How wise is a cellulosic ethanol mandate?

The Tech Review describes recent "slow progress" on the development of commercial cellulosic ethanol.  Apparently, some companies are moving ahead with strategies to scale up:
ZeaChem, based in Lakewood, CO, has begun construction of a 250,000-gallon-per-year demonstration plant in Boardman, OR, that will produce chemicals from sugar and eventually ethanol from wood and other cellulosic materials...
The company's strategy for making the business a financial success and attracting investment for commercial scale plants is to start by producing ethyl acetate, which "takes about half the equipment and sells for twice the price of ethanol, so it's an ideal starter product," he says. Other biofuels companies are taking a similar approach--looking for high value products to offset high costs, at least initially. ZeaChem plans to incorporate the technology into an existing corn ethanol plant for commercial production of ethyl acetate. "If all goes well, that plant could be in operation by the end of next year," he says. A stand-alone commercial cellulosic ethanol plant would follow. It could switch between selling acetic acid, ethyl acetate, or ethanol, depending on the market.
If you're at all confused about why this happening, when we don't know how to make cellulosic ethanol without net energy expenditure, its driven by government support:

A renewable fuel standard signed into law in late 2007 requires the use of 100 million gallons of cellulosic ethanol in the United States this year and will ramp up to 16 billion gallons by 2022. But so far no commercial plants are operating, according to the Biotechnology Industry Organization (BIO), a leading trade group representing biofuel companies. The U.S. Environmental Protection Agency announced in February that it was scaling back the mandates to just 6.5 million gallons, which could be supplied by existing small-scale demonstration plants and new plants expected to open this year. That's up from approximately 3.5 million gallons produced in 2009.
Is it wise for our government to be driving this kind of investment?   One concern is that biofuels, in general, lead to the production of crops for energy which necessarily will increase the prices of food crops that are displaced.  In a recent working paper, Wolfram Schlenker and Michael Roberts try to identify (using weather shocks) the effect of the biofuel mandate on world food prices.  They predict that the biofuel mandate, as it stood at the time of writing, would lead to an increase of world food prices by 20-30%.  Further, they argue that since agricultural production will expand to meet this demand, and expansion of cultivated land releases CO2 in net, the policy may not even reduce GHG emissions.

This second point reminds me of a blog post I wrote two years ago, where I argued that innovations in the technology for the conversion of cellulose into fuel may have dramatic externalities.  If biomass that is usually considered "useless" suddenly has a shadow price, the strategic incentives to harvest entire ecosystems may be dangerously strong.  

The government should almost certainly not be subsidizing the development of this technology; and one can argue (depending on how risk-averse you are) that they should be taxing it for the risk we all are bearing should it succeed.  

1 comment:

  1. There are no nice words to describe ethanol mandates. Starving the poor to increase the cost and lower the quality of fuel is no way to fix anything.