Faster than you can say "Orville Redenbacher," corn-based ethanol has gone from the prince of renewable energies — championed by the granola crowd as well as the suits — to the pauper of alternative fuels, thanks to an ailing economy. Raw material prices have spiked, and the oil market, corn's arch-nemesis and once-constant source of viability, is leveling out, or bottoming out, depending on how you interpret going from $147 per barrel in July to nearly $34 last week.
Demand for gas also is down 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 realized — 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 suggest that 15 percent of the ethanol consumed in the United States comes from overseas. In particular, 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 America into the world of alternative fuels.
According to a report last month by The New York Times, at least one ethanol manufacturer in this country has closed 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 United States experiences. Another 800 million gallons come from manufacturers 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. 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, LSU agribusiness professor Michael E. Salassi says he hasn't heard of any Louisiana ethanol plants shutting down. Still, Salassi says Louisiana-based producers of corn ethanol must overcome other financial and philosophical debates, such as the value of the crop as fuel versus 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 an opportunity for state and private investors to transition to advanced biofuels, which 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, in contrast to corn, has no significant impact on the food supply or land use), but Louisiana is uniquely positioned to benefit from the new technology being employed.
For instance, the Cambridge, Mass.-based Verenium opened its first demonstration-scale cellulosic ethanol plant in Jennings using sugar last year. 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 United States, 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 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."
And that's just the beginning 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 opened an ethanol plant in Lacassine last January that is harvesting sweet sorghum, a species of grass. The company hopes farmers embrace it as an alternative crop that could even supplement sugar cane.
So how big a shift could this be for Louisiana? According to a joint study released earlier this month by Sandia National Laboratories and General Motors, America 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 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 faster than anticipated, along with 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," Salassi says. "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 Congress for higher allowable blends of ethanol, which would represent a different kind of bailout. The current cap is 10 percent, 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 bills in the session that convenes in late April, Strain says, "We're looking at incentives on feedstock and incentives for cellulosic ethanol and a few other things. 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 boils 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 bill with loan guarantees and deployment plans for advanced biofuels. For Louisiana, it could mean more green-collar jobs in the future. As the 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."