March 7, 2011
The Cellulosic Ethanol Boom That Never Happened
By Josh Goodman, Staff Writer
It's understandable why Perdue, who was governor of Georgia at the time, felt optimistic. He was speaking at the groundbreaking of a facility to turn wood into fuel, where a company called Range Fuels was supposed to build the nation's first commercial-scale cellulosic ethanol plant. Samuel Bodman, who was then the U.S. energy secretary, was there too, promising $76 million in federal money, vastly increasing Georgia's $6 million commitment. Sun Microsystems co-founder Vinod Khosla was the facility's major private financial backer.
Perdue was hardly alone in seeing a new ethanol boom. States around the country were hoping that cellulose from all manner of plant material — from tree waste to grasses to corn husks — would serve as fuels that could clean the environment and end America's dependence on foreign oil. Range Fuels' plant in Soperton, Georgia, was supposed to produce 20 million gallons of fuel in 2009, then ramp up to 100 million gallons after that.
It never happened. Today, the facility is closed, at least temporarily. As the Atlanta Journal-Constitution reported last month, it ran out of money before it ever became commercially viable.
That's a common story. Nationally, under federal legislation enacted in 2007, 250 million gallons of cellulosic ethanol were supposed to be produced this year. But the U.S. Energy Information Administration projects that less than 4 million gallons actually will. When people think of ethanol, they still think of corn and Iowa.
Now, as in 2007, oil prices are spiking. This time around, though, electric cars look like the alternative of the moment. Commercialization of cellulosic ethanol isn't dead, but it has been delayed. What's not clear yet, however, is whether the reversal reflects the dangers of chasing new technologies or whether the backers of cellulosic ethanol need just a little more patience.
Competing with corn
The enthusiasm for cellulosic ethanol occurred during the dramatic rise in oil prices that began after Hurricane Katrina in 2005. It also reflected corn-based ethanol's limitations as an alternative to oil-based fuel.
Corn-based ethanol is well-established in the United States. Around 13 billion gallons of it were produced in 2010. No one believes, though, that it will ever replace the approximately 140 billion gallons of gasoline Americans use each year.
Corn can't be grown everywhere. Plus, a lot of it is needed to feed animals and livestock. Some research indicates that the environmental benefits of corn-based ethanol are limited or non-existent — using it doesn't result in a reduction in greenhouse gas emissions.
Cellulosic ethanol is different. Cellulose is a key building block in cell walls of plants, including ones that grow on marginal land unsuitable for corn. The hype about cellulosic ethanol a few years ago briefly turned obscure plants such as switchgrass into lucrative-sounding cash crops because they could grow quickly and on poor-quality land. The vision for cellulosic ethanol is that it could be produced just about everywhere in the United States, dramatically supplanting oil as a fuel for automobiles.
That was the thinking in Congress in 2007 when it mandated that cellulosic fuel production ramp up to 16 billion gallons a year by 2022, more than the 15-billion gallon mandate for corn-based ethanol over the same period. In 15 years, cellulosic ethanol was supposed to evolve from something that existed mostly in labs to a crucial part of the American fuel supply.
Georgia has lots of forests and a struggling paper industry that doesn't need all of them. That's why Perdue thought cellulosic ethanol from timber made sense. But Perdue wasn't the only governor with Iowa envy. In 2007, for example, Pennsylvania offered $27 million worth of incentives to a facility intended to double as both a traditional corn-ethanol plant and a pilot cellulosic ethanol plant.
It was clear which part of the deal interested Governor Ed Rendell the most. "It doesn't take much imagination," he said in 2008, "to see Pennsylvania's energy economy booming when we become to cellulosic ethanol what Iowa has been to corn-based ethanol." The Pennsylvania cellulosic plant, though, hasn't been built. Massachusetts tried a different approach in 2008, exempting cellulosic ethanol from its gas tax. That move hasn't cost the state any money. On the other hand, no cellulosic ethanol has been sold commercially in Massachusetts.
Problems of scale
Why has cellulosic ethanol struggled? The answer depends on whom you ask.
One explanation is that the technology just wasn't ready for prime time, at least not on the scale that proponents believed in 2007. Ethanol has been made from cellulose in limited quantities for decades, but producing it on a massive scale is a bigger challenge. Sam Shelton, the founding director of Georgia Tech's Strategic Energy Institute, was skeptical of Range Fuels' aspirations from the beginning. "You just don't scale from a chemical lab scientific demonstration up to a $400 million plant in one step," he says.
Still, technology wasn't the only issue. When oil prices went back down after the 2007-08 spike, demand for alternative fuels went down with it, and investors lost interest in funding costly plants to produce them. The U.S. EPA dropped its 2011 cellulosic ethanol mandate from 250 million gallons to 6.6 million gallons.
One reason why is that the EPA has long limited commercially sold gas to 10-percent ethanol, except for vehicles that are specifically designed to handle more — a rule reflecting concerns that burning ethanol can exacerbate air pollution. Recently, the EPA agreed to lift the standard to 15 percent for cars produced since 2001, but it seems unlikely that many gas stations will install separate pumps to accommodate cars meeting the 15-percent threshold.
So even the new rules create a fairly firm limit on U.S. ethanol consumption. Corn-based ethanol already gets almost all the way to 10 percent of gasoline sold, leaving little room for new ethanol production.
But there's another reason why cellulosic ethanol isn't taking off. It's not the only alternative to gasoline and corn-based ethanol. The current enthusiasm is for electric cars. Two of them, the Nissan Leaf and Chevy Volt, hit the market in December. Other automakers are rushing to follow.
States are playing a role in this transition by subsidizing the still-pricey cost of electric cars or developing the network of charging stations they depend on. Colorado, for example, offers a $6,000 tax credit for electric-car buyers. Coupled with the federal government's $7,500 tax credit, a Leaf in Colorado costs around $20,000. Despite its budget crisis, California is paying for thousands of new charging stations around the state.
In the long run, there's room for both electric cars and cellulosic ethanol — no one expects electric cars to become cost-effective enough to make liquid fuel obsolete anytime soon, if ever. It wasn't so long ago that electric cars appeared as though they'd never make it to a mass market. The film "Who Killed the Electric Car?" hit theaters in 2006.
Cellulosic ethanol's fortunes haven't fallen nearly that far. Companies are still plodding toward commercialization. Could the cellulose gamble still pay off?
Betting on switchgrass
Tennessee thinks so. It's likely that no other state invested as heavily in cellulosic ethanol in the past decade. It was one of former Governor Phil Bredesen's signature initiatives. Starting in 2007, the state committed $70 million in state money to the project over five years. "It was at the request of our governor to come up with a big idea, something transformational," says Kelly Tiller, CEO of Genera Energy, a company that was spun out of the University of Tennessee to handle cellulosic ethanol development.
Legislators were shocked in 2009 when they learned that the demonstration ethanol plant would only be producing 250,000 gallons of fuel a year instead of the planned 5 million. Still, the legislature hasn't pulled the funding, even as the state's fiscal fortunes have soured.
Today, Tennessee has 5,300 acres of switchgrass under contract. The facility is providing researchers with new information on every step of the process, from cultivating the switchgrass to shipping it, storing it, breaking it down and turning it into ethanol. None of that will be worth $70 million, of course, if it doesn't produce something that's commercially viable. Tiller is optimistic. "We're absolutely still on track for commercial scale," she says.
Tiller is probably right that projects like the one in Tennessee have brought entrepreneurs closer to commercializing cellulosic ethanol than ever before. It's just that they still may be further away than everyone thought they were a few years ago. "The joke has always been that cellulosic ethanol is always five years off," says Nathaniel Greene, director of renewable energy policy at the Natural Resources Defense Council. "If it's now only two years off, maybe we've made some progress."