For years the stock answer to

when cellulosic ethanol produced from plant materials or wood will

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arrive has been the same. When asked, industry officials and insiders

have consistently said it will be four to five years before commercial

production becomes viable.

Not anymore. The future is now for cellulosic ethanol.

Roughly 300 million gallons of planned commercial-scale cellulosic

ethanol plants are in various stages of planning and development across

the country, according to Nathan Schock, a spokesperson with Sioux

Falls-based POET, although financing hurdles may slow or derail some of

those projects.

Several companies, including Coskata

Inc., DuPont Danisco Cellulosic Ethanol, Iogen Corporation, Lignol,

POET and PureVision Technology, announced in June at the International

Fuel Ethanol Workshop and Expo in Denver that they have already

produced cellulosic ethanol from demonstration plants or will do so

within the year. Most are processing about 1 ton of material into

ethanol daily. From that ton of biomass, they are producing between 70

gallons and 85 gallons of biofuels. Commercial production is expected

to follow by 2010 or 2011.

Coskata officials said at the

workshop that the company is so confident in its production system it

has decided to start licensing its proprietary technology later this

year. Coskata’s process is far more robust than originally estimated

because the company can process cellulosic feedstock from agricultural

sources, urban land waste, forests and a variety of manufacturing waste

materials. Company officials also said once the process is perfected,

ethanol from cellulosic sources would become price competitive with

gasoline without any federal tax credit.

POET is already

producing cellulosic ethanol from corn cobs at a pilot-scale plant in

Scotland, SD. A 25 million gallon cellulosic ethanol plant will be

added to POET’s existing grain ethanol plant in Emmetsburg, IA, by

2011. The company also plans to add cellulosic ethanol production to

other existing grain-to-ethanol plants and license the technology to

other companies. POET, the world’s largest ethanol producer, is

currently working with agricultural equipment manufacturers and farmers

to find the best way to harvest cellulosic feedstock.

“POET’s cellulosic ethanol goals depend on a steady supply of a

reliable feedstock: corn cobs,” said Scott Weishaar, who is leading

POET Biomass, a new division of the company that was announced at the

Fuel Ethanol Workshop.

STUDY FINDS LARGE-SCALE CELLULOSIC PRODUCTION POSSIBLE

A study released earlier this year by the U.S. Department of Energy’s

Sandia National Laboratory found that large volumes of cellulosic

biofuels could be produced from already identified biomass sources and

resources without displacing crop production. The study, which was

sponsored by General Motors, indicated that even without incentives

cellulosic biofuels could potentially compete with gasoline with oil

prices of between $70 and $90 per barrel by 2030, given the expected

accelerated development of technology and feedstocks.

The

report also found that the needed investment in cellulosic

biorefineries would be comparable to that needed to expand domestic oil

exploration and production to similar levels. It noted that building

the needed transportation and distribution infrastructure presented a

challenge, but was still possible.

“The future of

cellulosic ethanol is a realistic route to energy independence,” Joe

Skurla, the president and CEO of DuPont Danisco, said in a prepared

statement earlier this year. “More importantly, it also shows that our

industry will contribute significantly to a low carbon transportation

sector and the new green economy.”

ECONOMY, TECHNOLOGY NOT HOLDING BACK PRODUCTION

Representatives from ethanol-related companies and enzyme businesses

were asked to identify the most important constraint holding back the

development of cellulosic ethanol during a panel discussion at the Fuel

Ethanol Workshop. Interestingly, no one mentioned technology or the

national recession as constraints to cellulosic ethanol.

Several responded that consistent federal policy was needed, mentioning

the lack of a national renewable energy policy in the United States.

Federal programs supporting biofuels production typically have to be

reauthorized frequently because of pending sunset clauses. Many policy

provisions, such as management of renewable identification numbers,

grants and blend levels, often also have not been defined or are highly

variable.

POET officials said the most important

constraint is the blend wall, abdicating for the ethanol industry to be

allowed access to another 5 percent of the fuel market through higher

ethanol blends like E15. Without that additional market, both the

grain-based and cellulosic ethanol industries would face a serious

pending oversupply situation, according to ethanol experts. Ethanol

companies advocate more rapid installation of blender pumps and more

progressive federal regulation that permits higher ethanol blend rates

in excess of the current 10 percent level.

Some

ethanol-related companies also say that current economic conditions are

constraining the commercialization of their processes.

LONG-TERM SURVIVAL WILL REQUIRE SELF SUFFICIENCY

For the industry to survive long term, some industry insiders believe

it cannot continue to depend on variable federal subsidies, grants and

other favorable policies that mandate increased renewable energy use.

Others argue that the playing field should be leveled, pointing out

that the oil industry, which ethanol is competing against, is one of

the most heavily-subsidized industry in U.S. history.

While providing important support to the industry during its

developmental phase, others argue that ethanol subsidies may actually

prove to be detrimental to the industry in the long run. The industry’s

goal is to develop independent systems that are economical without

governmental assistance.

Last year as the crisis in U.S.

financial markets unfolded, businesses across the country complained

that debt capital had dried up and was virtually unattainable.

Surprisingly, cellulosic ethanol projects have been able to secure

reasonable levels of financial capital. Most panel members at the

workshop mentioned new investments and the growth of their firms in the

last year.

The long-term future of cellulosic ethanol is

not yet clear, but the moving target of when large-scale production and

commercialization will occur at least appears to be on the horizon.

Gustafson

is a professor and biofuels economist in North Dakota State

University’s Department of Agribusiness and Applied Economics and is

co-director of NDSU’s Bioenergy and Product Innovation Center. He can

be reached at cole.gustafson@ndsu.edu.

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