This year begins the ninth year of cellulosic ethanol mandates in the U.S. Today I want to give a brief review of cellulosic ethanol, review the original targets, and examine the current status of the industry.
What is Cellulosic Ethanol?
Conventional ethanol production utilizes a fermentation process to convert starches or simple sugars to ethanol. The vast majority of the world’s ethanol is produced from either corn or sugarcane.
Cellulose is an important structural material for plants, and it is made up of many repeating sugar units. These repeating sugar units can be broken down by various processes into the component sugars, which can then be fermented into ethanol.
The process of breaking down cellulose into sugars was discovered in France in the 1800’s, and cellulosic ethanol production was first commercialized in Germany in 1898. Commercialization in the U.S. followed in 1910, but the process was ultimately abandoned almost everywhere for economic reasons.
Ethanol Mandates Begin
The Energy Policy Act of 2005 created a Renewable Fuel Standard (RFS) for the U.S. that required 7.5 billion gallons of renewable fuel — primarily corn ethanol — to be blended into the fuel supply by 2012.
The act created mandates requiring that increasing volumes of biofuel be blended into the U.S. fuel supply. Corn ethanol production soared and quickly outstripped the mandates. The 2007 Energy Independence and Security Act (EISA) increased and accelerated the schedule for the mandates. But it also created a mandate to begin blending cellulosic biofuel (which was primarily envisioned as ethanol) into the nation’s fuel supply.
Interestingly, there was no commercial cellulosic ethanol production when the mandates were established, but proponents of the technology were certain that commercialization would come in response to the mandates. The cellulosic ethanol mandate went into effect in 2010 when 100 million gallons of cellulosic ethanol was required to be blended into the fuel supply.
The mandate quickly ramped up to half a billion gallons in 2012, one billion gallons in 2013, and in 2017 was supposed to reach 5.5 billion gallons.
The Mandates Fall Short
In reality, no commercial cellulosic ethanol was produced in 2010 or 2011, but in 2012, the first qualifying batch (i.e., the first batch qualified by the Environmental Protection Agency to receive cellulosic biofuel tax credits) of cellulosic ethanol was produced. Blue Sugars Corporation produced some 20,069 gallons of cellulosic biofuel in April 2012. Following this, no further cellulosic ethanol was produced in 2012 (or 2013), and Blue Sugars declared bankruptcy a year later.
In 2014 — when the mandate called for 1.75 billion gallons of cellulosic biofuel — several new plants came online. For the most part, these plants were heavily subsidized by taxpayers, and every gallon of qualifying production also received subsidies in the form of renewable energy credits.
Companies that built plants to produce cellulosic ethanol included DuPont, Abengoa, INEOS Bio, and privately-owned POET. Most of these plants have also now gone out of business, but they did manage to contribute to the production of 728,509 gallons of cellulosic ethanol in 2014 (per EPA data).
As an aside, cellulosic biofuel production skyrocketed in 2014, primarily because the EPA reclassified biogas from landfills, municipal wastewater treatment facility digesters, agricultural digesters as cellulosic biofuel. As a result, biogas producers became eligible for generous tax credits.
The Million Gallon Milestone
Even though the RFS called for 100 million gallons of cellulosic ethanol production in 2010, it wasn’t until 2015 that annual cellulosic ethanol production crossed the one million gallon threshold. For the entire year, 2.2 million gallons were produced. In 2016, another 3.8 million gallons of cellulosic ethanol was added. Then 2017 saw the biggest jump in cellulosic ethanol production to date, with production reaching 10.0 million gallons.
Jumping from under a million gallons to 2.2, 3.8, and then 10.0 certainly qualifies as exponential growth. But bear in mind that as early as 2015, the nameplate capacity of plants that had announced they were in production was at least 88 million gallons of cellulosic ethanol per year. Further, the mandate for 2017 was 5.5 billion gallons. That puts 2017’s production of 10 million gallons into perspective.
More than two years after announcing they were in production, the cumulative output of the plants that announced startups in 2014 and 2015 was 11% of nameplate capacity. In part, that’s because some of the companies couldn’t even make cellulosic ethanol work economically despite all of the available financial assistance.
The picture is still bleak even if we restrict the focus to a single plant still in operation — POET’s Emmetsburg, Iowa facility. In 2014, the company had announced the first production from its 25 million gallons per year nameplate capacity plant. Yet total production for all cellulosic plants three years later was less than half the nameplate capacity of this single plant.
The bottom line is that cellulosic ethanol has fallen far short of the hype and the expectations. Production that has been achieved to date has come about as a result of loan guarantees — many of which the taxpayer will have to foot when the plants go bankrupt. Production has also been the result of generous financial compensation for every gallon that was produced.
Thus, it is true that production is now growing exponentially. But what has yet to be demonstrated is that this is a viable avenue for fuel production without both plant construction and production being heavily subsidized.
It is possible to subsidize all sorts of uneconomical schemes into existence. I would argue that’s what has happened here. Cellulosic ethanol today is largely in the same shape as cellulosic ethanol production 100 years ago.
Despite some incremental improvements in production, it is still uneconomic to produce and isn’t competitive with conventional ethanol production or fossil fuels. This is an experiment that is likely to end with billions of tax dollars have been wasted.