Overcoming constraints to
growth in biofuels industry
By Donald A. Frederick
Program Leader for Law,
Policy & Governance;
USDA Rural Development
Editor's note: This article presents findings
of Booze Allen Hamilton, a consulting firm
headquartered in McLean, VA. The article
does not reflect official positions of the U.S.
Department of Agriculture or any other
government entity. The author of this
article recently retired from USDA.
he U.S. Department of
Agriculture asked Booz
Allen Hamilton (BAH)
to identify the obstacles
to rapid expansion of
the biofuels industry and actions to
overcome those barriers. The target is
U.S. production and use of 60 billion
gallons per year (BGY) of biofuels by
2025. This would meet 17 percent of
the projected 250 BGY United States
transportation fuel demand for 2025.
Expanded domestic biofuels
production and use will have several
important benefits, including: 1) lessen
our dependence on foreign oil; 2)
improve the environment; 3) reduce
U.S. foreign trade deficits; 4) enhance
the economic well-being and quality of
life for rural Americans.
The 60 BGY target represents what
policymakers believe to be the most
aggressive, yet achievable, goal for
biofuel production (i.e., ethanol and, to
a much lesser extent, biodiesel) in the
United States. BAH concludes that the
goal is attainable, but will require
significant technological, logistical and
socio-economic changes to the current
system of producing, transporting and
using transportation fuels.
Initial findings
Most biofuels production today is
corn-based ethanol, most of which is
used as an additive to petroleum-based
gasoline, producing a blend of 90 percent
gasoline and 10 percent ethanol.
As early as 2012, BAH says ethanol
production from corn will reach 15
BGY. This will saturate the current
blend market and the use of corn for
ethanol production will begin to
adversely impact other uses of corn,
notably as livestock feed.
Further growth of the biofuels
industry will require a new set of
government policies that will facilitate
the development of new, dedicated
energy crops, commonly referred to as
cellulosic feedstocks. Additional policy
initiatives will be needed to encourage
investment in infrastructure and
distribution capacity that will make
high-blend fuels – such as an 85 percent
ethanol fuel (E85) – readily available
and cost competitive with fuels entirely
or primarily produced from oil. Finally,
drivers will have to want to purchase
and have easy access to affordable
vehicles that operate efficiently on
biofuels.
BAH found that as annual biofuels
industry production progresses towards
60 BGY, constraints will arise in all four
major components of the biofuels value
chain (feedstock, conversion, transport
and end use). The BAH report
identifies those constraints and
recommends actions that USDA and
other government institutions can take
to address them. Forward thinking is
essential to coordinate the simultaneous
expansion throughout the biofuels value
chain that is necessary to avert
constraints which could cripple the
industry.
Feedstock
Feedstock production involves the
growth and harvesting of traditional
crops such as corn and soy, future
dedicated energy crops and biomass
available from forest and agricultural
resources.
BAH found that significant feedstock
constraints are:
- Land and water use requirements for
feedstock production sufficient to
supply a 60 BGY biofuels market are
not well understood;
- Severe drought and low crop yields
could significantly impact the
feedstock availability for conversion
to biofuels;
- Current re-enrollment of CRP land is
high and there is no incentive for land
reintroduction for growing dedicated
energy crops.
The recommended action to address
feedstock constraints is to create a
mechanism to determine what agricultural
practices must be present in
2025 to support a 60 BGY biofuels
market and still meet food and feed
requirements. This study should examine:
- The balance between existing
agriculture and introduction of new
energy crops;
- The pace of land introduction and/or
conversion needed to meet future
biofuels feedstock production
requirements;
- The potential of introducing droughtand
pest-tolerant and high-yield seed
hybrids;
- The benefits of creating a "strategic
crop reserve" as a hedge against low
crop yields;
- How subsidies could impact the
production of new
feedstocks/dedicated energy crops;
- How improved feedstock
densification processes can lower
costs and risks of biofuels facilities;
Conversion
Ethanol and biodiesel plants each
have their own unique processes for
converting renewable feedstocks into
biofuels. A sustainable American
biofuels industry capable of replacing a
significant amount of imported oil will
require new technologies which can
convert different and more plentiful
renewable resources into biofuels.
The significant conversion
constraints are:
- Environmental challenges of
conversion technologies affect
potential plant siting;
- Economics of new bioconversion
technologies are highly dependent on
volatile feedstock and biofuels prices.
- Biodiesel production is well below
existing refinery capacity.
The recommended actions to address
these conversion constraints are:
- Work with states to determine how
emerging carbon trading programs,
water rights issues and air permitting
requirements will impact biofuels
industry development;
- Create a biofuels security subsidy with
a price floor on oil and a price ceiling
for feedstock outside of which
government support would be
triggered to maintain positive economics
within the biofuels industry;
- Create additional Renewable Fuels
Standards specifically for E85 and
biodiesel to increase both nationwide
availability and demand of E85 and
biodiesel.
Transport
Current biorefining finished product
volumes are small enough that barge,
rail and truck shipments are economical
and efficient. But moving a greatly
enlarged amount of product from
dispersed biorefineries to local fuel
terminals will require expanded and
innovative transportation systems.
The significant transport constraints
are:
- The existing biofuels transport
infrastructure is incapable of
supporting 60 BGY of biofuels;
- Rail tank-car construction is backlogged
18 months and rail spur lines
are becoming overburdened with
current shipments of freight and fuel;
- No determination has been made as
to the feasibility of converting existing
petroleum pipelines to accommodate
biofuels;
- There is a long permitting process
required for construction of new pipelines.
The recommended actions to address these transport constraints include:
- Determine the government’s role to ensure adequate biofuels transportation
capacity;
- Determine when the current biofuels transport infrastructure will be pushed
beyond its capacity to accommodate additional volume;
- Examine opportunities to modify existing pipelines or use existing rights of way to
transport biofuels;
- Fund research on reducing siting and construction constraints to enable
infrastructure development necessary to support rapid industry expansion;
- Conduct analysis on the “least-cost” strategy for handling the transition to a 60
BGY future.
End use
Biofuels will reach their potential only if energy companies, vehicle
manufacturers, retail service stations and consumers all have sufficient incentives to
change their operations and habits to embrace renewable fuels. Like the change
from leaded to unleaded gasoline, this will require a clear and sustained campaign to
match supply and demand on an evolving basis.
The significant end-use constraints are:
- As ethanol production moves beyond 15 BGY, a significant increase in consumer
demand for E85 will be required to support increased ethanol production;
- Current E85 and biodiesel retail availability is limited;
- Current production and sale of flexible fuel vehicles (FFVs), capable of running
smoothly on either gasoline or biofuels, is limited;
- Additional outlets for ethanol are not established to accommodate an imbalance
where supply exceeds national fuel demand.
The recommended actions to address these end-use constraints include:
- Sponsor public education programs to increase consumer demand for biofuels and
FFVs;
- Create a national corridor of biofuels refueling stations to increase availability and
encourage purchase of both E85 and biodiesel;
- Work closely with auto manufacturers to establish incentives to increase
production of FFVs;
- Develop an export market for U.S. ethanol to support continued ethanol industry
expansion through a possible slow transition to E85.
Failing to address the critical issues facing the biofuels industry will lead to
bottlenecks which constrain continued rapid industry expansion and limit its
capacity to lessen America’s dependence on foreign oil. It will also hamper efforts to
improve the environment, reduce trade deficits and enhance the economic wellbeing
of rural America.
Eliminating these constraints will require considerable discussion and
coordination with states and industry to determine the benefits and risks of various
government interventions. While the range of issues and stakeholders is large, the
timeframe for ethanol’s transition beyond 15 BGY provides an opportunity for
robust debate and for developing reasoned responses. The time to begin is now.
