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Research: The Fundamentals of a Sustainable U.S. Biofuels Policy

Rice Energy Program

The Baker Institute Energy Forum and Rice University's Department of Civil and Environmental Engineering (CEVE) have embarked on a two-year project examining the efficacy and impact of current U.S. biofuels policy. This study is entitledFundamentals of a Sustainable U.S. Biofuels Policy.

In his 2007 State of the Union Address, President George W. Bush championed energy alternatives and emphasized the potential of biomass-derived fuels to fulfill a greater share of our nation's transportation fuel needs. Biofuels, as an alternative to traditional gasoline fuel, can contribute to reducing dependence on foreign oil.

However, successful implementation of a sustainable biofuels program in the United States will require careful analysis of the potential strengths and weaknesses of the currently proposed U.S. policy. Corporate leaders are also in need of more complete data in assessing expanded industry participation in the biofuels arena. More policy research is necessary to identify necessary steps to avoid the unintended, negative impacts on sustainable development and the environment, including deleterious impacts on domestic agricultural and food systems, surface and ground water, and overall air quality in the United States.

A permanent transition to an effective national biofuels program will also require greater planning to ensure efficient production and transportation logistics, to safeguard fuel standardization and reliability, and to manage input crop competition. Many examples abound in modern U.S. politics of fuel and energy policies that caused unintended harm despite their initially promising goals. These situations forewarn us that a holistic analysis is needed to develop effective and sustainable implementation to changes in our transportation fuel sector.

In the case of biofuels, further study is needed on the long term environmental impacts of large scale use, the likelihood of crop-failures or agricultural market-competition, as well as the logistical and economic issues involved in extending biofuels beyond their current role as a 10% additive in the existing gasoline pool. In discussions of existing policy proposals for broad expansion of biofuels into the U.S. fuel system to 20% and beyond, inadequate attention has been paid to technical difficulties and costs related to standardization and reliability of fuel as biofuels, from widely differing cellulotic biomaterial inputs, are added to the U.S. fuel system. Such shifting fuel formulations will require adjustments in emerging car engine sensor technologies and other tests to ensure fuel safety and standardization.

With the decline in domestic oil production and continued strong increases in oil demand, the U.S. is more dependent on foreign oil than ever before. America imported 12.9 million b/d in 2004, or about 63% of total consumption of roughly 20.5 million b/d. That is up from 35% in 1973. The share of imported oil is projected to grow to close to 70% by 2020, with the United States becoming increasingly dependent on Persian Gulf supply. U.S. imports from the Persian Gulf are expected to rise from 2.5 million b/d (22% of total U.S. imports) in 2003 to 4.2 million b/d (62%) by 2020, according to forecasts by the U.S. Department of Energy (DOE). Future U.S. oil consumption is centered squarely in the transportation sector which represents more than two thirds of total petroleum use and will constitute over 70% of the increase in demand.

In light of this expected rise in transportation fuel demand and in the wake of the aftermath of Hurricanes Rita and Katrina, American policy makers have become acutely aware of the need to appear to be offering long term strategies that would prevent gasoline shortages in the future and to lessen America’s vulnerability to oil supply shocks from abroad. As debate on the issue emerged in the media and among specialists, the problem of decades of underinvestment and an ongoing shortage of refining capacity in the United States has become more widely understood. Public discussion of the state of the U.S. refining industry focused on two elements: the difficulties of expanding domestic capacity to meet rising U.S. gasoline demand and the possible dangers of having so much U.S. refining capacity concentrated in one geographical region that is vulnerable to weather-related disruptions.

Biofuels has been suggested as an environmentally friendly means to supplement the U.S. transportation fuels supply system. Today, the United States produces 254,000 barrels a day of ethanol, mainly from corn, almost as much as Brazil, which produces 275,000 b/d of sugarcane-based ethanol. However, current U.S. ethanol production is but a small fraction of the 9.1 million barrels a day of gasoline fuel used in the United States today.

The major obstacle to expanding the role that biofuels can play in the U.S. transportation system is the lack of infrastructure. American car makers have expressed a willingness to increase production of flex-fuel cars that can run on ethanol fuel. However, current U.S. ethanol production is concentrated in the Midwest region and difficulties remain with the ethanol distribution system in other parts of the country. Of the 563 E-85 ethanol fuel pumps in the U.S., over 45% of them are located in two states, Minnesota and Illinois. Archer Midland Daniels controls about 25% of the ethanol producing market share, with the remaining production distributed among 97 biorefineries owned by various, mainly smaller entities.

Thanks to the generous 51-cent-per-gallon federal tax credit for ethanol refiners and blenders, as well as the 54-cent-per-gallon tariff placed on imported ethanol, the domestic ethanol industry is booming and is being touted as a viable U.S. alternative fuel of choice. Despite its public prominence, however, critics question whether corn-based ethanol is the best choice among the options for biofuels and other non-petroleum based alternatives. Some scientists and economists question whether corn-based fuels offer a less efficient energy balance than other alternatives because corn-based ethanol requires a large expenditure of energy to produce.

Still, ethanol fuels are on the rise in the United States, bolstered by regulations that require it to serve as a cleaner substitute to former gasoline additive MTBE, whose use is being phased out because of concerns its widespread distribution was creating a danger to groundwater.

Other biofuel alternatives currently under consideration in the United States include soybean-based biofuel and cellulosic ethanol produced from switch grass or wheat straw. Although these fuels are thought to be more efficient than corn-based ethanol, the benefits of soybean biodiesel and cellulosic ethanol still face several limitations. Soybean biodiesel is said to generate 93% more energy than is required for its production, yet per acre it produces only one-seventh the amount of fuel that corn-based ethanol is currently yielding. Cellulosic ethanol is thought to have the most long-term viability and has the added benefit of using a non-foodstuff source, yet this alternative is far from cost-effective using present technology. Investment is also increasing in facilities to produce biodiesel fuel from waste oil and oil-rich plants as well as ethanol produced from agricultural waste. All these options present opportunities to diversify the U.S. fuel system.

The variety of alternatives raises many questions regarding the relative cost-effectiveness and feasibility of the various sources for biofuels and other commodity chemicals that can be produced from biomass materials.

Click here to see the study Policy Report, Associated Papers, and Event Presentations.


This study was generously sponsored by the Baker Institute Energy Forum Sponsors and
Chevron Technology Ventures.