Governors' Biofuels Coalition

After a decade of research and development, ethanol-maker Poet and its Dutch partner Royal DSM recently produced the first cellulosic ethanol at a $275 million plant next to a cornfield in this northern Iowa town.

Two other companies are completing new cellulosic-ethanol plants in Iowa and Kansas. By next year, they expect to be producing millions of gallons of the advanced biofuel.

“It was a big moment when we produced ethanol,” said the Emmetsburg plant’s general manager, Daron Wilson, who kept a vial from the first batch in August as a memento. “It was jubilation.”

Yet the goal of producing ethanol from nonfood sources faces a murky future. Wavering U.S. policy on renewable fuels and the North American oil boom cast a shadow over the commercial triumph.

The next big cellulosic-ethanol plants are planned or being built in Brazil, not the United States. Although the U.S. government has spent more than $1 billion to develop cellulosic technology, industry executives recently wrote to President Obama that other countries, including China, could “reap the economic and environmental rewards of technologies pioneered in America.”

Most ethanol is fermented from corn kernels. The fuel made at the new Emmetsburg plant is derived from inedible parts of the corn plant. Straw and grasses also can be used because, like corn residue, they contain sugars that cellulosic technology can extract from the fibers.

Outside the Emmetsburg plant are 158,000 bales of corn cobs, husks and stalks collected from farmers’ fields.

The residue is ground up, subjected to acid, water, heat and enzymes to extract hidden sugars. Then they’re fermented and distilled. The 200-proof alcohol is the same as that made from corn.

“Cellulosic is kind of like corn ethanol was in the ’80s,” said Jeff Lautt, chief executive of Sioux Falls, S.D.-based Poet, the nation’s second-largest ethanol-maker, operating 27 traditional production plants. “It has a lot of promise; it needs some support to allow the innovation and continuous improvement to happen, but long-term it can compete on its own just like corn ethanol.”

Lautt and other industry officials said cellulosic ethanol can be produced today for $3 per gallon, but costs are sure to drop, making it competitive with corn ethanol, whose U.S. average rack price recently dropped below $2 per gallon.

In 2007, Congress enacted the renewable-fuel standard that imposed a complex system of mandates to blend more ethanol into the nation’s motor fuel. The oil industry has resisted it as onerous, costly and unworkable.

Ethanol-makers say that without a blending mandate, it will be difficult if not impossible to raise investment capital for more U.S. cellulosic-ethanol plants. The Obama administration, which has signaled it might change the mandate, is expected soon to announce its policy.

One problem facing the ethanol industry is that traditional ethanol plants have more than enough capacity to supply 10 percent of the U.S. fuel supply. Almost all gasoline is sold at that blend, E10.

Ethanol-makers never planned on cutting back corn-ethanol output to make way for the new cellulosic version. At Emmetsburg, the Poet-DSM cellulosic plant called “Project Liberty” stands next to a 9-year-old corn-ethanol plant.

That leaves one choice: higher blends like E15.

“The truth is that there is only so much ethanol being bought in this country,” said Paul Niznik, research manager and biofuels expert at Hart Energy Research & Consulting in Houston. “If you are making cellulosic ethanol, you are not competing against petroleum products, you are competing with other ethanol plants.”

Once, ethanol marched in the vanguard to reduce U.S. oil imports. Now, the domestic shale-oil boom also can claim the energy-independence banner. Oil imports are down to 40 percent of U.S. consumption, the lowest since 1996.

“In 2007 we were talking about peak oil — we don’t talk about that anymore,” said Jason Hill, assistant professor of bioproducts and biosystems engineering at the University of Minnesota.

The industry is closely watching states like California that have or are considering low-carbon fuel standards. They could pave the way for cellulosic-ethanol expansion beyond the Corn Belt, with production plants fed not by crop residue, but organic waste from garbage. Abengoa, a Spanish energy and environment company, is piloting such a plant.

“We are actively promoting a full-scale project using municipal waste as a feedstock, which will allow us go outside the middle of the United States to the coasts where there are heavily populated areas that produce a lot of trash and use a lot fuel,” said Christopher Standlee, Abengoa’s executive vice president for global affairs.