. "The bottom line is that you're going to have to
make fuel cheap," says Frances Arnold, a professor of chemical
engineering and biochemistry at Caltech. "We can all make a little
bit of something. But you have got to make a lot of it, and you have
got to make it cheaply. The problem is so huge that your technology
has to scale up and do it at a price that is competitive. Everyone is
going to be competing on price alone."
There may be no better place to get a realistic appraisal of biofuels
than the Department of Applied Economics at the University of
Minnesota. The large campus housing the department and the
rest of the university's school of agriculture lies on a low hill in a
quiet St. Paul neighborhood. Acres of fields where experiments are
conducted spread out from the edge of the university. Nearby are
the grounds of the Minnesota State Fair, a 12-day event that draws
more than a million and a half visitors at the end of the summer.
The state is the fourth-largest producer of corn in the U.S., and
much of its economy, even its culture, is intimately tied to the crop.
The run-up of corn prices has been a boon for Minnesota's rural
agricultural communities. And the governor and other state politi-
cians have strongly pushed the use of ethanol as a transportation
fuel. Still, you won't find much cheerleading for corn ethanol in
the plain brick building that houses the department.
In his orderly o ce with its neat stacks of technical papers
and farm reports, Vernon Eidman, an emeritus professor of agri-
cultural economics, combines the authority of a scholar with the
sternness of a Midwestern banker. "We could see this coming," he
says, describing the current market plight of the ethanol produc-
ers. "It's not like [producers] didn't know it was coming. At least,
they should have known it." In 2006 they "made profits like they
never had before," Eidman says. "And that's a major factor that led
to this tremendous buildup."
The numbers speak for themselves. Eidman's calculations show
what it costs, given varying prices of corn, for a new, moderate-size
facility to produce ethanol. At $4.00 a bushel of corn, ethanol pro-
duction costs $1.70 a gallon; to gain a 12 percent return on equity,
the producers need to sell ethanol at $1.83 a gallon. Then Eidman
shows his figures for the prices that petroleum companies are
paying when they buy ethanol to blend with their gasoline: this
December, prices were about $1.90 a gallon, and bids for 2008
range between $1.75 and a $1.80 a gallon. In other words, the profit
margins for ethanol producers are extremely tight. To make mat-
ters worse, Eidman says, production capacity, which was around
5.4 billion gallons at the beginning of 2007, is expected to reach
12.5 billion gallons by 2010.
While swelling ethanol production has led to worries about
oversupply, the other side of the market equation is actually a cause
for greater concern: the future demand for ethanol fuel is by no
means certain. In a few parts of the country, particularly in the
corn-belt states, drivers can buy fuel that's 85 percent ethanol.
But for the most part, petroleum companies use ethanol at a con-
centration of 10 percent, to increase the oxygen content of their
gasoline. Not only is such a market limited, but the 10-percent-
ethanol blend delivers slightly reduced gas mileage, potentially
damping consumer appetite for the fuel.
It is not just the short-term economics of ethanol that concern
agricultural experts. They also warn that corn-derived ethanol is not
the "green fuel" its advocates have described. That's because mak-
ing ethanol takes a lot of energy, both to grow the corn and, even
more important, to run the fermentation facilities that turn the sugar
gleaned from the corn kernels into the alcohol that's used as fuel.
Exactly how much energy it takes has been the subject of intense
academic debate in various journals during the last few years.
According to calculations done by Minnesota researchers,
54 percent of the total energy represented by a gallon of ethanol
is o set by the energy required to process the fuel; another 24
percent is o set by the energy required to grow the corn. While
about 25 percent more energy is squeezed out of the biofuel than
is used to produce it, other fuels yield much bigger gains, says
Stephen Polasky, a professor of ecological and environmental
economics at Minnesota. Making ethanol is "not a cheap pro-
cess," he says. "From my perspective, the biggest problem [with
"We can all make a little bit of
something. But you have got
have got to make it cheaply.
The problem is so huge that
your technology has to scale
competitive. Everyone is
going to be competing on
Links Archive March April 2008 November December 2007 Navigation Previous Page Next Page