Brazil's ethanol sector, here represented by a sugar cane facility, is workable and profitable without government financial support, the author argues. (Photo: UNICA)        Font Size ..... Small Normal Big Very Big

 BY GEORGE PHILIPPIDIS 

The new federally-mandated Renewable Fuel Standard (RFS) calls for the United States to raise its annual biofuel production from 6.5 billion gallons per year (bgy) in 2007 to 36 bgy by the year 2022. This is a tremendous undertaking in terms of investment required, construction activity and infrastructure development. Corn ethanol alone will not suffice to reach that goal. In addition to corn ethanol’s environmental and cost shortcomings, (...) it is widely accepted by the corn industry and the federal government that U.S. corn ethanol production will not exceed approximately 15 bgy in 2022.

This shortage of 21 bgy between projected demand and domestic supply will have to be covered by ethanol derived from sources other than corn. Cellulosic ethanol is viewed as the only feasible domestic solution for the United States, as the climate is too cold to allow significant expansion of sugarcane outside of South Florida and Louisiana. In the long run, biomass is a great resource for the United States, but it is unrealistic to expect commercial cellulosic production facilities to be in place in the next few years. Even if the first cellulosic plants are in operation around 2015, given that a typical facility will produce around 40 million gallons per year (mgy) due to local feedstock availability limitations, it will take several years for the United States to ramp up cellulosic ethanol production to a level that would contribute significantly to the 36 bgy goal.

It is therefore unrealistic for the United States to expect to meet the RFS mandate by relying just on domestic ethanol production. The United States urgently needs to look at its hemispheric neighbors and friends to make up the demand-supply gap and secure its long-term fuel diversification and energy security. Sugarcane ethanol from Brazil, Colombia, Central America and other Latin American regions needs to be an integral part of the United States’ energy strategy, especially when an increase in cane ethanol capacity in Latin America is the most cost-effective and lowest-risk strategy.

This interdependence calls for closer collaboration within the Americas in the energy sector and, by extension, in finance, trade, immigration and poverty reduction. Elimination of biofuel trade barriers of any kind by all countries, including import tariffs and import quotas, is a prerequisite for such collaboration. Prominent among these barriers is the $0.54 per gallon import tariff the United States imposes on Brazilian ethanol. Simply put, it is in the strategic interest of the United States to promote the production and trade of biofuels in the Western Hemisphere if the United States is serious about breaking its devastating dependency on a single fuel of declining availability imported from volatile regions of the world. Practicing open biofuel trade is the only way to make biofuels truly global commodities with production in numerous countries, in order to combat climate change on a global basis and to stimulate cost effectiveness and technology transfer.

LATIN AMERICAN BIOFUELS

The fastest and most cost-effective way to expand ethanol output in the Americas is by adding (or expanding) ethanol production capability at existing Latin American sugar mills. (...) Sugar mills can be readily expanded to produce ethanol by integrating fermentation and distillation unit operations (...) into their existing infrastructure. In essence, sugar mills are transformed into bio-refineries with a diverse portfolio of products: sugar, ethanol, renewable electricity and steam, animal feed and fertilizers. In Brazil, sugar mills were long ago transformed to ethanol plants by companies such as Cosan, the largest Brazilian ethanol producer. Mills in Colombia, Guatemala and Nicaragua have now followed the same path. The Central American countries are currently exporting ethanol to Europe, where gasoline presently retails at over $7 per gallon.

As the present Brazilian situation demonstrates, this model is workable and profitable without government financial support: subsidies to the Brazilian sugar cane industry were phased out in 2006. Moreover, if the ethanol production section of the sugar mill is designed with sufficient capacity, mills will have the flexibility to change the composition of their product portfolio in direct response to market dynamics so as to maximize profitability. When sugar prices are low enough, all or a significant portion of the cane juice will be diverted from sugar to ethanol production. When sugar prices rise, so does the portion of cane juice going into sugar production. This way the risk of investment in cane ethanol is mitigated to a significant extent, lowering the cost of capital, attracting investment and enhancing the potential of the Americas to become the biofuels powerhouse of the world. (...)

BIODIESEL

Although not as widely produced and used, biodiesel’s popularity is growing in the hemisphere. While the United States, Canada and Brazil use gasoline as the main transportation fuel, the rest of the continent uses more diesel than gasoline. Actually, in several Latin American countries, diesel is used not only for transportation, but also for power generation. For example, Honduras uses 32 million gallons of gasoline annually, compared to 66 million gallons of diesel for transportation and power. The United States, Argentina and Brazil use soybean oil as feedstock, whereas most of Latin America is rich in palm oil derived from African palms. Brazil also uses sunflower, castor and other vegetable oils as feedstocks. However, all these vegetable oils are traditional food staples and therefore increased use for biodiesel production reduces their availability and hence increases their prices. While future prices and availability cannot be predicted, it is safe to say that the link between food staples and renewable fuel, as is the case for vegetable oil-derived biodiesel, is highly problematic.

As feedstock prices have risen over the last two years, the profit margins of biodiesel production have largely evaporated. Soybean prices rose from $7 per bushel in January 2007 to over $12 in January 2008. Honduras and Colombia have in the last 12 months shelved plans for African palm plantations and biodiesel plants. In the long run, just like cellulosic ethanol, it makes sense to identify and pursue non-edible alternative, abundant and inexpensive feedstock. A number of companies across the Western Hemisphere are performing small-scale experiments with alternative feedstocks such as waste vegetable oil (used cooking oil), animal fat and fish oil.

In addition, efforts are underway to assess the potential and economic feasibility of jatropha curcas, a small tree that yields seeds rich in non-edible oil (35-40 percent) that can be converted to biodiesel. Because of its toxicity to humans and animals, jatropha is used for neither human nor animal consumption. Moreover, it is native to the Caribbean and Central American region, increasing the chances that it could form the basis of a local biofuels industry. To date, most of the information about jatropha planting and biodiesel production comes from India, where microfarmers grow the plant. A small commercial jatropha biodiesel company is operating in Guatemala and more developmental projects are underway in Honduras and South Florida.

Biodiesel is more amenable to small-scale production, as opposed to ethanol, which requires large economies of scale. The capital investment for biodiesel production units is around $0.50 per gallon of biodiesel capacity, whereas ethanol production units require more than $2.00 per gallon of ethanol capacity. Given that most of Latin America makes extensive use of diesel, biodiesel production in those countries makes economic and social sense. Process equipment can be secured from a number of manufacturers in the world, but they are all based on the well-established transesterification process (transesterification refers to the chemical process that turns oils and fats into biodiesel). Both on-site and pre-fabricated construction is available, and the plants are readily expandable. The issue of biodiesel quality standardization remains critical but, as mentioned earlier, recently the United States, the European Union and Brazil have initiated discussions to harmonize their standards, hopefully producing a single global standard. (...)

URGENT NEED

Undoubtedly there is an urgent need for fuel diversification around the world, as oil reserves are becoming depleted and greenhouse gases are affecting the climate. Biofuels are a key part of the solution because they reduce greenhouse gas emissions, can be produced by a large number of countries, and can be readily integrated into the existing energy infrastructure. The Americas are blessed with availability of land, agricultural tradition and climatic conditions that favor production of ethanol, biodiesel, and, in the future, additional biofuels. A long-term biofuels policy is the first step in the direction of turning the Western Hemisphere into a global powerhouse of biofuels. Coordinated policy and trade harmonization across the continent will attract investment to the industry and will benefit the producing countries with economic growth and exports. The large consuming countries such as the United States, meanwhile, will be able to lessen their reliance on oil from volatile or hostile areas of the world. Above all, the Americas will benefit from closer energy integration that will lead to a more secure common future, while lessening the effect of fuel emissions on the environment.

George Philippidis is associate director of the Applied Research Center (ARC) and co-director of the Energy Business Forum at Florida International University. Prior to this, he served as director of business development at a subsidiary of Thermo Electron Corporation. Additionally, Dr. Philippidis is an international expert on biofuels business and technologies. He holds 9 U.S. patents, and has authored numerous articles, publications and book chapters on biofuels.

This column is based on an excerpt of a policy paper that was published by the Center for Hemispheric Policy for its task force on “Energy Cooperation and Security in the Hemisphere.”  Republished with permission of the center.