Business News

The Other Alternative Fuel

by Jeremy Alford

As those kernels of hope once held for corn get popped by a heated economy, investors and politicians are taking interest in another kind of ethanol made from agricultural waste. Faster than you can say “Orville Redenbacher,” corn-based ethanol has gone from the prince of renewable energies — championed by the granola demographic as well the suits — to the pauper of alternative fuels thanks to an ailing economy. Prices for raw materials have all but killed commercial applications for the time being and the oil market, corn’s arch nemesis and once-constant source of viability, is sort of leveling out, or bottoming out, depending on how you interpret going from $147 per barrel in July to a price that’s today sliding toward $34.

Demand is even down for gas as Americans resort to public transportation, carpooling, bicycles and anything else that doesn’t involve regular visits to the pump. Even worse, private investors have gone cold and federal lawmakers — who now realize their production mandates of 100 million gallons of advanced biofuels in 2010 and 250 million gallons in 2011 won’t be reached on time — are more hesitant than ever.

How is the industry reacting? The federal government created a credit system to make sure that ethanol producers are on track, but many of the manufacturers that are running behind are simply buying excess credits from larger operations that have already reached capacity. Each gallon produced by a company is assigned a “Renewable Identification Number,” and these RINs have become an underground environmental currency. Prices for the credits rose 28 percent during one week in January.

It’s all part of a new, emerging economy that has all the challenges of your grandparent’s emerging economies, including imported competition. Some estimates even suggest that 15 percent of the ethanol consumed in the U.S. comes from overseas. In particular, ethanol from Brazil and the Caribbean could potentially become the heavies as debate over removing the tax on imported ethanol warms up. Back home, it amounts to a tough nut to crack for corn-based ethanol, which — albeit slowly — helped propel American into the world of alternative fuels.

According to a report last month by The New York Times, at least one ethanol manufacturer around the nation has closed up shop every seven days or so this year. Nationwide, plants with a total capacity of 2.2 billion gallons a year are sitting idle, compared to the 9 billion gallons of actual annual production the U.S. experiences. Another 800 million gallons come from manufacturers that are operating at less than 100 percent. VeraSun Energy, one of the nation’s largest ethanol producers, has shuttered 12 of its 16 plants. The Renewable Fuels Association, an advocacy trade group, has data pointing to another 24 closures nationwide over the past three months. Just last week, it was announced that the NextDiesel biofuel plant in Michigan may shut down if market conditions don’t improve and GTL Resources PLC is putting to rest its 100 million gallon production facility in Illinois.

Thankfully, for Louisiana, there aren’t many large ethanol manufacturers in the state to feel the pinch. In fact, along with others interviewed for this story, Michael E. Salassi, an LSU agribusiness professor, says he hasn’t heard of any Louisiana ethanol plants shutting down amid these challenges. Still, Salassi says Louisiana-based producers of corn ethanol must overcome other financial and philosophical debates, like the value of the crop as fuel or food. In short, those relying solely on corn are being attacked from every level. “Right now, they’re not even able to cover the costs of the raw product,” he says. “And in the meantime, ethanol prices just keep going down.”

Although the ethanol industry appears to be in turmoil, the staging allows for the opportunity for state and private investors to transition into advanced biofuels, which still have their own challenges but seem to be progressing more easily. At this moment, cellulosic ethanol is sitting in the hot seat. It’s basically ethanol produced from forestry or agricultural waste. Not only does it eliminate the fuel-or-food debate (the fuel is produced from byproducts and largely has no impact on the food supply or land use), but Louisiana is uniquely positioned to benefit for the new technology being employed.

For instance, the Cambridge, Mass.-based Verenium opened up its first demonstration-scale cellulosic ethanol plant using sugar in Jennings last year and a full-scale model is being built in Florida. If you want to find the hype in the Bayou State, look no further than this project. Verenium also plans to open other full-scale models in the U.S., but locations have not yet been announced. “The facility will serve as a blueprint for how we develop future projects,” says Carlos A. Riva, Verenium’s president. “This milestone is just the beginning.”

Additionally, researchers from the LSU AgCenter’s Sugar Research Station in St. Gabriel and the U.S. Department of Agriculture’s research station in Houma have developed several varieties of energy cane that can be used as feedstock for producing ethanol. Louisiana Agriculture Commissioner Mike Strain says, for its part, the Bayou State is ready to leap at the opportunity “All of the technology is moving that way,” he says. “With our sugar cane and our timber, Louisiana is at a competitive advantage.”

But it’s just the tip of the iceberg for advanced biofuels in Louisiana. The $126 million Tyson-Syntroleum Biofuels Plant in Ascension Parish is turning chicken fat into jet fuel. Louisiana Green Fuels also opened an ethanol plant in Lacassine last January that is harvesting sweet sorghum, a species of grass. The company is hoping farmers embrace it as an alternative crop that could even supplement sugar cane.

So, how big of a shift could this be for Louisiana? According to a joint study released earlier this month by Sandia National Laboratories and General Motors, American could replace one-third of its yearly gas use with ethanol by 2030. Out of the 90 billion gallons needed to make this happen annually, 75 billion gallons could potentially be cellulosic ethanol, based on the study’s calculations. Another recent study published by the University of Minnesota found that cellulosic ethanol could help reduce air pollution.

The validations are coming more quickly than thought, along with the technological advances, but there’s still a bit of road to travel until people start pumping agricultural debris into their vehicles. “There’s a lot of emphasis being placed on cellulosic ethanol, but it’s not quite up to a fully-commercial scale yet,” says Salassi. “But they’re very close, and Louisiana is poised to be competitive. We have the acres through forestry and the crops through our farmers and the capability and experience to make it all happen.” Cambridge Energy Research Associates, an advisory firm in Massachusetts, suggests the watermark will be seen in about five years.

For now, ethanol folks are pushing for higher blends from Congress, which would certainly be a bailout. Presently, there’s a 10 percent cap on the amount of ethanol that can be used in vehicles, and upping it would be a boon for the industry. The Environmental Protection Agency is already testing higher blends for performance.

Closer to home, the Louisiana Legislature is expected to take up a slew of ethanol-related bill in the upcoming regular session that convenes in late April, says Strain. “We’re looking at incentives on feedstock and incentives for cellulosic ethanol and a few other things,” he says. “I also think you’re going to see some breaks for manufacturers. It’s going to be a really interesting session.”

In the end, though, it all comes down to economics. Advanced biofuels may not be competitive in the long run if gasoline prices fall below what it costs to produce agricultural fuel. Maybe that’s why President Barack Obama loaded up his $787 billion stimulus bills with loan guarantees and deployment plans for advanced biofuels. For Louisiana, it could mean more green-collar jobs in the future. As the Louisiana Legislature prepares to meet this spring, its members may want to take note of Obama’s willingness to embrace this new industry. “The future of ethanol is here now, in Louisiana,” Strain says. “It’s a great opportunity.”