Good crop, bad crop.

Commentary about business and finance.
July 10 2008 1:29 PM

Good Crop, Bad Crop

Once-lauded biofuels are now blamed for high food prices. But the next generation might yet work.

Switch grass can be used to derive cellulosic ethanol. Click image to expand
Switch grass can be used to derive cellulosic ethanol

Biofuels have gone from savior to devil in a remarkably short period; only Rudy Giuliani's presidential campaign or mortgage-backed securities can rival the speedy downfall of what was supposed to be a solution to the world's energy crisis.

There's no doubt that biofuels are the scapegoat du jour. On Monday, World Bank President Robert Zoellick said that subsidies and tariffs supporting biofuels "take food off the table for millions." A British government report (PDF) linked biofuels to increased food prices and higher greenhouse gas (GHG) emissions. And the European Parliament's Environment Committee voted to scrap its target of generating 10 percent of the continent's transportation fuel from biofuels by 2020—a target set, with much fanfare, just last year.

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A similar backlash is brewing in the United States. On Sunday, a New York Times editorial argued that support for biofuels is not just wrongheaded but "perhaps the most wrongheaded" of all food policies anywhere in the world. Barack Obama supports "broadly revisiting" subsidies for renewable fuels, while John McCain would eliminate ethanol subsidies altogether.

But after falling hard for biofuels in the first place, are we overreacting a second time by rushing to condemn them? With oil prices at record highs, greenhouse-gas emissions growing, and Russia making energy security a very real concern in Europe, the original rationales for biofuels seem stronger than ever.

Of course, the critics of first-generation biofuels have a point. Most experts now believe that increased production of corn ethanol, which is distilled from fermented cornstarch, contributes to rising food prices. On top of that, the greenhouse-gas benefits of corn ethanol are modest at best. According to the Argonne National Laboratory, a research center funded by the U.S. Department of Energy, producing a gallon of corn ethanol creates 18 percent to 26 percent fewer greenhouse-gas emissions than producing a gallon of gasoline. That seems like an increasingly optimistic estimate: The report from Britain's Renewable Fuels Agency released Monday found that ethanol from corn and other food crops may even increase greenhouse-gas emissions by quickening the pace of deforestation.

But ethanol made from corn and other food crops isn't the last word in biofuels. Last December, Congress amended the Renewable Fuels Standard, which now calls for 36 billion gallons of renewable fuel to be produced in the United States by 2022. (To put that into perspective, Americans use about 140 billion gallons of fuel each year.) Less than half of those 36 billion gallons are planned to come from corn ethanol; the RFS calls for the largest single component of renewable fuel, 16 billion gallons, to come from cellulosic ethanol, which is produced by breaking down plant material like wood chips and switch grass and fermenting the sugars inside them.

Can cellulosic ethanol save biofuels? Because it doesn't subtract from our food supply, cellulosic ethanol doesn't directly increase food prices. But it's harder to produce than corn ethanol: Before the sugars inside can be fermented, the material must be exposed to acid to break down the chemical compound, called lignin, that encases those sugars. That drives up the cost, which is part of the reason why cellulosic ethanol isn't commercially available in the United States. Last summer, Robert Bryce wrote in Slate that "cellulosic ethanol is like the tooth fairy: Many people believe in it, but no one ever actually sees it."

But the fairy is beginning to emerge. The University of Tennessee is using $70.5 million in state funding to create a start-to-finish production cycle for cellulosic ethanol—everything from getting local farmers to plant and harvest switch grass to constructing a demonstration plant that can turn the switch grass into ethanol. (Switch grass is a material of choice for cellulosic ethanol because it requires little fertilizer, can grow on land that food crops can't, and is perennial, meaning it doesn't need to be replanted every year.)

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