Ethanol Production Will Have To Increase To Meet Government Mandates

AMARILLO-(TAMU)--Ethanol plant construction has come to a halt, but the mandates by government are not declining, which could mean prices could jump again. Producers should prepare for round two, a Texas AgriLife Extension Service specialist said.

"Expanded ethanol production is probably a given; however, the pace is expected to slow due to capacity limits and policy," said Dr. Steve Amosson, AgriLife Extension economist.

The president-elect and U.S. Secretary of Agriculture are both big supporters of renewable fuels, Amosson said. President-Elect Barack Obama has stated, "I have established a goal to have 60 billion gallons of our fuel come from sustainable, affordable biofuels in 2022..."

The reality right now is that nationwide 213 ethanol plants were in production or under construction in September 2007, with many more on the drawing table, he said.

Nine months later, some of the plants that were under construction have come into operation, but no new plants have started construction.

Bill Tierney, former Kansas State University grain marketing economist and former head of the U.S. Department of Agriculture wheat and feedgrains forecasting division in Washington, D.C., said the global "credit crisis" came at just the right time to stop the U.S. ethanol industry from seriously overbuilding capacity relative to the market share.

"In early August 2007, the industry was well on its way to overbuilding, much as the U.S. biodiesel industry already has," Tierney said.

The credit crisis and declining ethanol margins dried up financing for 11 billion gallons of "probable" projects, he said.

"Ethanol production is and will continue to suffer from growing pains," Amosson said.

Recent analysis shows that ethanol plants are losing money given the current prices of ethanol and distiller's grains by-products, after taking into consideration the cost of the primary inputs natural gas and corn, Amosson said. However, he said, considering oil prices are expected to start going back up and "we may be falling below producing enough ethanol to meet the amount necessary to meet the renewable fuel standards, ethanol prices should rise."

The energy bill signed into law in December 2007 requires 36 billion gallons of ethanol to be available for use by 2022, Amosson said. Twenty-one billion gallons is supposed to come from feedstocks other than corn.

The problem, he said, is that cellulosic ethanol production is not even expected to get off the ground until 2015 or after, and then it takes time to ramp up the industry.

"The renewable fuel standards will not hold up - it can't," Amosson said.

The renewable fuels standard mandate enacted under the Clear Air Act applies to blenders but has never been enforced, he said. The Environmental Protection Agency is the enforcement arm.

According to the standards, 11.1 billion gallons of ethanol nationwide, or 10.21 percent of the national energy supply, must come from renewable fuel this year, Amosson said. The amount gradually steps up from there.

Penalties for blenders not meeting the mandates include having to return any profit from non-renewable fuels and a fine of $25,000 per day, he said, so that may be enough incentive to keep them moving in that direction.

One bushel of corn will produce 2.8 gallons of ethanol and 17 pounds of dried distiller's grains, Amosson said.

"I thought distiller's grain prices would go down, but last year Europe had a disaster in their wheat," he said. "While they wouldn't import any of our GMO (genetically modified) corn, they still used our distiller's grains for feed and that is why we didn't see the decrease."

Amosson said distiller's grain prices could be expected to start falling, making them more attractive for livestock rations and that should increase their usage.

At the same time, the limit on corn-based ethanol and the growth in yields will eventually cap corn prices, he said.

(Source: Texas A&M Ag Extension.)

Modified Plants May Yield More Biofuel

UNIVERSITY PARK, Penn.-(PSU Extension)--Plants, genetically modified to ease the breaking down of their woody material, could be the key to a cheaper and greener way of making ethanol, according to researchers who add that the approach also could help turn agricultural waste into food for livestock.

Lignin, a major component of woody plant material, is woven in with cellulose and provides plants with the strength to withstand strong gusts of wind and microbial attack. However, this protective barrier or "plastic wall" also makes it harder to gain access to the cellulose.

"There is lots of energy-rich cellulose locked away in wood," said John Carlson, professor of molecular genetics, Penn State. "But separating this energy from the wood to make ethanol is a costly process requiring high amounts of heat and caustic chemicals. Moreover, fungal enzymes that attack lignin are not yet widely available, still in the development stage, and not very efficient in breaking up lignin."

Researchers have previously tried to get around the problem by genetically decreasing the lignin content in plants. However, this can lead to a variety of problems -- limp plants unable to stay upright, and plants more susceptible to pests.

"Trying to engineer trees without lignin is like trying to engineer boneless chicken," said Ming Tien, professor of biochemistry, Penn State. "It just doesn't make sense."

Carlson, Tien and postdoctoral associate Haiying Liang use a different genetic approach. Instead of decreasing the lignin content, they are trying to modify the connections in lignin, without compromising either the biosynthesis of lignin or the structural rigidity of the plant.

The Penn State geneticists and biochemists took a gene from parsley and engineered it into a poplar tree. This gene produces a protein that inserts itself between two lignin molecules when the lignin polymer is created.

"Now we have a lignin polymer with a protein stuck in between," explained Carlson, who, along with Tien and Liang, has filed a provisional patent on the approach. "When that occurs, it creates a type of lignin that is not much different in terms of strength than normal lignin, but we can break open the lignin polymer by using enzymes that attack proteins rather than enzymes that attack lignin."

These enzymes that attack proteins are already used widely in the laundry detergent industry and are commercially readily available, added Carlson.

The genetic modification does not appear to weaken the plants, and the transformation may have turned them into more efficient sources of ethanol.

"When we looked at the first generation of modified plants we noticed that the lignin content has not changed," said Tien, whose work is funded by the U.S. Department of Energy. "We haven't done a fitness test yet but we did see an increase in the yield of sugars for converting into ethanol."

The researchers also may have stumbled on an unexpected side benefit.

One of the problems with forage crops such as ryegrass and clover is that they have too much lignin, which can cause ruminants like cows to get sick. Their digestive enzymes go into overdrive to break down the lignin, creating a lot of gas and digestion problems for the animals.

"All animals produce enzymes in their digestive process that break down amino acids and small proteins that can be absorbed by the intestine," said Carlson. "If this technology were to be transferred to alfalfa or hay or such cattle feed, it might make it easier for the cows to break down the lignin through their own enzymes."

Carlson added that the technology could potentially be transferred to other biomass crops and even help turn agricultural waste products found on farms into animal feed. But the modified plants will require federal approval before they can be commercialized.

Is Biodiesel Capable of Meeting RFS Shortfall?

WASHINGTON-(Farm Progress)--There is skepticism that there might be a shortage of renewable fuel available to meet the 2009 RFS requirement. In response, the National Biodiesel Board says it is confident the U.S. biodiesel industry is fully capable of meeting any RFS shortfalls that are not filled by the domestic ethanol industry. For 2009, 10.5 billion gallons of renewable fuel must be entered into commerce.

According to Manning Feraci, NBB’s Vice President of Federal Affairs, in 2008 alone, the U.S. biodiesel industry produced nearly 700 million gallons of biodiesel, which equates to 1.05 billion ethanol equivalent gallons for purposes of the RFS.

Currently, there are 176 plants in operation with the capacity to produce more than 2.61 billion gallons of biodiesel. This capacity has added jobs and $4.287 billion to the Gross Domestic Product; displaced 38.1 million barrels of petroleum; generated $866.2 million in tax revenue for federal, state and local governments; and reduced greenhouse gas emissions by 11.28 tons, the equivalent of removing 980,000 vehicles from U.S. roads.

Whatever Happened To The Move Toward Cellulosic Ethanol?

URBANA, Ill.-(UI Extension)--There is no secret that when corn becomes too high priced or there is an insufficient supply, ethanol will be refined from cornstalks, switchgrass, miscanthus, wood chips, potato peels or some other form of low value biomass. The bugs are being worked out of the processes, but since it is all in the experimental stage, what will be the financial support for the biomass ethanol industry to start up and go on line toward full scale production? Has the economy threatened such a start up industry? You and a lot of other farmers want to know when to deliver a truckload of corn stalks.

USDA grants in the past year provided over $10 million to speed up the cellulosic ethanol research, and some pilot plants are operating. But economist Cole Gustafson at North Dakota State University says financial constraints will interfere with the transition from experimental to commercial operation. His analysis casts doubt on the availability of industry capital and the uncertainty in the U.S. financial markets.

And he thinks Brazil and Mexico will be in a position to capture a share of the cellulosic ethanol market.

Gustafson says the U.S. ethanol industry expanded rapidly with the help of federal mandated production goals and low cost corn, generating financial benefits for local and state economies. But he says research has shown that as local ownership declines by one percent, one less job is created in a local community.

When corn-based ethanol plants were at their peak of profitability in 2006, $2.25 per gallon was returned to investors, who had invested about $1 per gallon of capacity to build the plant. But he says those margins have steadily declined since mid-2006 as more ethanol reached the market and more ethanol plants competed for local corn. Gustafson says when plant margins diminish, external capital sources are no longer interested in the investment. He points to the decline and bankruptcy of Verasun Energy, and says some firms will struggle in the best of times and with capacity at 62%, new firms will have limited incentives to begin producing ethanol.

Additionally, Gustafson says construction costs have risen to $2 per gallon of capacity, tax credits and subsidies for ethanol are increasingly uncertain, public concerns over water consumption by ethanol plants, credit limitations placed on ethanol plants, and the emphasis being placed on development of technology for cellulosic ethanol have all converged as threats to the expansion of the corn-based ethanol industry. Despite the challenges, the financial stability of the ethanol industry remains solid, and one lender which has financed 44 ethanol plants says only 3 of them were in poor financial health.

Parallel to the industry’s challenges, the collapse of the international credit markets has resulted in some uncertainty, but the ethanol industry had halted expansion in summer due to high corn prices, so the failure of international financial markets had little impact. The economist says most plants had alternative lines of credit to use when commercial paper markets dried up.

Gustafson says the cellulosic ethanol plants will be eligible for a 50% tax credit, and they will become commercially viable in the next couple years. While rising construction costs are a problem, they are doubly difficult for cellulosic plants that cost twice as much to build as corn ethanol plants. However, the value of the ethanol will increase along with the nation’s path to reduce its carbon footprint, and cellulosic ethanol may command a premium price, if the carbon value can be calculated.

Summary:

The ethanol industry is in a transition phase from corn to cellulosic feedstocks, but at the same time there is a lack of capital available from investors to help it advance, and funding arrangements over the past several years have not allowed the industry to build any equity in its plants. Uncertainties in the ethanol industry include continuation of the tax credits and other subsidies, as well as the difficulty in establishing values for carbon trading that could potentially benefit cellulosic ethanol. The Wall Street turmoil is an additional challenge that could subdue the economic performance of the country for the next decade. Part of the solution will be the rising value of the dollar, which will increase importation of foreign refined ethanol. Mexico and Brazil have announced substantial expansion plans for sugar-based ethanol that will help the US meet its mandate for 36 billion gallons of renewable fuel production per year.

(Source: Stu Ellis, http://www.farmgate.uiuc.edu)

EIA: U.S. Will Fail to Meet Biofuels Mandate

WASHINGTON-(ENN)--The United States will fall well short of biofuels mandates on the uncertain development of next-generation fuels made from grasses and wood chips, the government's top energy forecasting agency said.

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