There was a recent article in MIT Technology review called What’s Holding Biofuels Back? There is a relatively simple answer to the question that I will delve into below, but the short answer to “What’s holding biofuels back?” is that we placed unreasonable expectations on them to begin with, and they have simply failed to meet those unreasonable expectations. People would think it was unreasonable if Congress mandated a cure for the common cold within 5 years, but they don’t think twice when Congress mandates the creation of a cellulosic ethanol industry within 5 years. Yet either scenario requires technical breakthroughs that are not assured.

The article notes that the cellulosic ethanol mandate for 2010 in the U.S. was cut by 93.5%, and now the 2011 mandate has been slashed (as I have predicted for several years would be the case):

This year’s mandate was supposed to be 100 million gallons of cellulosic biofuels, but that was reduced to 6.5 million. Last month, the EPA announced that it would lower the requirement in 2011, from 250 million to somewhere between five million and 17.1 million gallons.

The reason?

The EPA is doing this because not enough cellulosic biofuel is being produced to meet the targets. So far, no commercial plants have been built–just some small pilot and demonstration-scale plants.

So they have identified the effect, and then go searching for causes. They quote a number of cellulosic ethanol players who blame the lack of progress on not enough funding or mandates. While it is true that if you throw massive amounts of money at the problem, you could certainly get some cellulosic ethanol facilities off the ground. But before throwing money at a problem, there needs to be a clearly identified path to long-term economic viability that is based on reasonable assumptions.

Unreasonable expectations are at the heart of the mandate-rollback. It was an unreasonable expectation for Congress to believe they could mandate technology. If something is uneconomical today, there are no guarantees that it will be economical tomorrow — even if you pass laws dictating that things must happen. You may make an uneconomical solution appear to be economical if you throw large amounts of cash at it, but then it is only “viable” as long is it continues to receive those cash infusions.

It is also true that sometimes uneconomical solutions can become economical given enough research and development, but bear in mind that we have been working on cellulosic ethanol for over 100 years. The same fundamental challenges that existed 100 years ago still exist today. (You can read more about the specific challenges of biofuels in Five Challenges of Next-Generation Biofuels).

MSNBC suggested in The green-energy landscape just keeps changing that perhaps the economics are a bit more challenging than proponents had appreciated:

Five years ago, cellulosic ethanol – produced from humble grasses and wood waste — looked as if it could be a “simple solution to pain at the pump.” [RR: Readers of R-Squared were not under that impression]. But in Science’s special report, Robert F. Service says the federal government’s plan for ramping up cellulosic-ethanol production is in “deep trouble” because the economics of ethanol don’t make as much sense as folks thought they would back then [RR: Again, regular readers were informed about the real economics of cellulosic ethanol as well as some of the unreasonable assumptions that caused various players to forecast the production of cheap cellulosic ethanol]. Technically, it’s still tougher than expected to convert cellulosic feedstock into fuel than it is to use American corn or Brazilian sugar cane.

The current issue of Science referenced in that quote has a special section on the future of energy called Scaling Up Alternative Energy. The authors dissect the alternative energy situation, and they conclude the same thing that you have heard me saying for the past five years:

The U.S. government’s flagship plan to reduce the nation’s dependence on oil by scaling up cellulosic ethanol is in deep trouble, highlighting the complex technical, economic, and political forces buffeting global efforts to create viable alternatives to fossil fuels.

Part of the problem in scaling up cellulosic biofuels continues to be technical. To brew ethanol, manufacturers use yeast to ferment simple sugars such as glucose. That task is relatively cheap and easy when starting with a raw material—or “feedstock”—rich in those simple sugars, such as sugar cane in Brazil. In the U.S., brewers using corn as a feedstock face a slightly more complex process, because they first must use enzymes to break apart the starch in corn kernels into their component glucose molecules. The task becomes even more difficult when using cellulosic feedstocks such as switchgrass, corn stalks, or wood chips. The sugars in these feedstocks are locked in cellulose, hemicellulose, and lignin, biopolymers more complex than starch. Breaking those biopolymers into intermediate compounds that can be converted to ethanol remains a difficult problem. Researchers call it “recalcitrance,” and it currently limits brewers to converting just 40% of the energy content available in cellulosic feedstocks to ethanol. Fermentation, by contrast, converts about 90% of the energy in simple sugars to ethanol. That means cellulosic ethanol plants currently need far more raw material than first-generation plants do to make the same amount of ethanol.

That’s also why I maintain that cellulosic ethanol will never be produced at a lower cost than corn ethanol: It is much more challenging to unlock the sugars in biomass than in corn. People may project lower costs, but they do so on the basis of models that have not been validated in the real world. As an example, I may presume that I can acquire waste biomass and will be paid $100/ton to take it. On that basis, I may very well project $2/gal (or lower) cellulosic ethanol — because the biomass contribution in that case is negative $1 per gallon. But I believe this is one of the most fundamental Bad Assumptions made by prospective producers of cellulosic ethanol. In the long run, nobody is going to pay me a lot of money to take their biomass, even if I find someone willing to do so today. I believe it is far more likely that I will have to pay $100/ton for large quantities of biomass to make it worthwhile for farmers to grow and harvest it. If that’s the case, then the $2/gallon ethanol case if I am being paid to take the biomass suddenly becomes $4/gallon when I have to pay for it.

I noted the unreasonable expectations in a recent story in Pacific Business News:

Biofuels have supporters, but scale remains an obstacle

“Biofuels will become increasingly competitive,” said Rapier. “I’m not looking at where things are now, but where things are going.”

That said, Rapier is also realistic about the current difficulties facing the industry.

“The thing about biofuels is that people don’t appreciate how difficult it is to compete with oil,” said Rapier. “A lot of time there are unreasonable expectations.”

Over time, I do believe that biofuels will become more competitive. But those who suggest that there is an easy path, and that cellulosic biofuels will have an easy time displacing oil — are simply creating those unreasonable expectations. Biofuels have to contend with oil, which Mother Nature already processed over millions of years with heat and pressure to produce an energy-dense, transportable mixture. With biofuels humans must grow and transport the biomass (which is far less energy dense than oil), and then add heat and pressure to convert the biomass into fuels. Thus, it shouldn’t be a surprise that biofuels tend to be more expensive than oil.

However, oil is becoming more difficult to extract, and is of course a depleting resource. Over time this will continue to drive up the cost of oil and various oil substitutes, which will improve the economic prospects for those biofuels that are not heavily petroleum dependent.

In conclusion, it is fine to set goals, as the EPA did with the cellulosic ethanol mandates. But when the goals aren’t reality-based, they will eventually need to be massively scaled down as they were. Frequently scaling back expectations will ultimately erode public confidence in the sector. So let’s operate on a more reasonable set of expectations: Prices at the pump will rise, and as they do so certain biofuel technologies will become more competitive. If Congress doesn’t attempt to anoint specific technology winners before they perform, then we won’t be collectively disappointed if they fail to deliver.

Wouldn’t it be great if you had a bank account that automatically filled back up no matter how much you spent? You could just ignore how much you spent. Amazingly, the bioenergy industry has succeeded so far in convincing legislators here in the U.S. and around the world that bioenergy offers just such a carbon account. According to the industry, we only need to look at the carbon that biomass absorbs, not the carbon emissions it releases. The industry has convinced policymakers that no matter how much carbon is “spent” when biomass is burned for energy, there will magically be enough income in the form of regrowth to cover all expenses. Because of this magic, the industry would have us categorically exclude their emissions when we do our carbon accounting.

As I’ve written about before, both the House climate and energy bill (ACES) and the American Power Act recently introduced in the Senate buy into this magically carbon neutral source of energy. The European Union has done it too.

So how did the biomass industry and its supporters on Capitol Hill react recently when EPA said it was going to account for the emissions column of the ledger as part of its rules governing which facilities will be covered by the Clean Air Act? Sadly, with willful misinterpretation. The industry and its supporters have been able to cow the agency and the rest of Congress by claiming that EPA is only going to look at the emissions associated with burning biomass. Only looking at the expenses part of the ledger would be just as wrong as assuming magical income, but that of course is not what EPA said it would do.

Back middle of May, EPA released its “tailoring rule,” which governs which sources of global warming pollution will be required to get federal pollution permits. The rule includes the smokestack pollution from burning biomass. The preamble to the rule discusses some of the complexity around biomass emissions accounting and announces EPA’s intention to seek stakeholder input and, within a year, issue guidance on how to account for both sides of the ledger.

On May 24, Weyerhaeuser—one of the biggest proponents of the concept that bioenergy is magically carbon neutral—sent EPA a letter saying that it was “taken aback” that EPA wasn’t towing the line, buying into the magic, and ignoring biomass emissions.

On June 2, EPA responded to Weyerhaeuser by pointing out that it was already committed to getting input and working to get biomass accounting right. That would be the end of a wonky story except that last week the Senate considered (and fortunately rejected) a proposal from Senator Murkowski that would have forced EPA to stop this work and ignore all sources of global warming pollution. What’s more, some Senators that should have known better thought that this was a way to “fix” EPA’s tailoring rule.

As my colleague Dan Lashof wrote, Senators Collins and Snowe from Maine and Senator Brown from Massachusetts voted last week for Murkowski’s massive giveaway to coal and oil–because as Senator Collins put it:

“Incredibly, the EPA proposes to ignore the carbon neutrality of biomass and place onerous permitting requirements on businesses such as Maine’s biomass plants and paper mills, which use biomass to provide energy for their operations.”

Interestingly, the same day that the Senate was voting to reject Murkowski’s big polluter bailout, Massachusetts was releasing a report commissioned by the state’s Department of Energy Resources. As I’ve written a little about, this report, done by Manomet Center for Conservation Sciences, makes it very clear that most forest biomass is not carbon neutral. In fact, the report finds that burning whole trees to make power would leave the atmosphere 3% more polluted between now and 2050 than burning coal over that same period.

This finding should not be surprising. Wood, especially green wood, contains less energy per pound of carbon than coal and forests grow slowly. So when we burn a tree, we’re releasing more carbon and getting less energy than we would if we burned coal, and then re-absorbing that carbon very slowly as trees grow back. This means the timeframe over which we do our accounting also makes a big difference. For example, over 100 years or more, the forest may grow back, reabsorb the carbon that we released initially, and possibly absorb enough additional carbon to put the biomass carbon ledger ahead of coal, but there’s no guarantee. And in the meantime the climate get more and more unstable and 100 years is simply too long to wait for significant carbon reductions.

But the report also discusses how different sources of biomass and different approaches to managing forests after biomass is harvested can have a big impact. Under a best-case scenario for sourcing and forest management, the study finds that 40 years of wood-derived power could actually be 11% better than 40 years of coal. This is still very far from 100% better, which is what carbon neutral implies, but this is why EPA should be netting carbon debits and credits over some reasonable period, and taking into account both the source of biomass and land management practices. I’ve written about the importance of getting this type of accounting right before and just recently 90 scientists called on Congress to get it right in climate legislation and energy policy.

While the report does an impressive job of looking at a range of forest sourcing scenarios, it doesn’t look at woody residues at lumber yards or papermills, where biomass is coming out of forests anyway. Nor does the report try to look at agricultural residues or biomass specially grown on degraded lands. If EPA does netting right, these sources of biomass will be encouraged.

Representing as they do a state with such a strong forest industry, it certainly makes sense for Senators Collins and Snowe to be pushing for smart netting as part of EPA’s tailoring rule, but supporting Senator Murkowski’s attempt to roll back EPA authority to protect our air quality was not a vote for thoughtful regulation. It was like using a chainsaw where pruning shears would have done the trick, and Senators Collins and Snowe, both leaders in the climate debate, know better.

The second EPA action that Senator Collins takes exception with in her statement is the agency’s proposed new air regulations that would require biomass combusters not to emit more carbon monoxide, mercury and other toxics than the cleanest fossil fuel boilers. Tellingly, the industry doesn’t argue (subscription required) that they aren’t emitting this pollution or that the pollution isn’t hurting people’s health or even that the technology doesn’t existing to clean up the pollution. Their only argument is that it will cost them too much. As Jane Williams, Chairwoman of the Sierra Club’s National Air Toxics Task Force, put it: “What they’re saying, apparently, is: ‘We’re just too dirty…We can’t meet the standards because we’re too dirty.’”

The worst part about this is that bioenergy doesn’t have to be a major source of pollution. There are sources of biomass that can be used to replace fossil fuels and provide a low-carbon source of energy. And the toxics that are produced from burning clean biomass are technically easy to control. (Burning garbage, which sometimes gets called biomass, is a different matter.)

But you can’t fix a problem if you won’t acknowledge it exists. The ultimate solution is a comprehensive climate and energy bill that requires careful accounting of all carbon, including the carbon released and absorbed by biomass. I hope that Senators Collins, Snowe and Brown will read MA’s new report, recognize that carbon neutrality is a myth and biomass pollution is still pollution, and work with NRDC to shape the climate and energy bill and EPA’s rules to get the best performance we can out of bioenergy.

Manufacturers will have to work much harder to earn the right to affix the ENERGY STAR logo to their products.

The Department of Energy and the Environmental Protection Agency are raising the standards for appliance manufacturers who wish to promote their wares as being energy efficient by brandishing the ENERGY STAR label. They claim that their program has been effective in helping Americans reduce energy bills for years and that the current economic climate makes it that much more imperative that products which are labeled ENERGY STAR are, indeed, efficient.

The new regulations will entail a two-step process using an independent third party to test products for their energy efficiency in addition to the current regulations the program already employs.

Initially, the DOE will focus on testing the six most common product types: Freezers, refrigerators, clothes washers, dishwashers, water heaters and room air conditioning units. The DOE says that they will test about 200 basic models in independent labs over the next few months. Secondly, any manufacturer seeking the ENERGY STAR label will have to participate in ongoing verification testing to ensure continued compliance.

The change comes in response to concerns that inefficient appliances bearing the well-known ENERGY STAR insignia have devalued the label. The DOE has taken action against 35 manufacturers over the past four months for producing inefficient products bearing the DOE’s efficiency label.  Secretary for Energy Efficiency and Renewable Energy, Cathy Zoi, said that these new measures will strengthen the reputation of the program.

“Consumers have long trusted the ENERGY STAR brand for products that will save them energy and save them money,” said Zoi in an DOE statement. “The steps we are taking now will further strengthen and improve the program, building on the results that consumers have come expect.”

The new steps already add to a program that requires manufacturers to submit product data to the Federal Government showing their product meets guidelines outlined by ENERGY STAR. The DOE also must be allowed to conduct off-the-shelf tests to the products for compliance. Light fixtures, windows, doors and skylights are also to be tested in specialized facilities for product specific qualifications.

So far in 2010, the EPA disqualified 34 compact fluorescent lamp (CFL) models from 25 manufacturers that did not meet criteria for energy efficient CFL bulbs. They also acted against 4 shower head manufacturers who failed to certify 116 product models that did not meet federal water conservation standards. Further, the EPA terminated their ENERGY STAR partnership with U.S. Inc/U.S. Refrigeration because of failed compliance and misuse of ENERGY STAR logos.

One product manufacturer is not taking their revoked partner status lying down however. LG has a filed civil complaint against the DOE for their forcing of the refrigerator manufacturer to remove all of the ENERGY STAR labels off of certain refrigerator models.

LG claims that they were not given a fair notice of the EPA testing standard change and neither was the rest of the industry. According to court documents, LG claims that the law requires that the industry should have sufficient time for comment and compliance.

Despite the recent revelations about possible abuse, the EPA considers its ENERGY STAR program a success.  They base that accomplishment on their belief that the violations have been relatively few over the past few years, considering there are more than 40,000 products that carry the ENERGY STAR label.

When I first began my career, a wise old-timer gave me a piece of advice that I took to heart. He said “When you are planning and executing a project, it is important for you to do what you say you are going to do. People are going to make investment decisions on the basis of the numbers you project. So don’t over-promise and under-deliver.”

As I began to become involved in projects, the wisdom of the advice I was given became clear. I learned to be conservative with my claims, because failing to deliver can have far-reaching impacts. Plus, a pattern of over-promising and under-delivering will ultimately destroy your credibility, and thus your ability to get anything done. (On the other hand, excessive “sand-bagging” is also poor practice, as too much money gets budgeted where it needn’t be).

Now imagine the following scenario. I go to the government and ask for $5 million to build a 10 million gallon per year ethanol plant. I announce that it is cutting edge technology, and I make various far-reaching claims. I issue press releases, and Congress invites me to give testimony in D.C. The government grants me the money I ask for, because I have had success in other ventures and I seem like a credible fellow.

Later, I go back to the government, and tell them I need another $5 million, and that unfortunately the project schedule is slipping. “By the way”, I tell them, “I will now only be producing 5 million gallons.”

As construction continues, I start to realize that the energy business is a bit more difficult than I had imagined, and things that I thought were new weren’t new. It becomes clear that I can’t even deliver on my downgraded promises because I hadn’t appreciated the challenges of scale-up. The government calls me up and asks me how it is going. “Well”, I explain to them, “I am out raising $10 million more in investor money. I am also going to only produce 1 million gallons, and it is going to be methanol instead of ethanol as I have been claiming. I am not really sure when I will produce ethanol. By the way, could you give me some more money?”

So I went from claiming $5 million for a 10 million gallon ethanol plant to $20 million for a 1 million gallon methanol plant. I still have not delivered. I am asking for more money. You still trust me, don’t you?

Range Fuels: Years of Broken Promises

I have for the most part held my tongue over Range Fuels for the past 3 years, but the scenario above essentially describes what has happened. The reason I have held my tongue is that I have heard various bits about their progress that was not public, and so I have held back on commenting. But I firmly believed they were making reckless claims from Day 1.

Now the EPA has just issued a report that gives some remarkable updates on Range Fuels, and I feel I have held my tongue long enough. Let’s walk through the timeline to show the remarkable evolution of their progress that has gone largely unreported.

October 2006 – In an interview with Wired Magazine called My Big Bet on Biofuels, Vinod Khosla gushed about E3 Biofuels (now bankrupt) and wrote about them as if they were a running, proven plant. He wrote about what they were achieving, despite the fact that they hadn’t started up (and would be out of business shortly after they started up). In the article, Khosla described his investment in Kergy (which later became Range Fuels).

IN THE CORNER of an unmarked warehouse tucked away in an industrial neighborhood north of Denver, a new company called Kergy has what is, to my knowledge, the first anaerobic thermal conversion machine (which explains why Khosla Ventures is a seed investor). It’s a 6- by 4-foot contraption that stands about 8 feet high. It looks vaguely like a souped-up potbellied stove. But it runs cleanly enough to operate indoors.

With those comments, everyone in the energy business knew Khosla was operating outside of his element. People have been gasifying biomass for decades, and there are numerous “anaerobic thermal conversion machines” out there. What happened was that Khosla wasn’t aware of this, so he thought this was all new and novel, and he invested – and then began to promote. He also went to the government telling them how wonderful it was, and that he would change the world if they would only fund him.

In that article, the inventor of the gasifier, Bud Klepper, is ominously quoted “We could double the ethanol output of the Mead facility.” I hope not. The output of the Mead facility (E3 Biofuels) is zero, so double that is…

February 2007 – Kergy changed its name to Range Fuels. They announced that they would build their first “cellulosic ethanol” plant in Georgia. The capacity was announced at “more than 1 billion gallons of ethanol per year” (Source.)

I had a problem with this announcement on two counts. First, this is not “cellulosic ethanol”, as I explained in Cellulosic Ethanol vs. Biomass Gasification. Further, if you are going to make an alcohol from syngas (the product of the gasifier), ethanol is a strange choice to make. Methanol is more efficient to produce, and ethanol is generally just a co-product when producing mixed alcohols (which also work well as fuel; see Standard Alcohol). It is only separated out at a great expense of energy – and then you have a lot of lower-value methanol to deal with. So this was looking like a very confused project from the start.

March 2007 – Range Fuels announced a $76 million grant from the U.S. Department of Energy.

Also during 2007, articles on Range Fuels began to appear everywhere. There were high profile pieces in The New York Times and in Forbes. In the Times’ article, the company refused to disclose how much had been invested to date.

An article in USA Today reported that the initial capacity would be 20 million gallons. The site was permitted for 100 million gallons of eventual capacity, and the cost of building a 100 million gallon per year plant was quoted at $150 million. Range said they thought they would be the first to win the “cellulosic ethanol” race (again, ignoring that the race was won a hundred years ago):

By next year [2008], the company intends to have a facility capable of creating 20 million gallons of ethanol per year. The site in Treutlen County, Ga., has received a permit to produce 100 million gallons per year, and Range Fuels expects to eventually reach that production amount, according to company CEO Mitch Mandich.

“A lot of people are talking about 2009, or 10 or 11—even Secretary of Energy (Samuel) Bodman will say cellulosic ethanol is five years away,” Mandich said. “We think by the time we enter production, we’ll be the first, so the race is on between us and some competitors.”

Well, it is 2010, and we still aren’t seeing any ethanol from the facility. Welcome to the real world.

November 2007 – To much fanfare, Range Fuels announced the groundbreaking of their Georgia facility. They continued to maintain that the first 20 million gallon phase would be completely finished in 2008. Those of us who have been involved in plant construction wondered when they would actually face the music and admit they couldn’t deliver.

March 2008 – Range announced that they had raised another $100 million to build the plant. By April this number was announced as $130 million in venture capital funding. They were still treated as media darlings – and nobody in the press was asking them critical questions. But their story was about to begin to unravel.

April 2008 – Range announced that they have received a $6 million grant from the state of Georgia.

October 2008 – In an incredibly ironic story, Discover Magazine published Anything Into Ethanol. It was incredibly ironic because in 2003 they had written Anything Into Oil, a gushing story about a company called Changing World Technologies (CWT) and their claim that they could make oil from biomass for $8-$12 a barrel. After a lot of wasted investor and taxpayer dollars, CWT declared bankruptcy when they couldn’t deliver on their claims. I did a post-mortem on CWT here. There were many more parallels here than just two nearly identical, uncritical stories from Discover Magazine.

November 2008 – Range Fuels CEO Mitch Manditch was replaced.

January 2009 – Although the plant in Georgia was still not complete, there was no explanation regarding the delay. But Range announced another $80 million loan from the U.S. Department of Agriculture. One story announced that the company had received a total of $158 million in VC funding in 2008. This story also announced that the first phase was still under construction, and production was now not expected until 2010! (This new production time frame was probably the result of getting in a new CEO who was actually experienced in the energy business, ex-Shell executive David Aldous).

May 2009 - While Range Fuels stopped issuing so many press releases, former CEO Mitch Mandich was quoted in the New York Times admitting that “The soup’s not quite cooked yet.” This was extraordinary given previous claims from him that they would produce cellulosic ethanol at less than the price of corn ethanol.

October 2009 - In a New York Times’ story that warned that cellulosic ethanol was falling far short of expectations, it was announced that Range Fuels had applied for even more funding from the DOE! This time, the DOE said no.

For the most of 2009, Range went into silent mode. Again, I attribute this to a new CEO who came from the energy business, where you better do what you say you are going to do. One pattern that started to emerge was that they referred less to cellulosic ethanol and more to cellulosic biofuels. This was significant, because I had always maintained that it wouldn’t be cost-competitive for them to produce ethanol via gasification. I was just waiting for the other shoe to drop…

February 2010 – A rather extraordinary update was issued that the mainstream media has still not absorbed. The EPA released an update to the Renewable Fuel Standards Program (RFS2). In that update, they had the following report on Range Fuels (see this document). From Pages 175 and 178:

At the time of our assessment, we were also anticipating cellulosic biofuel production from Range Fuels’ first commercial-scale plant in Soperton, GA. The company received a $76 million grant from DOE to help build a 40 MGY wood-based ethanol plant and they broke ground in November 2007. In January 2009, Range was awarded an $80 million loan guarantee from USDA. With the addition of this latest capital, the company seemed well on its way to completing construction of its first 10 MGY phase by the end of 2009 and beginning production in 2010.

As for the Range Fuels plant, construction of phase one in Soperton, GA, is about 85% complete, with start-up planned for mid-2010. However, there have been some changes to the scope of the project that will limit the amount of cellulosic biofuel that can be produced in 2010. The initial capacity has been reduced from 10 to 4 million gallons per year. In addition, since they plan to start up the plant using a methanol catalyst they are not expected to produce qualifying renewable fuel in 2010. During phase two of their project, currently slated for mid- 2012, Range plans to expand production at the Soperton plant and transition from a methanol to a mixed alcohol catalyst. This will allow for a greater alcohol production potential as well as a greater cellulosic biofuel production potential.

Did you catch that? Initial capacity is now slated at 4 million gallons per year and will be methanol. There will still be no qualifying “cellulosic ethanol” produced in 2010. The amount of money that we know has been poured into this – beyond Khosla and company’s initial investment – is $158 million in VC money, $76 million of DOE money, $80 million from the USDA, and $6 million from the state of Georgia. Further, they asked for more DOE money and were turned down.

So we have Khosla’s initial investment of unknown amount plus $320 million for 4 million gallons of methanol. Wow. At this point, I don’t know why anyone would care about what they say they are going to do during Phase 2, I am more interested in seeing some accountability for what has happened to date.

Let’s recap the highlights:

February 2007 – Range Fuels announced that they would build their first “cellulosic ethanol” plant in Georgia. In a story at Green Car Congress, the capacity was announced at “more than 1 billion gallons of ethanol per year.”

March 2007 – Range Fuels announced a $76 million grant from the Department of Energy.

July 2007 – In a story in USA Today, the Phase 1 capacity was announced at 20 million gallons. The full scale would be 100 million gallons at a cost of $150 million.

November 2007 – Range broke ground on the plant; announced they would be finished with Phase 1 (still 20 million gallons) by the end of 2008.

April 2008 – Range announced a $6 million grant from the state of Georgia.

January 2009 – Range received another $80 million, this time from the USDA, and announced receipt of $158 million in venture capital funding for 2008.

October 2009 – Range asked for more money. This time they were told no.

February 2010 – After investments that have been publicly announced at $320 million, the EPA announced that Range would initially produce 4 million gallons, and it would be methanol. Further, there would be no ethanol produced in 2010.

February 2010 – I write an article wondering why the mainstream media has completely missed this story.

In summary, we were given numbers of $150 million to build 100 million gallons of cellulosic ethanol capacity. What we are being told now is > $320 million to build 4 million gallons of methanol capacity. Of course they intend to do so much more, but I have a very big problem giving more taxpayer money to an organization with this history.

I don’t blame current CEO David Aldous for this. I think Range’s tendency to talk to the press every chance they got ceased once  reality started to take hold and they got an experienced energy veteran in. I think Aldous inherited a ship in which people had been in the habit of promising the moon to secure ever more funding. But I do blame a number of the original promoters of the company.

I have criticized Vinod Khosla in the past for what I said were unrealistic claims. I felt like he came into the energy industry without a very good comprehension of if, but felt that he would apply his golden touch from Silicon Valley to show the dinosaurs how Silicon Valley innovates. I also felt like he was attracted to people who made grandiose claims, but didn’t have the proper historical perspective to determine when something was truly novel (and really worked).

The thing is, the energy industry is full of very smart people who went to the same schools the people in Silicon Valley attended. There isn’t much that hasn’t been tried, and most of what is being announced to great fanfare by newcomers is being worked on in silence in numerous places around the globe.

When you step out there and make the sorts of claims that were made, you have some responsibility for your words. Failure tars an entire renewable industry as being hopelessly unrealistic. This is the reason I go after claims that I believe are unrealistic. If you promise and fail repeatedly, funding will dry up for everyone as the government and the public all become cynical. So your actions impact lots of people – and can impact the energy policy of the entire country – thus you need to be accountable for the things you say.

This has played out exactly like I thought it would. Claims that most industry insiders laughed at in private have now come to naught at great cost to taxpayers. Methanol from syngas? Oh, that technology has only been with us since 1923. Congratulations on reinventing the wheel and burning through taxpayer money in the process.

In summary, I will point out that the two primary sources of cellulosic production being counted on by the EPA for 2010 were Range Fuels and Cello Energy. Both are Vinod Khosla ventures, and neither has come remotely close to delivering despite lots of funding and taxpayer assistance. I don’t think these are isolated cases. I think they are a symptom of things to come. We have gotten a lot of overpromises, because face it, that has worked to secure funding. But what this leads to are completely unrealistic expectations regarding our energy policy, and numerous bad decisions regarding where tax dollars should be spent.

Finally, I want to make one thing crystal clear. I am not criticizing failure here. That is normal and expected. Failure is a part of what it takes to learn and move forward. What I am criticizing is the nature of the failure; that it was primarily because inexperienced people were making claims they shouldn’t have made, and taxpayers are going to get stuck with the bills. Personally, I have a problem with my tax dollars being squandered away by smooth-talking salesmen.

Growing America’s Fuel

As I read through this report on the status of advanced biofuels, I couldn’t help but think that this appeared to have been written by an optimistic cheerleader rather than by someone conducting a sober assessment of the situation. It contains very little of “Here is why we have fallen more than 90% short of our targets.”

Bear in mind that the advanced biofuel mandate for 2010 was 100 million gallons. The report admits that the shortfall will almost certain exceed 90% (as I have been saying it would for at least a couple of years).

Where the report does get into specifics, it makes excuses, suggesting that the technologies themselves aren’t the problem, lack of funding is. To that I say that I can make all sorts of things work “commercially” if I am willing to throw enough money at them. But they will only continue to remain “commercial” so long as I am supplementing them with outside funding.

This report would seem to have been written by people who believe that technological progress is inevitable. All barriers can be broken down by throwing enough money at them. While I am definitely a technology buff, I have a different view on technology. Generally, technological successes are built upon a great many resolved technical problems. Yet it may require only a single unresolved problem to lead to technological stagnation, or failure.

For example, consider the scale-up of a process from the laboratory. I have run laboratory reactors and distillation columns – and scaled those up – so I am familiar with some of the things that can go wrong. The scale of a laboratory process may be on the order of a few pounds a day. At that scale, things behave differently for a number of reasons. When scaling up a lab process to something like demonstration scale – say a factor of 100 times greater than the lab process – many things can go wrong. In fact, I think it is safe to say that most good ideas die in the lab when practical realities intrude upon theoretical considerations.

One of the most important aspects to manage is the heat inputs and outputs. In the laboratory, the size of the equipment is such that the heat losses from surface areas is a much greater percentage of the total than when the equipment is scaled up. What does this mean? It can mean that it is difficult to replicate the temperatures achieved in the lab. It can mean that the temperatures at scale are much hotter than desired, or it can mean that there are undesirable temperature variations within the process. In my experience, this is a frequent cause of failure when scaling up from the lab.

Each successive scale-up filters out more seemingly good ideas, and in a world in which commercial success hinges on actually being able to earn money from a project, this filter works well. In a world in which technological failures are met by optimistically throwing more money at the problem, then end result will be a massive amount of spending, and later congressional inquiries into why we wasted so much taxpayer money with so little to show for it.

So success for these projects is far from assured. Even success at one level of scale-up doesn’t assure success at full commercial scale. I can rattle off a dozen things that have gone wrong and been apparent only as projects progressed to full commercial scale. Trace contaminants that can easily be disposed of in the lab can become big headaches at scale. Corrosion is often a killer once some of these projects begin to operate at bigger volumes.

But for the technological cornucopians, these are not real problems: They just require more money and they will be solved. But then why do cancer and heart disease still kill so many people each year, or why does my laptop battery only lasts a few hours instead of a week? Why don’t we commercially fly people from London to New York in an hour? The reason is that not all problems are solved by throwing more money at them, and many solutions are only advanced an incremental step at a time.

As I have pointed out, cellulosic ethanol technology is more than 100 years old. You heard it here, and you can hold me to it: There will be no breakthrough that suddenly makes it cost-competitive to produce. On the other hand, press releases that announce big breakthroughs for small incremental steps? No end to those I am afraid, nor any retraction when they can’t replicate this outside the lab.  The impression this leaves is a steady upward march in the commercialization of cellulosic ethanol – and no setbacks that weren’t simply related to lack of funding.

Cellulosic ethanol will never be produced in large volumes for less money than corn ethanol can be produced for – and keep in mind that we are still subsidizing that after 30 years. What may happen is that it eventually can be mildly successful in certain very specific instances. But to think that a billion tons of U.S. biomass will contribute a major portion of the U.S. fuel supply via cellulosic ethanol? Hogwash from many people who have never scaled up anything. The reasons are not from lack of funding, they are fundamental based on physics, chemistry, and the nature of biomass.

Had I written the report, you can bet that I would have written it differently. It would have been a sober technical assessment, and while the conclusion would have probably been to continue funding, there would also have been a lot of planning for scenarios in which things didn’t pan out as expected. I like to have a Plan B that wasn’t cobbled together only after Plan A fell apart.

Ethanol producers and proponents have assured us that the higher blends will not damage engines. Small engine makers and boaters are very worried that the higher blends will damage their engines. In fact oil companies, having been mandated to use ethanol, are now facing a class action lawsuit over ethanol blends damaging boat motors. Even the auto industry has voiced concerns that they could be liable if the higher ethanol blends damage engines.

So how to break this impasse? A reader forwarded a link to a letter that appeared in the Financial Times that I think proposes a reasonable solution. The ethanol industry will be the main beneficiary of raising the amount of ethanol that can be blended. Since they are also the industry who has requested this increase, have them assume the liability if anything does happen. If they are correct and there are no problems, then they have nothing to worry about. If they are incorrect, then they can pay for the fallout instead of having it fall to the oil companies, car companies, and small engine makers.

How to do this? I think you have to get an ethanol trade organization like the Renewable Fuels Association to step forward and say “We are prepared to accept the liability risk for the potential reward.” Because the potential liability could be enormous, that would probably also need to be backed up by the U.S. government.

I think it is a reasonable suggestion that those who are proposing this change and who stand to benefit should accept any potential liability. But my guess is that the EPA will ultimately rule in favor of increasing the ethanol blends anyway, and the ones who reap the reward aren’t going to be the ones stuck with the bills if there are unforeseen problems.

EPA Notifies Industry Group on Status of Ethanol Waiver Request

WASHINGTON – The U.S. Environmental Protection Agency (EPA) today announced that it expects to make a final determination in mid-2010 regarding whether to increase the allowable ethanol content in fuel.

In a letter sent today to Growth Energy – a bio fuels industry association that had asked EPA to grant a waiver that would allow for the use of up to 15 percent of ethanol in gasoline – the agency said that while not all tests have been completed, the results of two tests indicate that engines in newer cars likely can handle an ethanol blend higher than the current 10-percent limit. The agency will decide whether to raise the blending limit when more testing data is available. EPA also announced that it has begun the process to craft the labeling requirements that will be necessary if the blending limit is raised.

In March 2009, Growth Energy requested a waiver to allow for the use of up to 15 percent ethanol in gasoline, an increase of five percent points. Under the Clean Air Act, EPA was required to respond to the waiver request by December 1, 2009. EPA has been evaluating the group’s request and has received a broad range of public comments as part of the administrative rulemaking process. EPA and the Department of Energy also undertook a number of studies to determine whether cars could handle higher ethanol blends. Testing has been proceeding as quickly as possible given the available testing facilities.

In a letter to Growth Energy, a pro-ethanol organization headed up by POET CEO Jeff Broin and General Wesley Clark, the EPA indicated that testing had only been completed on two vehicles, but testing on an additional 12 vehicles was expected to be completed by May 2010. On the basis of the two completed tests, the EPA said they would “be in a position to approve E15 for 2001 and newer vehicles in the mid-year timeframe.”

That begs the question of whether there is expected to be a potential problem in vehicles older than 2001 models. If so, and E15 is approved for 2001 and newer models, I can imagine a logistical nightmare and a class action lawsuit waiting to happen. Instead of having three grades of gasoline, there would likely need to be five or six grades depending on the age of your car. For gasoline blenders and for station owners, it will be a bit of a headache. For lawyers, a potential windfall as pre-2001 car owners have their engines ruined because they put the wrong fuel in, or someone else messed up in the supply chain.

Instead of going down this path, why don’t we do more to incentivize E85? We aren’t close to saturating the market for E85; the problem is just that the E85 price isn’t low enough relative to gasoline. There are supposedly several million E85 vehicles on the roads today, with automakers ramping up production even more in future years.

Consider for a moment the potential E85 market in the Midwest, where most of the corn is grown and most of the ethanol is produced. Per the EIA, the demand for gasoline in the Midwest in 2008 was 2.5 million barrels per day. Imagine for a moment that this demand was for E85. In that case, because of the lower energy content, demand would rise to around 3.3 million barrels per day. Of that, 85%, or 2.8 million barrels per day, would come from ethanol.

How much is 2.8 million barrels per day? It would be 43 billion gallons per year of ethanol, far greater than the 10 billion or so gallons of ethanol produced in the U.S. in 2010. In fact, even if you could convince only half the people in the Midwest to use E85, there would be absolutely no need to even think about increasing the amount of ethanol in the general gasoline pool. And that’s just in the Midwest!

So why isn’t this strategy being heavily pursued? Primarily I think it comes down to cost. If you can get 15% ethanol into the gasoline pool, any cost penalty is spread out over many consumers and it is further masked because the bulk of the fuel is gasoline. With E85, ethanol is carry the brunt of the costs and the penalty is far more obvious.

As I write this, per this site that promotes E85 fuel, right now the savings from burning E85 instead of regular gasoline is only 11.88% (a national average price of $2.53 for gasoline versus $2.23 for E85). The problem is that the mileage penalty is going to be over 20% in most cases (the energy content of E85 is almost 30% less than gasoline on a per gallon basis), and therefore people are not going to voluntarily buy it.

How to get around that? Well, if you could instead make everyone buy E15, you don’t really have to worry about that cost problem. Consumers will be forced to take the hit, but it will be spread out across all consumers. But if they could make the cost of ethanol more competitive such that the savings from E85 is consistently around 25-30% relative to gasoline, E85 demand would be great enough to consume all of the ethanol we will make for the foreseeable future.

This coal ash spill had people up in arms which is leading to the EPA's proposed plan.

It was announced today that the EPA intends on broadening the rules applied to coal-fired power plants to include toxic metal discharge limits. This move would, for the first time, regulate the millions of pounds of arsenic, selenium, mercury, lead, and other pollutants that are released each year – typically, into the waste water ways that are there for this specific purpose. The issue appears because of findings that suggest these metals are seeping into drinking water.

“Current regulations, which were issued in 1982, have not kept pace with changes that have occurred in the electric power industry over the last three decades,” the agency wrote in an announcement.

Traditionally, the EPA only policed the amount of emissions released by the smoke stacks of these coal-fired power plants, but since it’s very easy for the plants to transfer the wastes from the smokestacks to the water, little is being done to aid the environment.

“Treatment technologies are available to remove these pollutants before they are discharged to waterways, but these systems have been installed at only a fraction of the power plants,” the agency went on to say.

According to Federal Law, the EPA can change their rules every year, but has not since 1982 saying that “they are reviewing it.” Now that the reviewing process is complete, they will impose the rule change by 2012 forcing companies to use the technologies readily available to them to clean the water before releasing it.

To speed up the rule-changing process, the Environmental Integrity Project are suing the EPA because of the lack of rules. The EIP stated that if rules were not released within sixty days, they would act on the lawsuit. Although these results are pleasing for the EIP, the want to ensure that the rules get enacted as soon as possible.

If you are like me, you see an immediate problem. The EPA is a governmental agency, and the executive branch of the government is pushing the mandate. There are a lot of people with a vested interest in seeing the EPA adopt generous accounting rules. In fact, in February of 2008 I wrote:

Who is going to evalaute the greenhouse gas reduction? You can’t even get scientists to agree on the parameters [boundaries of the analyses], how is anyone going to stack hands on this? It will become a hot political issue. When you can’t even get agreement on the energy balance, how on earth will you get agreement on the GHG reduction?

As I have argued before, current wet cellulosic ethanol technology requires copious amounts of fossil fuel. Thus, it is almost certain that there are presently no greenhouse gas savings that can legitimately be claimed on the basis of cellulosic ethanol production. Therefore, those who are wedded to the (wet) cellulosic model stand to see their dreams of generous subsdies dashed. So, it may not surprise you to hear that the jockeying has started. Gristmill has the story:

Fuel me once, shame on you

On Oct. 21, several academics and representatives from the biofuel industry sent a letter [PDF] to EPA Administrator Stephen Johnson asking the agency to exclude accounting for these emissions from their rulemaking, calling the requirement “premature.”

The authors said that it is “of particular concern” to them that “the EPA appears to be relying heavily” on the February 2008 report that found that both corn- and switch-grass ethanol actually have higher net greenhouse gas emissions that conventional fuel sources. “It would be very unfortunate if a rush to judgment by the EPA would cast unwarranted doubt on the value of these low-carbon, 2nd generation biofuels,” they wrote.

Who were the people who sent the letter? A bunch of professors like Michigan State’s Bruce Dale – whose research (and government funding) are based on cellulosic ethanol – and a couple of companies with financial interests in cellulosic ethanol. In other words, people with a vested financial interest. Here Professor Dale is in 2007, testifying before the Senate Finance Committe that 1). We will be able to make cellulosic ethanol for $1.20 within 5 years; 2). We need more government funding; 3). I said the same thing in 2001; and 4). Oh, by the way I have been working on this for 30 years.

But another letter was sent from several environmental groups, and they seemed to have a different take on the matter:

“There is nothing ‘premature’ about Congress’s insistence that federally mandated, taxpayer-subsidized biofuels are environmentally beneficial,” they wrote. “The RFS has propped up the biofuel industry for three decades, on the untested assumption that biofuels are good for consumers and the environment. During that time, its proponents — including the authors of the October 21 letter — have failed to demonstrate that biofuels provide any such benefits.”

You know where I stand on this. If there are no greenhouse gas savings, subsidizing cellulosic ethanol is just subsidizing the fossil fuels that it took to make the cellulosic ethanol. As I have argued before, I think (true) cellulosic ethanol is dead in the long run. The only question for me is how much money we are willing to throw away before conceding that fact.