Federal Government Betting Big on Cellulosic Biofuels
By: TODD A. TAYLOR & SCOTT J. DORFMAN
July 2008
The federal government is betting big on the future of cellulosic biofuels and is providing the money to back up its expectations. On December 19, 2007, President Bush signed into law the Energy Independence and Security Act of 2007. The Act significantly expands the Renewable Fuels Standard (RFS) first established in 2005 to create a market for biofuels, by mandating the production of 9 billion gallons of biofuels in 2008 and 36 billion gallons of biofuels by 2022. Of the 36 billion gallons, 16 billion gallons must be cellulosic biofuels, defined as renewable fuel derived from any cellulose, hemicellulose, or lignin that achieves a reduction of 60 percent from current levels of greenhouse gas emissions. The Act requires cellulosic biofuels production to reach 100 million gallons per year in 2010.
In anticipation of the dramatic increase in cellulosic biofuel production that will be necessary to meet the Act’s mandates, the Act provides two generous incentives. First, the Act authorizes $500 million per year between 2008 and 2015 for grants to biofuels producers for the production of advanced biofuels that have at least an 80-percent reduction in greenhouse gas emissions relative to today’s fuels. Second, the Act authorizes $25 million per year between 2008 and 2010 for research and development and production incentives in states currently with low conventional and cellulosic biofuels production.
Although the Act opens new channels for cellulosic ethanol funding, it is by no means the only source of funding for enterprising cellulosic biofuel producers. Many producers have already been using public and private funding to conduct cutting-edge cellulosic research. The largest source of such funding is the U.S. Department of Energy (DOE), which announced in February 2007 that it is investing up to $385 million in six biorefinery projects across the country. This public money, granted under the President’s Twenty in Ten initiative, which has the stated goal of reducing U.S. gasoline usage by 20 percent in the next 10 years, will combine with private industry funding to invest $1.2 billion in the six respective biorefineries.
The largest DOE investments—as much as $80 million each—will go to Iogen Biorefinery Partners, LLC, of Arlington, Virginia, and Poet, LLC of Sioux Falls, South Dakota. The Iogen project will produce 18 million gallons of cellulosic biofuel from wheat straw, barley straw, corn stover, switchgrass, and rice straw at Iogen’s plant in Shelley, Idaho. In addition to the DOE funding, Iogen has private investment funding from Goldman Sachs and Royal Dutch Shell. The Poet project, dubbed Project Liberty, will produce roughly 30 million gallons of cellulosic biofuel from corn fiber, cobs, and stalks at Poet’s plant in Emmetsburg, Iowa. In addition to the DOE funding, Poet has private investment funding from E. I. du Pont de Nemours and Company and from Novozymes North America, Inc. Both projects are currently in the development stage.
The DOE has also pledged up to $76 million in funding to Range Fuels of Broomfield, Colorado and Abengoa Bioenergy Biomass of Kansas, LLC of Chesterfield, Missouri. The Range Fuels project will produce 40 million gallons of ethanol and 9 million gallons of methanol from wood residues and wood-based energy crops at Range’s plant in Soperton, Georgia. Range Fuels will also use private funding or support from Merrick and Company, Khosla Ventures, CH2Mhill, and Gillis Ag and Timber. The Abengoa project will produce 11.4 million gallons of ethanol from corn stover, wheat straw, milo stubble, and switchgrass at Abengoa’s plant in Kansas. Abengoa will also use private funding or support from Antares Corp. and Taylor Engineering.
Smaller DOE grants of up to $40 million went to BlueFire Ethanol, Inc. of Irvine, California, and up to $33 million went to Alico, Inc. of LaBelle, Florida. The BlueFire project will produce 19 million gallons of ethanol from green waste and wood waste, with private funding or support from Waste Management, Inc., Aurarian Capital Partners, and PetroDiamond, Inc. The Alico project will produce 14 million gallons of ethanol from yard, wood, and vegetative wastes, with private funding or support from Washington Group International and Emmaus Foundation, Inc.
On January 28, 2008, the DOE announced that four more biorefineries will receive significant funding to develop small-scale cellulosic ethanol plants that will each be roughly 10 percent as large as commercial-scale projects. ICM Incorporated of Colwich, Kansas, will receive up to $40 million to develop cellulosic ethanol from corn fiber, corn stover, switchgrass, and sorghum at a test plant in St. Joseph, Missouri. ICM will also receive private funding or support from Novozymes, VeraSun Energy Corporation, SunEthanol, Inc., and Ceres, Inc. Lignol Innovations, Inc. of Berwyn, Pennsylvania, will receive up to $30 million to produce ethanol from hard and soft wood residues at a trial plant in Commerce City, Colorado, and will receive private funding or support from Suncor Energy and from Parker Messana & Associates.
The DOE also announced that Stora Enso, North America of Wisconsin Rapids, Wisconsin, will receive up to $30 million to convert wood wastes to Fischer-Tropsch diesel fuel at a trial plant in Wisconsin Rapids, using private funding or support from TRI and Syntroleum. Pacific Ethanol Inc. of Sacramento, California, will receive up to $24.3 million to convert agricultural and forest product residues to ethanol at a trial plant in Boardman, Oregon, using private funding or support from Biogasol LLC.
Finally, on April 18, 2008, the DOE announced a second round of funding for small-scale plants. RSE Pulp & Chemical of Old Town, Maine, will receive up to $30 million to produce cellulosic ethanol from wood extract in Old Town, with private support from American Process, Inc. Ecofin, LLC of Nicholasville, Kentucky, will receive up to $30 million to convert lingocellulosic feedstocks, including corncobs, to ethanol in Washington County, Kentucky. And Mascoma Corporation of Boston, Massachusetts, will receive up to $26 million to convert switchgrass to ethanol at its plant in Vonore, Tennessee.
Although the DOE grants represent the lion’s share of public funding for cellulosic biofuels projects thus far, additional funding has taken place at the federal and state levels and through private funding. Coskata Energy made news in January 2008 when it announced it had received significant funding from General Motors to develop ethanol from biomass, municipal solid waste, and other sources using its proprietary technology. Coskata previously received $10 million in private funding from Khosla Ventures, Advanced Technology Ventures, and Great Point Ventures. In addition to its private funding, General Motors will provide research and development support to the two-year-old company.
Finally, the recently passed 2008 Farm Act includes a significant tax credit for cellulosic biofuels producers. The Cellulosic Biofuels Production Tax Credit will provide a credit of $1.01 per gallon for biofuels produced from renewable cellulosic feedstock. The credit cannot be used for biofuels produced from food grain or food starch and will expire in 2012.
Takeaway
With the RFS seeking 100 million gallons of cellulosic biofuels per year by 2010, now is the time for investors, farmers, and ethanol industry professionals to begin developing the supply to meet the RFS standards. For cellulosic biofuels producers, the future is now.