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By Robert Rapier on Aug 18, 2011 with 35 responses

How to Fix the Broken Cellulosic Ethanol Incentive System

Overview: Mandates, Zero Production, Penalties, and the Failure of the Current System

In the previous post, I discussed the annual ritual of rolling back the cellulosic ethanol mandates by 90% or more. For three years running, cellulosic ethanol production will come in far, far short of the mandated target volumes. In fact, of the 100 million gallons mandated last year and 250 million gallons mandated this year, there is still no qualifying production to date. For 2012, the EPA is considering reducing the 500 million gallon mandate to as little as 3.5 million gallons. This is a reduction of over 99%, and should be a crystal clear indicator that this system is not working as intended.

But even though product isn’t being delivered, taxpayers and consumers are still paying a price. We are on the hook for grants and loan guarantees that have been given to plants that have not — and in some cases never will — produce any cellulosic ethanol. Further, as the previous post highlighted, the system penalizes gasoline blenders for not purchasing cellulosic ethanol — despite there being no qualifying cellulosic ethanol on the market to buy. Due to the mandates, blenders must either purchase cellulosic ethanol — or buy waivers that are akin to indulgences for their sin of not purchasing cellulosic ethanol. So we have taxpayers subsidizing plants, blenders having to spend money to meet mandated obligations that can’t be met — and zero qualifying cellulosic ethanol production under this system. The current system is failing badly.

Congress is about to be under intense pressure to slash spending across the board. There is a very real risk of total loss of support for next generation biofuels given the history of the program to date. What is really needed is a different system that provides incentives only when product is delivered, and doesn’t penalize taxpayers, consumers, and gasoline blenders if no product is delivered. The current system is convoluted and hard to understand for most people, and it makes it easy to hide behind excuses if promised technology fails to deliver. So let’s strip it down and make it simple.

My Plan: Award Direct Per Gallon Subsidies for Oil Displacement

Instead of offering grants and loan guarantees for cellulosic ethanol producers — and forcing blenders to pay when they can’t purchase product — simply change the system to a direct per gallon subsidy for product that is sold. Here is how such a system could work.

1. Administer this program from the Department of Energy rather than the Environmental Protection Agency. This is more in line with their area of expertise and responsibility.

2. Eliminate the carve-out for cellulosic ethanol. We want to displace petroleum here, but it isn’t necessary to pick technology winners. Perhaps someone has a viable process for biomass-based di-methyl-ether that could displace lots of diesel and drastically reduce emissions. Under the current system, the playing field is tilted strongly in the direction of cellulosic ethanol. But let’s pretend for a second that cellulosic ethanol continues the pattern of failing to deliver. Then under the current system we have done a tremendous disservice to competing biofuels by choosing cellulosic ethanol as a winner, and we have wasted precious time.

3. Offer an initially generous, but declining direct per gallon subsidy for all qualifying biomass-based fuels. For example, offer a direct $2/gallon subsidy for the first 250 million gallons of qualifying fuel produced and sold as transportation fuel from a facility, and then $1/gallon for the next 250 million gallons of qualifying fuel produced.

4. Require all interested parties to register and pay a modest fee to the DOE to have their process evaluated (that sets the bar pretty low, but serves as a filter against the DOE being overwhelmed with half-baked ideas). If the DOE approves the process as qualifying (I would base “qualifying” in large part on the level of oil actually displaced) both parties sign an agreement committing the DOE to subsidize the qualifying product. This lowers the risk of having the funding cut on the basis of the next election.

5. Eliminate all grants and loan guarantees for these facilities. Why? Because they subject taxpayers to undue risk, and under the proposed system the prospective producer has an agreement with the DOE that should be financeable by a bank.

6. Let the technologies then battle it out for supremacy in the marketplace just like other products breaking into new markets. We will have simply tilted the playing field away from oil and toward biofuels. If a $2/gallon subsidy isn’t enough to generate some next generation biofuels, then we will need to seriously reevaluate the viability of some of the next generation candidates.

Private Business Should Take Over From the Government and Taxpayers

Such a system would have huge advantages over the current system. First, private business is now assuming the technology risk, and therefore will be responsible for conducting a high level of due diligence. This takes the technology risk assessment out of the hands of the government. Second, taxpayers won’t end up financing plants that never deliver, and gasoline blenders won’t pay penalties for product that never appears. Third, such a system makes it really clear just how “out of the money” certain technologies are. For instance, if you don’t see any algal biofuel producers stepping up under this system, then you know their costs are more than $2/gallon above those of the equivalent petroleum product.

Critics of this system might suggest that refiners would refuse to buy the product because they don’t want competition for oil. There is absolutely no merit in that argument. Oil companies have to buy most of the oil they refine anyway. They buy raw materials and sell them as fuel. A refiner is in the business of making money. If a cellulosic ethanol producer can produce ethanol for $1 or $2 a gallon — as many have claimed — they could sell to the refiner at far lower than the price of oil. For that matter, if they made it for $1/gallon they could give it away and make money with a $2/gallon subsidy. The refiner is going to buy whatever makes them the most money (which is why oil refiner Valero bought six ethanol plants). Maybe that’s cellulosic ethanol for $1.50 a gallon, or maybe it’s drop-in algal diesel at $2.50 a gallon. But what oil companies will not do — and I say this with absolute certainty — is spend $3 a gallon buying oil from Venezuela if they can get renewable diesel from Solazyme at $2.50 a gallon.

Other critics might say that we have no business subsidizing biofuels in any case. On that point, I disagree. I think our dependence on foreign oil is a threat to our economy and our national security, and as such warrants spending money on aggressively developing alternatives. But I leave that debate for another day. For the sake of this essay, let’s say that if we decide that biofuels should be subsidized then what I am proposing is a better way to go.

Would cellulosic ethanol be viable under such a system? It just depends on the size of the subsidy. I personally have many doubts that cellulosic ethanol will be scalable to the levels envisioned by Congress, for reasons that have to do with biomass logistics and the nature of the technology itself. I also doubt that it could compete on a level playing field with many of the other potential biofuels. (I explained in an article three years ago why I didn’t think cellulosic ethanol would be commercially viable, and five years ago I discussed the logistical challenges).

The system I am proposing would be a transparent way to filter out those who are essentially just hyping their technologies in order to receive tax dollars. Thus, you can imagine that those who are after tax dollars under the current system might strongly oppose such a change. But if a cellulosic ethanol producer can really produce ethanol for $2/gallon — and you don’t see them building plants when a $2/gallon subsidy is available — then you can be pretty sure that they can’t really do what they claim they can do. Producers will be paid for what they deliver as opposed to what they claim they can deliver, and it isn’t taxpayers who are on the hook for their hype.

  1. By Walt on August 18, 2011 at 10:17 am

     

    I certainly welcome solutions being discussed on this blog.  If the message does get through to congress, we that have technology would welcome a much more level playing field without having to pay tens of millions to professional lobby organizations and lawyers to get the next round of money.  I can say without any doubt that the reviews completed by DOE in the last two grants we wrote gave very VERY high marks on our technology when we disclosed all the details in those sections required, but technology merit does not get funding today from the government.  The reviewers (when we requested the reasons for our denial of grant money) made it clear why we were turned down, and it had nothing to do with our technology.  The system is designed for the VC backed companies to generate millions of dollars, and those are only a handful of companies generally involved who win all these larger grants and government loan guarantees.  For example:

     

    —————————————–

    Press Release from 2008:

    Press Release: Coskata, Inc. Introduces Next Generation Ethanol –
    Technology to Produce Ethanol for Less Than a Dollar per Gallon

    Company Discloses Strategic Partnership with General Motors; Launches
    with Funding from Khosla Ventures, Advanced Technology Ventures and
    GreatPoint Ventures

    Warrenville, IL – January 13, 2008 – Coskata Inc., a leading
    developer of biology-based technology for the production of biofuels,
    formally launched and unveiled its proprietary process today. The
    Coskata process can produce ethanol almost anywhere in the world, using a
    wide range of feedstock, for less than US $1.00 per gallon. This
    technology makes the widespread use and availability of ethanol much
    more achievable.

    http://www.kanabona.com/indust…..per_gallon

     

    Press Release from 2011:

    Coskata grabs biggest slice of USDA’s $405M in biofuels loan guarantees

    The U.S. Department of Argiculture today awarded $405 million in loan guarantees for biofuel refineries.

    All
    three recipients, Coskata, Enerkem and Ineos Bio, make biofuels by
    using waste as a feedstock, which is considered an advantage in the
    crowded biofuels market. It’s also a sign of good news for the industry,
    where biofuels makers have struggled to bring technologies to
    commercial scale production.

    http://www.reuters.com/article…..9820110121

    ——————————————

    Of course, Coskata is one of the leaders in the space, and most likely will be able to make ethanol for less than $1.00 per gallon very shortly as they complete their new plant.  They hold to this number to get their money, so they will now demonstrate it to taxpayers soon.

     

    However, I would also add to Robert’s solutions to consider (because I don’t think anyone is going to ignore climate change legislation) using the well-to-wheel calculations a few of us are using to demonstrate technology solutions.  There is an article here by Lotus that gives the best explanation I have been able to find anywhere:

     

    http://www.ecolo.org/documents…..tus_09.pdf

     

    Also, California is using this model for all fuels (including methanol!!!) under their Low Carbon Fuel Standard approach.  It is totally different than the other “competing” program California is using to “mandate” construction of Hydrogen Fueling Stations be refineries and oil companies that need to be installed and build across California “before” the auto companies will commit to building hydrogen cars.

     

    http://www.arb.ca.gov/fuels/lc…..s/lcfs.htm (Low Carbon Fuel Standard)

    http://www.arb.ca.gov/fuels/al…..utlets.htm (Zero Emission Vehicle Regulation)

     

    I wanted to add to the positive approach explained by Robert which indeed would give those of us with technology a better chance to raise capital and not have all our business financial models rejected if they “do not conform” to Silicon Valley VC models (or Wall Street based 40 minute elevator pitches) that require government money, and exits strategies before many of these plants ever get completed and proven at a commercial scale.  Well-to-wheel calculations and financial models would give those of us that can provide the best solutions a fighting chance.  If everything is only supporting ethanol and algae oil, then it will make it impossible to even line up at the starting gate to compete.

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  2. By rrapier on August 18, 2011 at 2:30 pm

    Walt said:

     

    Press Release from 2008:

    The Coskata process can produce ethanol almost anywhere in the world, using a wide range of feedstock, for less than US $1.00 per gallon. This technology makes the widespread use and availability of ethanol much more achievable.


     

    I think Coskata is the epitome of everything that is wrong with the current system. It reinforces the idea that people have to make more outrageous claims to get funded, and so everyone does it. The average person is then left with the view that we don’t really have a serious energy problem because the Coskatas of the world have it all worked out.

    Incidentally, I ripped them when they first started making these claims: Dead Man Walking. But that essay also marked a turning point in how I wrote. That one got so much attention that I realized I could no longer be flippant about these things.

    RR

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  3. By Walt on August 18, 2011 at 3:19 pm

    Robert Rapier said:

    Incidentally, I ripped them when they first started making these claims: Dead Man Walking. But that essay also marked a turning point in how I wrote. That one got so much attention that I realized I could no longer be flippant about these things.

    RR


     

    Dead Man Walking is an excellent article.  It is the same thing I contend is the problem with lowering GTL cost…the syngas step is EXPENSIVE.  It is expensive in CAPEX and expensive in OPEX.  Robert said in the article:

    “Note that the site already has a gasifier, which is one of the most
    expensive pieces of kit in a gasification plant. Yet the cost is still
    $25 million – for something that will produce less than 3 barrels a day.”

     

    To remove the gasifier from the cost of the equipment will dramatically reduce CAPEX for a process technology.  I know, I have done extensive number of comparisons to those with and without gasification to make syngas at various scales.  The feed stock being biomass vs. natural gas also effects the handling/pre-treatment costs…so to make $1.00 per gallon ethanol using biomass or natural gas, without a gasifier and no pretreatment might be possible.  To do it with a gasifier and with pre-treatment/handling of the feedstock is questionable in my own calculations.

     

    However, I know that some major companies have invested in Coskata and the government have given them a couple hundred million dollar loan guarantee, so I cannot imagine they will not perform to make $1.00 per gallon ethanol as they claim.  The smartest VC’s in the world are invested in Coskata (look at Great Point Energy founders who also founded/funded Coskata).  Watch the video at Great Point Energy website, and notice how this company has attracted equally impressive partners.  The technology of both Coskata and Great Point have the same players, and both have an extensive history of articles and press coverage.  I have never seen as much press coverage EVER in any company as I see in Great Point Energy and Coskata.  They get more press support than Ron Paul who is running for President some say! :)

     

    In the end, I wonder how much will be made before and after commercialization by the founders and VC investors.  If it succeeds as promoted, I could not be more happy for everyone…including the taxpayers.  If it does fall short however, like Range Fuels, I wonder who will walk with what technology and with how much cash that is being handed out when bankruptcy is announced.  Let’s hope they can meet their targets, with or without gasification technology in the commercial plant estimates on costs.

     

    I’m going to try to wrap up our next scale at 53 bbls/day bulk liquid production and about 43 bbls/day net, but it will not cost me $25 million.  In the end, what really matters in not the technology, but what VC’s are invested, how much have you raised/spent and what is your burn rate currently, and most importantly, how much has the government given you in grants or guarantees.  The 3 bbls/day vs. 43 bbls/day liquid production means absolutely nothing to investors.  The smart money has checked out of this country and went to China.

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  4. By paul-n on August 18, 2011 at 3:55 pm

    So this scheme will, in effect, call the bluff of all the biofuel companies that say “we can produce for $X per gal” or “be competitive with oil at $Y per barrel”

    It also moves the penalty for non production from the refiners, to the (gasp!) producers.  Since they can;t produce, they will have no option but to stop saying that they can produce.

    This would clearly be devastating for the PR industry that has sprung up around all these companies, and deprive the relevant state/federal politicians of vital photo ops and campaign money.

    Clearly, this scheme is far too risky to be allowed out in the real world.

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  5. By Darrell Clarke on August 18, 2011 at 11:19 pm

    Have you seen the current (August) Scientific American’s cover article, “The False Promise of Biofuels” (also at http://www.scientificamerican……f-biofuels )? It’ll be familiar to readers here, but is important that part of the MSM is covering it.

    The web version also has the more optimistic “Garbage in, Energy out: Turning Trash into Biofuel” ( http://www.scientificamerican……to-biofuel ).

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  6. By rrapier on August 19, 2011 at 1:24 pm

    RickJ said:

    This subsititution approach is far more efficient and less costly than direct conversion – yet has exactly the same environmental and energy security benefits – and requires no Big Science, venture capital or government loan guarantees. Perhaps that is why we have no major programs to encourage biomass furnaces and conversion of vehicles to run on LPG and natural gas.


     

    Hi Rick. I certainly agree; one of the things I am working on is small-scale biomass-based CHP. I have gotten into lots of debates with people about liquid fuels being a much higher value added product, and I tell them that 1). It is also much costlier; 2). In some cases, you are displacing liquid fossil fuels which is the goal in any case.

    RR

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  7. By perry1961 on August 19, 2011 at 1:57 pm

    It would help to look at real world costs for taxpayers for these various subsidies. Using a fleet average of 20 MPG, and a car lifespan of 20 years, I come up with a cost of $7600 to displace 12,500 gallons of gasoline with E85. That jumps to over $15,000 with the cellulosic subsidy. A Leaf will save 15,000 gallons with its $7500 subsidy.

    Both ethanol and electricity rely heavily on other fossil fuels. Mostly natgas with ethanol, and about 50% coal, 25% natgas with electricity. A consumer buying a 20 MPG car today, and driving it until it drops, will spend almost $75,000 to fuel it with cellulosic E85 when pump prices and subsidies are added together. That drops to $67,500 or so with regular E85, and $60,000 or thereabouts with regular unleaded.

    Those fuel costs are really slashed with a Leaf. Figure $20,000 or so when the cost of electricity and the subsidy are combined. Heck, the poor slob might even save enough over the life of the car to buy a Volt.

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  8. By paul-n on August 19, 2011 at 11:58 am

    Well, I will agree that a mandate for cellulosic ethanol, that only kicks in once people have worked out how to produce it, is less silly than the current situation of mandating something that no one is producing.

     

    But really, given where the industry is today – i.e. zero production, is not 500m gal enough?  Why create, now, a mandate that comes in in five years time – anything could happen by then. If cellulosic gets to 500m gal and is still not competitive with whatever oil is then, why mandate it?

    My view is that, if any mandate is to be considered, the cellulosic industry must demonstrate that it can fulfill it.  Given the current track record, it has not earned such.  if the $2 subsidy for 500m gal is not enough for investors/developers then  clearly the sector is just too high risk, and why should the cost of that risk then be put onto refiners and ultimately, the people, via mandate?

    What if, by then, methanol is the prefered fuel, or DME, or butanol, or…

    People are developing these fuels, why should the government pick a winner, now, in cellulosic ethanol?  Where does that leave the developers of methanol, butanol, etc?  what happens if the government oicked the wrong fuel?  Will the cellulosic industry be willing to bet their mandate, that they are the best, most appropriate fuel?  If they truly are, then the mandate is not needed, as they will out compete the other alt fuels.

     

    The idea of the advanced fuels program should be to produce alternative fuels, that customers actually want to use.  Paying a $2 credit on 500 million gal is a pretty good way to get these things germinating.  After that, it’s up to them to grow their markets by being fuels that are better and/or cheaper than oil – not by government regulations and mandate – surely we have had enough of that already.

     

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  9. By rrapier on August 19, 2011 at 1:12 pm

    Darrell Clarke said:

    Have you seen the current (August) Scientific American’s cover article, “The False Promise of Biofuels” (also at http://www.scientificamerican……f-biofuels )? It’ll be familiar to readers here, but is important that part of the MSM is covering it.

    The web version also has the more optimistic “Garbage in, Energy out: Turning Trash into Biofuel” ( http://www.scientificamerican……to-biofuel ).


     

    Darrell, had not seen this. Thanks for sending. Also confirms what I have been saying; that Enerkem hasn’t actually made product yet. A lot of people were reporting that they had based on the original schedule. Also, it is pretty clear that the economics hinge on their tipping fees.

    RR

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  10. By perry1961 on August 19, 2011 at 2:17 pm

    And yes, those figures are very rough. Start figuring 85% of a gallon with its 30% mileage penalty, and it doesn’t take long to run into problems. Also, it’s a huge leap to assume gasoline prices will average $4 over the next 20 years. God only knows what the actual fuel cost will be for someone buying an ICE today and driving it until it drops. My hunch is, all but the rich and famous will be looking to dump those ICE’s on someone else sometime in the next 10 years.

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  11. By rrapier on August 19, 2011 at 3:00 pm

    Tim Weiman said:

    With such companies in mind, I am a little concerned about your proposal. A subsidy which phases out after the first 500 million gallons makes sense from a fiscal perspective. However, it could also undermine the willingness of private sector firms to pursue advanced/cellulosic fuels development.


     

    Tim, 500 million gallons is just an example. In fact, due to the logistical issues a plant is unlikely to exceed 50 million gallons per year. So you have an offtake subsidy with the DOE that covers 10 years of operation. If that isn’t enough to get it done, then we have to admit that this just isn’t going to be commercially viable at this time.

    The biggest attraction for me of this proposal is that it is so transparent. When you start mandating things, you really blur the sense of how much it costs. When you incentivize them, you can have a very good idea of what things cost. If you aren’t getting production at a certain level of incentive, then you can be pretty sure the incremental costs over oil are even high than the incentive.

    How much does it really cost to produce fuel from algae? A lot of evidence says it is in the $30 gallon or higher range. Some proponents have suggested $4 or $5 a gallon. Give them a $10 a gallon subsidy for a few years and see who steps up. If nobody does, then you know who wasn’t telling the truth.

    RR

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  12. By Tim Weiman on August 19, 2011 at 3:44 pm

    Robert,

    Ten years of a $2 per gallon subsidy would be pretty sweet for any producer and I agree: if that is not enough, then maybe the whole idea – cellulosic ethanol – isn’t real or worth doing.

    But, how many of these deals would or should Congress be willing to fund?
    A few sweetheart deals for the lucky winners doesn’t strike me as having much public purpose, unless somehow this leads to scale – many, not just a few 50 million gallon/year plants.

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  13. By mac on August 19, 2011 at 4:09 pm

    Perry 1961.

    How dare you come on R-squared and suggest that gasoline and diesel derived from crude oil have seen their best days ? LOL

    In Mumbai (Bombay) conversions from gas powered vehicles to nat gas has hit 3.000 per month. Transit buses, government vehicles. private cars and trucks.

    So what ? you say. That’s only 36,000 vehicles a year converting to nat gas.
    Unfortunately. that’s just one city in India and there are many with over 1 million population that are also doing the same.

    I see mass migration away from gasoline and diesel derived from fossil fuels and all the geopolitical and economic entanglements they bring with them.

    “Every dog has his day”

    Gasoline and diesel derived from crude oil has had theirs.

    If the “gearheads” on R-Squared don’t like nat gas vehicles, that’s fine. Nat gas vehicles are still ICE vehicles and can be configured to run as bi-fuel vehicles i.e. (nat gas and regular gasoline) at the flip of a switch.

    I have a hunch that it’s the beginning of the end for traditional liquid fuels derived from crude oil. It’s not only the “price signal” but a host of other factors.

    Perry,

    The next thing you do in your post is to actually suggest that electric vehicles might actually be cheaper to operate than the ice over a 20 year life span.

    All I can say about that is “You have committed R- Squared “heresy-kari”

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  14. By Tim Weiman on August 19, 2011 at 11:35 am

    Robert,

    Clearly, Congress is going to re-visit the RFS, including the carve-out for cellulosic ethanol. The real push is likely to come from corn based ethanol producers when they reach the 15 billion gallon per year limit. The corn based producers will argue they can produce more even if the advanced and cellulosic producers aren’t really ready to do so. Moreover, if the burden of VEETC and the import tariff are gone, corn based ethanol producers may be in a better position to make their case. Politically, the industry will be less vulnerable to being perceived as asking for a subsidy at a time when Washington faces mounting fiscal pressures.

    We need to have a vigorous debate about where to go with the RFS and I’m sure this will occur. Despite the record over the past several years, I’d hate to see us abandon to goal of developing advanced fuels, including cellulosic. Your proposal merits consideration and I support removing the irritant of obligated parties paying a tax when cellulosic producers fail to produce.
    Despite the well publicized failures of cellulosic producers, I know from first- hand experience that there are efforts by substantial companies which are quietly working to address the technology challenges. They aren’t making any promises or asking for government funding. They don’t even care to publicize their efforts. It is too early to do so.

    With such companies in mind, I am a little concerned about your proposal. A subsidy which phases out after the first 500 million gallons makes sense from a fiscal perspective. However, it could also undermine the willingness of private sector firms to pursue advanced/cellulosic fuels development.
    Perhaps some hybrid of your proposal and the RFS might make sense. This might entail a subsidy for the first 500 million gallons and a mandate that is triggered if and when cellulosic fuels are produced and there is reason to believe they can be scaled up. If we only go the first step, I’m afraid the private sector would lose interest. If we combine an initial subsidy with a mandate triggered at the appropriate time there is more reason to believe we will eventually make meaningful progress.

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  15. By rrapier on August 19, 2011 at 4:42 pm

    mac said:

    In Mumbai (Bombay) conversions from gas powered vehicles to nat gas has hit 3.000 per month. Transit buses, government vehicles. private cars and trucks.


     

    Like this? That’s me, sitting in a gas powered vehicle in Mumbai.

     

     

    RR

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  16. By mac on August 19, 2011 at 5:02 pm

    Okay Robert,

    Like I said. CNG powered vehicles are ICE. What’s the problem ?
    I will try to dig up a photo of me sitting in a gas powered ICE.

    Happy now ?

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  17. By paul-n on August 19, 2011 at 5:03 pm

    But, how many of these deals would or should Congress be willing to fund?

    The answer is zero.  The whole point of this is that congress gets out of making deals altogether.  The first 500 million gal produced gets the $2/gal – that is pretty simple, and is not subject to backroom deals.

     

    A few sweetheart deals for the lucky winners doesn’t strike me as having much public purpose,

    Agreed, and that is the situation we have now – a few, large, sweetheart deals to the well connected, and some spectacular failures – no public purpose has been achieved.  Are we prepared to admit the “deal making” model doesn’t work and try something new?

    unless somehow this leads to scale – many, not just a few 50 million gallon/year plants.

    Well, before we can build many, we need one, and nobody has even done that yet.  In fact, before we build one 50mgy, how about one 1 mgy cellulosic plant – no one even has that yet.  

    I would suggest if it gets to the point where the 500m gal has been produced, then we are “at scale”.  If this is not enough volume for you to define scale – the point at which large scale production can carry on without subsidy, then how much subsidised volume do you need? 5bn, 50, 500bn?  

    Until someone produces something, all of the arguments about volume are academic.  Surely it is up to the cellulosic industry to show they can produce anything at all before goverment gives them any more money/incentive/mandate?

    I’ll bet the Egyptians first learned how to lay blocks before they worried about how high to build the pyramids – the cellulosic industry might do well do adopt some of that sort of old school thinking.  

    This sort of incentive model puts an end to the lobbying and deal making – the only thing that counts, and gets rewarded, is actually producing. The government can then turn a blind ear to all the hype and just wait for the goods.

    May the best fuel win.

     

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  18. By RickJ on August 19, 2011 at 3:27 am

    There is a much better, but under appreciated, alternative to conversion of biomass to liquid fuels. Every day, we burn large quantities of perfectly good vehicle fuels such as natural gas, liqufied petroleum gas (LPG) and heating oil (which refineries can upgrade to diesel) for low grade heat. Biomass combustion in modern, clean burning furnaces can satisfy many of these residential, commercial and industrial space and water heating needs, freeing the flexible gas and liquid fuels for use in transport. This subsititution approach is far more efficient and less costly than direct conversion – yet has exactly the same environmental and energy security benefits – and requires no Big Science, venture capital or government loan guarantees. Perhaps that is why we have no major programs to encourage biomass furnaces and conversion of vehicles to run on LPG and natural gas. Until biomass has displaced all high grade fuels from low temperature heating applications, it is pointless converting biomass directly to liquid or gaseous fuels.

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  19. By moiety on August 19, 2011 at 3:41 am

    Walt said:

     

    Press Release: Coskata, Inc. Introduces Next Generation Ethanol –
     

    Technology to Produce Ethanol for Less Than a Dollar per Gallon


     

    I would be very skeptical but would wish them luck. The problem with Coskata is that they are trying to get two technologies to prodcue their product neither of which are proven at large scale. The gasification to bio-reactor and pervaporation system will both have to do something that no one else has done (AFAIK; maybe some doubt about the first one) or even come close to doing at large scale. There are possibilities but…

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  20. By perry1961 on August 19, 2011 at 5:23 pm

    I don’t think EV’s and/or Natgas vehicles alone can handle the scope of the problem Mac. Obama hopes for a million EV’s on the road by 2015. That leaves 199 million ICE’s on American roads in three years. Goldman Sachs expects peak oil to bite us on the butt some time next year. We’re kind of screwed. I’d love to see a biofuel breakthrough in the meantime. Or, GM to up production capacity to 199 million Volts per year,LOL. Unfortunately, neither will happen. And, even if it were possible to convert all those ICE’s to Natgas in a few short months, the re-fueling infrastructure just isn’t there.

    Like I said, we’re screwed. And we’re talking months from now, not years.

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  21. By rrapier on August 19, 2011 at 5:46 pm

    mac said:

    Okay Robert,

    Like I said. CNG powered vehicles are ICE. What’s the problem ?


     

    Why would you assume there is a problem? I was just showing you exactly what you mentioned.

    Sometimes I simply can not parse your replies.

    RR

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  22. By mac on August 19, 2011 at 5:59 pm

    “May the best fuel win.”

    What best fuel ?

    In electrical energy production we have inputs from various sources. Nuclear, Hydro, Coal, Natural gas, Wind, Solar, Geothermal, Biomass, even Bunker crude.

    Why can’t automobiles and the transportation sector run on a variety of fuels just as is the case with electrical generation ?

    The answer is simple —– they can.

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  23. By mac on August 19, 2011 at 6:07 pm

    Why would you assume there is a problem? I was just showing you exactly what you mentioned.

    Sometimes I simply can not parse your replies.

    RR

     

    Parsing what ?  There is an increasing movement toward CNG.  Where does the parsing come in ?

    Read the statistics.

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  24. By perry1961 on August 19, 2011 at 6:14 pm

    In reading Goldman’s case for supply shortages next year, they seem to pin the blame on the Saudi’s and their supposed 5M bpd spare capacity. Who can blame them? The Saudi’s upped production by 700k bpd in February to alleviate shortfalls due to the 2M bpd cut from Libya. In March, after WTI blew through the $125 mark, the Saudi’s cut production by 800,000 bpd, because of “oversupplied markets”. Are you kidding me???

    I’ve got a hunch that KSA upped production for a month through more water injection, which caused reservoir damage. The short term increase in production caused long term pain. I also believe Obama is privy to their little deception, and had no chopice but to release oil from the SPR. If I’m right, there will be several more releases before next years election. That, or Obama goes down in flames.

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  25. By Tim Weiman on August 19, 2011 at 6:17 pm

    Paul N:

    To be fair, I am not suggesting we subsidize 5 or 50 or 500 billion gallons. My view is that government should focus on encouraging things can achieve scale and do so in ways that do not rely large quantities of taxpayer money.

    My definition of scale? Honestly, I’m thinking 1 million BOE/D. Energy efficiency probably has the best shot in the next 10 – 20 years as folks like XOM have suggested.

    On the fuels side, as I’ve said, reality will force policy makers to revise the RFS, probably in about two years. I hope we can come up with a program that still encourages advanced fuels, including cellulosic. I don’t like taxing obligated parties and don’t think we can subsidize to scale. Some support for research and a mandate kicking in only if and when the technology breakthroughs required are verified.

    I can see Robert’s proposal being part of such a program. I just don’t know if it is sufficient. But kudos to Robert for kicking off the debate.

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  26. By rrapier on August 19, 2011 at 6:34 pm

    mac said:

    Why would you assume there is a problem? I was just showing you exactly what you mentioned.

    Sometimes I simply can not parse your replies.

    RR

     

    Parsing what ?  There is an increasing movement toward CNG.  Where does the parsing come in ?

    Read the statistics.


     

    To parse is to translate your responses on the basis of what I actually wrote. At times — and this is another case — the response appears to have nothing to do with the point I made. If I have to spell it out in greater detail, I will, but you should see that your responses to the picture I posted aren’t rational responses to what I wrote. You are responding to an argument that wasn’t made.

    And what’s funny, before I posted I thought “I really hope this doesn’t send him off on one of those rabbit trails that takes 4 or 5 responses to address.”

    RR

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  27. By mac on August 19, 2011 at 7:14 pm

    RR

    The fact that a lot of the vehicles in India still run on gasoline/diesel has nothing to do with anything.

    The trend in India, South America and the Far East is toward CNG

    Do I need to take 5 or 6 posts to prove this ?

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  28. By rrapier on August 19, 2011 at 8:09 pm

    mac said:

    RR

    The fact that a lot of the vehicles in India still run on gasoline/diesel has nothing to do with anything.

    The trend in India, South America and the Far East is toward CNG

    Do I need to take 5 or 6 posts to prove this ?


     

    Let me try to break this down for you, and please take some time to understand what I am saying. This gets very frustrating, because it is such a common pattern from you.

    In a post, you mentioned the natural gas vehicles in Mumbai. I saw that and thought “Hey, I actually have a picture showing me sitting in a natural gas vehicle in Mumbai. I will post that.”

    Then the bizarre exchange began. You ask “What’s the problem?” and “Am I happy now?” Those are very bizarre responses given what I posted. There wasn’t a problem, nor was I unhappy about anything. I was just showing you a picture of what you just mentioned.

    I tried to explain this, and got the next bizarre response: “There is an increasing movement toward CNG. Where does the parsing come in? Read the statistics.” Again, this is bizarre because you are responding as if I have denied that there is an increasing movement to CNG. Yet this is something I have highlighted on this blog many times.

    And finally, one more bizarre reply to top it off: The fact that a lot of the vehicles in India still run on gasoline/diesel has nothing to do with anything. Do I need to take 5 or 6 posts to prove this? I am just amazed that you ran this far down a rabbit trail on the basis of a simple picture that is totally unrelated to anything you wrote after I posted it. What are you trying to prove? What have I disputed? And now here we are at the 6th post based on what? Nothing. You trying to prove something that didn’t require proving.

    You are responding to phantom arguments. And it happens with you all the time. It gets very tiresome, and is an incredible waste of time. If it continues, I will just have to never respond to anything you write. I mean, it is pretty hard to misinterpret something as simple as that picture, but you still managed to do it. I get the feeling that you could turn “How have you been?” into a contentious argument.

    RR

     

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  29. By paul-n on August 19, 2011 at 10:44 pm

    My view is that government should focus on encouraging things can achieve scale and do so in ways that do not rely large quantities of taxpayer money.

    Well, no one is going to disagree with that – except for those parties that have, and continue to extract large sums of taxpayer money for their projects.

    My definition of scale? Honestly, I’m thinking 1 million BOE/D.

    That is a pretty decent scale – equivalent to about 23bn gal/yr of ethanol – almost twice as much as is being produce today.  So, with that scale in mind, and the fact that no one has a commercial cellulosic operation going, there is no point considering a mandate until someone has commercial production.  

    I agree that there should be encouragement for advanced alternative fuels – but the current systems just aren’t working, and have heavily skewed investment into certain areas – cellulosic – while taking it away from others – methanol, butanol, DME, etc.

    I think it is just time for the gov to be fuel agnostic here -hence my preference for this plan to just pay the same amount to anyone that can produce anything that is a useable liquid fuel (other than food to ethanol).  

    If that had been the policy from the start, we wouldn’t have had the ’00′s of millions of money wasted on cellulosic to date, though we would still have had the same amount produced.

    Some credit like this is necessary to give some real incentive to produce, but beyond that I don’t see that the gov should really do anything else, if the mistakes of the past are to be avoided.  

    Cellulosic has had the money and the playing field to itself for a while now, it is time to open the game for all comers.

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  30. By mac on August 20, 2011 at 8:38 pm

    Sorry Robert,

    My mistake.

    When you said: “Like this? That’s me, sitting in a gas powered vehicle in Mumbai.”

    I assumed that you were talking about a gasoline powered vehicle “a gas powered vehicle”

    You might have stipulated that it was a “natural gas” vehicle.
    I just assumed you were trying to be obstreperous.

    By the way, you look very dapper sitting there in that tuk-tuk

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  31. By mac on August 21, 2011 at 4:49 pm

    Perry said:

     

    “And, even if it were possible to convert all those ICE’s to Natgas in a
    few short months, the re-fueling infrastructure just isn’t there.”

     

    The actual nat gas pumps aren’t there, but the natural gas pipeline infrastructure in the U.S. is the best and most extensive in the world

    That is already in place.

     

    And that’s why I’m not too worried about “Peak Oil”

     

    Of course, if the multi-national oil companies and NOCs can continue to mandate our fuel choices to only gasoline and diesel derived from crude oil, then we are indeed “cooked”.

     

     

     

     

     

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  32. By Tim Weiman on August 22, 2011 at 10:06 am

    Paul,

    Actually, U.S. ethanol production is about 870,000 B/D (unadjusted for energy content).

    Anyway, my 1 MM B/D figure has no firm basis, but government does need to think long term and think on a scale consistent with U.S. consumption and world wide demand. I’m assuming no single source can replace what petroleum currently provides and will provide for a long time. Efficiency – higher CAFE – can be a big contributor, maybe 2 MM B/D compared to current U.S. gasoline consumption of about 9 MM B/D. If bio fuels could get to about 2 MM, that wouldn’t be bad.

    For the refining industry, the challenge is going to be distillates. Ethanol and higher light vehicle efficiency doesn’t replace “imported crude oil”. Rather, it backs out gasoline. The distillate is still needed.

    So the first thing we really should be doing is backing out imported gasoline.

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  33. By carbonbridge on August 22, 2011 at 2:50 pm

    Robert Rapier said:

    Darrell, had not seen this [Scientific American article(s)]. Thanks for sending. Also confirms what I have been saying; that Enerkem hasn’t actually made product yet. A lot of people were reporting that they had based on the original schedule. Also, it is pretty clear that the economics hinge on their tipping fees.


    •••••••••••••••••••

     

    RR:  Very good post, you are to be commended for your novel ideas here.  I do think that the substance herein will be noticed and perhaps acted upon by others such as the EPA which is uniquely involved overseeing the Federal RFS Congressional Mandates. 

    The EPA can’t continue backing down the annual RFS requirements to produce ‘ligno-cellulosic’ ethanol when none of this ligno-BIOMASS fuel product has been commercially produced.  As someone recently said, “fermenting beer from wood chips is rather difficult,” and I agree.  We’ve previously discussed at length on this public blog what ‘ligno-cellulosic’ ethanol actually is:  and how certain companies have manipulated this “classification term” into hundreds of millions of taxpayer dollars – funding technology which is not ‘ligno-cell’ at all.  Grantgivers as well as Congressional Representatives, hungry publics and motorists do NOT understand all of the technology mumbo-jumbo and are only really reacting to gasoline or diesel prices at the pump.  This we know.

    I would be curious to hear you expound further upon trash tipping fees for Enerkem, a Canadian Company who is receiving Federal DOE grants and USDA loan guarantees into the millions and only publicly admits that their GTL process of gasifying garbage into ‘ethanol and other green chemicals’ is the next big-ticket item.  Enerkem has been VERY successful at garnering private VC investment monies, now it is achieving U.S. gov’t taxpayer grant funding and loan guarantees as well.  I’m wondering in this greater RFS [Renewable Fuels Standard] arena, more specifically ‘just what ethanol and other green chemicals’ actually is?  Do you or others have any real clue here?  Thanks.

    -Mark

     

    From June 23rd, 2011 News Release:  Enerkem is pioneering a new line of chemicals and fuels made from garbage instead of oil or other fossil fuels. Enerkem’s cost-effective conversion technology transforms waste – such as unrecyclable household garbage, demolition debris and used utility poles – into chemical-grade syngas, which is used to create advanced ethanol, bioacetates and other intermediate chemicals that form our everyday products. The company currently operates two facilities in Quebec and in 2010, began construction of a municipal waste-to-biofuels plant in Alberta. In 2011, Enerkem expects to break ground on a similar facility in Mississippi for which it is receiving financial support from the USDA and U.S. DOE. http://www.enerkem.com

    From February 2010 News Release:  In December 2009, Enerkem was awarded US$50 million in funding by the U.S. Department of Energy for development of its planned Mississippi plant. Its commercial- scale demonstration facility in Westbury, Canada, which was completed in 2009, reached 1,000 hours of operation. The new funds raised will be used to support Enerkem’s growth plan, including construction of its second plant, in partnership with the City of Edmonton and Alberta Innovates.

    The investment in Enerkem complements Waste Management’s comprehensive waste services in the areas of recycling, landfill, waste-to-energy and landfill gas-to-energy. This investment will also help move Waste Management toward meeting three of its sustainability goals: doubling its renewable energy production and tripling the amount of recyclables processed by 2020, and investing in emerging technologies for managing waste.  About Enerkem:  Enerkem is a leading waste-to-biofuels company. Its proprietary thermo-chemical technology converts residual materials, such as non-recyclable municipal solid waste, into clean transportation fuels, advanced chemicals and electricity. The company was founded in 2000 and currently operates two plants in Canada: a pilot facility in Sherbrooke and a commercial-scale plant in Westbury. It will soon start the construction of its waste-to-biofuels plant in Edmonton, Canada and is currently developing a similar project in Mississippi, for which it was awarded US$50 million in funding by the U.S. Department of Energy (DOE).
    January 20, 2011, News Release:  Latest commitment reinforces Enerkem’s leading position in the commercial advanced biofuels sector    PONTOTOC, MS, Jan. 20 /CNW Telbec/ – Enerkem Inc. today announced that Enerkem Corporation, its wholly-owned U.S. affiliate, has obtained a conditional commitment for an US$ 80 million loan guarantee by the U.S. Department of Agriculture (USDA), for the construction of its landmark waste-to-biofuels project in Pontotoc, Mississippi, which will transform Northeast Mississippi’s municipal solid waste into ethanol.

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  34. By michaelrs on August 25, 2011 at 11:59 am

    Robert Rapier said:

    mac said:

    Okay Robert,

    Like I said. CNG powered vehicles are ICE. What’s the problem ?


     
    Why would you assume there is a problem? I was just showing you exactly what you mentioned.
    RR


     

    I just got back from a visit in Germany and they do LPG conversion all over. Enthused I looked at the chance of doing same, using Prins technology that is available for a large range of cars and conversion costs around 2000EUR in Germany for a 6 cyl or 8 cyl car. LPG is  tax relieved (tax is what makes the price difference for fuels in Germany).

    The economics are compelling: 1 MMBTU (and in the end we burn anything for BTU nothing else) in Nat Gas goes bulk for $5, in gasoline or diesel for around $28 to $30, crude oil for $15, LPG $16, but get this: compressed Nat Gas $18 (in CA). The mere compressing of Nat Gas to 3600 psi increases the value by approx. 4.5X, conversely running a refinery and trucking the whole stuff only results in a markup on the energy proice of 2x. What we have is a near monopoly on CNG sales that allows the seller to set a price that makes things economically unattractive.

    Further, here in the US (California) the market seems to be dominated by more regulation through CARB, which will not allow bi-fuel cars, and further the lone importer of Prins LPG or CNG conversion charges $8,900 for a car conversion to CNG. Making the conversion further unattractive, compared to the $2,800 in Europe.

    Of course CARB makes its political cut, and the CNG provider its margin and the Prins importer its profit, what gets killed on the way is the introduction of inherently attractive different economics, that are renewable possible. CNG could be generated from biogas (alas the latter also having a rough time getting of the ground but with huge potential). There is your problem.

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  35. By michaelrs on August 25, 2011 at 12:10 pm

    One other way to fix the CE issue is to revert to RFS1, given that we now understand that iLUC are indeed bogus (see Bruce Dale article at al.) and specifically revert to RFS1 definition of what is cellulosic, in that a fuel plant can classify its fuel as cellulosic if 90+% of energy inputs are self generated.

    That would be a huge deal as it would spur conversion of the coal and gas fired ethanol plants (essentially they are corn to DDGS plants using a fossil fuel as energy conversion to ethanol) to plants that would use the DDGS waste stream to “fire” by way of anaerobic digestion their process and also provide surplus energy to the grid. Much like the Brazilian ethanol scheme.

    This provision was in RFS1 and would have allowed an elegant conversion of plants and fuels – at least for a time window and good reason.

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