Production of cellulosic biofuel, or ethanol made from inedible plants, trash, and wood, will be advanced enough for such fuel to be cost-competitive with corn-based ethanol as early as 2016, according to research from Bloomberg New Energy Finance.
According to some of the biggest companies surveyed in the study, the cost difference between cellulosic ethanol and traditional corn-based ethanol will close in three years. In 2012, the cost of producing one liter of cellulosic ethanol was $0.94, around 40 percent higher than the current cost of corn-based ethanol of $0.67 per liter, a price-point, which makes ethanol competitive with traditional gasoline at the pump.
Cellulosic ethanol is a newer technology, which derives biofuel from lignocellulose, inedible material that makes up the bulk of the mass of plants. Such material is abundant and diverse, not to mention low-cost, compared to traditional inputs of corn, sugarcane, and starch for corn-based ethanol.
“If our survey proves accurate, cellulosic ethanol will make meaningful inroads into the vehicle fuel market during the last years of this decade,” said Harry Boyle, lead biofuel analyst at Bloomberg New Energy Finance, in a statement.
However, he tempered expectations on such new and unproven technology. “The cellulosic ethanol industry has something of a history of overpromising cost reductions and under-delivering. However, it may be dangerous to assume that it will not become competitive this decade.”
No Slam Dunk
According to the Bloomberg survey, the biggest costs for producing cellulosic ethanol lie in the cost of equipment, enzymes, and feedstock. The biggest sunk costs are capital equipment, which is risky to finance from the bank’s perspective due to an unproven future for some fuels.
While costs are predicted to come down due to experience and economies of scale, it’s far from assured.
The U.S. Energy Information Administration (EIA) estimated this month that cellulosic biofuel production in 2012 totaled 20,000 gallons, with the bulk of production achieved toward the latter half of the year. This year, production could reach 5 million gallons as operations ramp up across the nation.
Unfortunately, those targets are far below the expectations set by the Energy Independence and Security Act of 2007, which called for 500 million gallons of cellulosic biofuel production by 2012, and 1 billion gallons by this year.
The targets set in 2007 were derailed by a slew of previously unforeseen factors, including the financial crisis, which scaled back bank lending, especially in financing to start-ups and businesses in unproven industries. Other difficulties include the high cost of inputs such as natural gas, according to the EIA.
The biggest impediment may lie in the relative low cost of gasoline today compared to pre-2007 levels. According to a 2012 Congressional Budget Office report, it costs taxpayers $1.78 in government subsidies for each gallon of corn-based ethanol. For that price, many consumers believe they are better off sticking with traditional fossil fuels.
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