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Economic and environmental costs may make or break biofuels |
As economists, farmers, scientists and investors attempt to discern the future of ethanol and other biofuels, new cost-benefit analyses and economic indicators are being developed to evaluate their feasibility and environmental benefits.
Two indicators—the costs of production and delivery of biomass, and the costs of different materials to convert into biofuel—are being used to model the cost-effectiveness of potential production chains, explained John Miranowski, professor of economics at Iowa State University, at a conference in Chicago. From an environmental standpoint, he said, “the question becomes: are the carbon savings significant?”
Speaking at the World Congress on Industrial Biotechnology & Bioprocessing, at the Chicago Hilton and Towers, Miranowski said that “bioindicators” give analysts a way to “evaluate biobased solutions in efficiency terms.”
Currently, ethanol is the only biofuel in widespread use, but “we need to be thinking of ethanol as a transition fuel, not simply as the long-run alternative,” Miranowski said. Other feedstocks being explored include prairie switch grass, miscanthus grass and algae. Unlike cornstarch-based ethanol, which makes energy out of the carbohydrates found in corn kernels, these plants would be used to make cellulosic ethanol, wherein the cell wall is broken down and fermented into ethanol. The end product of cornstarch ethanol and cellulosic ethanol is the same.
While there are certainly hurdles to making cellulosic ethanol feasible for widespread consumption, cornstarch-based ethanol producers are under pressure, said William Caesar, principal at McKinsey & Company Inc., a financial advisory firm. Since January 2008, ethanol producers´ stocks are down by 40 percent to 60 percent, he said. Currently the market faces “logistical bottlenecks” due to a lack of “blending capacity in the U.S. to account for the ethanol.”
He recommended that investors looking to invest in biofuels look at feedstock prices, infrastructure capacity, regulatory support, economics and environmental challenges, particularly land-use issues and carbon dioxide emissions.
“Investment attractiveness depends on technology, geography and location,” Caesar said, adding that the “U.S. is the epicenter of [research and development] but once there is an application of that technology, it will be worldwide.” Brazil, India, China and Australia are all “ramping up and building the infrastructure” to become major ethanol players and will affect the overall ethanol landscape moving forward.
Miranowski, of Iowa State, cited complexities in calculating the economics and environmental impacts of biofuels, both corn-based and cellulosic. High corn prices can be noted, but the input cost is becoming inhibitive as the value of farmland rises, he declared.
Even so, he went on, corn is still a relatively economical input. He estimated that when the price of crude oil was $60 per barrel, the break-even price for corn was $4.25 per bushel, while at $100 per barrel, the break-even becomes $6 per bushel.
“Last year [cropland was] $240 an acre, now it´s closer to $400 an acre. What does that mean when you want to grow miscanthus?” he postulated, adding that "ethanol plants are concentrated in the Midwest and Great Plains, and that´s going to be a place that´s hard to penetrate with things other than corn-based ethanol.”
The projected margins for biomass production is not as appealing. Miranowski said, given current technology, the minimum price a farmer will accept for delivered biomass is $90 to $170 per ton, while the maximum breakeven processor price for biomass is $65 per ton. Much of the deficit is reflective of high transportation costs as well as the opportunity cost for corn land being used to produce biomass.
One of the advantages of biomass production, Miranowski pointed out, is the ability to grow the plants on land that does not support more sensitive and labor-intensive crops, like corn, and is therefore cheaper. But the cost to transport and store that biomass to the ethanol production plants concentrated in the Midwest would negate the advantages of making ethanol, both by financial and environmental measures, he said. Current construction of cellulosic ethanol plants is underway scattered throughout the U.S.
Miranowski reminded attendees that there is “no silver bullet in the liquid transportation fuel market,” but with hydrogen and nuclear energy alternatives decades away from feasibility, “one of the few alternatives we have is ethanol.”
Published 04/30/2008
Source: Medill Reports - Chicago, Northwestern University
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