Poet Biofuels: Charting the Future of Ethanol?

From its start on the family farm with a single farm-scale ethanol facility to dozens of multi-million gallon per year biorefineries dotting the Midwest countryside, POET LLC of Sioux Falls, South Dakota, is now the world's largest biofuels producer.

Today at theEnergyCollective.com I've posted an exclusive podcast interview with Nathan Schock, director of public relations for Poet. We discuss biofuels, the company's plans for a next-generation cellulosic ethanol biorefinery, and the future of the ethanol industry.

Head over to theEnergyCollective.com to listen to the full podcast interview and find out more about Poet's cellulosic ethanol plans, hear Schock defend the current excise tax credit for corn ethanol (which theEnergyCollective.com contributor Robert Rapier has argued is now a big waste of taxpayer dollars), and a discussion of the most important policy steps Washington can take to help innovative firms like Poet make commercial cellulosic ethanol production a reality.

Give it a listen.

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Graphic of the Day, Sept 23rd, 2009

Click to enlarge

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Keeping Up the Power Shift: Senate Set to Take Second Stab at Energy Bill

Bits and pieces of information are coming in today indicating that the Senate is gearing up to take a second stab at passing an energy bill later this week.

After failing to pass the full energy bill passed by the House last week, Senate leaders negotiated over the weekend to seek a compromise that would net the bill the crucial 60 votes to overcome a Republican-led filibuster threat.

It appears they are nearing that compromise and a second attempt to end debate and pass the bill is scheduled for Thursday, December 13th. If it passes the Senate, the bill will return to the House for passage on Friday before heading to President Bush's desk. Whether or not the President will veto a bill expected to save Americans billions at the pump and on their utilities bills at a time of record high gas prices remains to be seen...

Word has it that the renewable energy standard has been dropped from the bill and that the bill will include a stripped down package of tax incentives for renewable energy. The final makeup of that tax package is still under negotiation and details are sparse, although it is expected to include a two-year extension of critical credits for renewable energy generation, enough to get us into a new President's term and a new Congress.

Clearly losing the renewable energy standard, which would have required large utilities to acquire 15% of their electricity from renewable sources by 2020, is a major disappointment (although Reid has pledged to try to pass it as a stand-alone bill in 2008).

The fact that the Senate has had such difficulty passing an energy bill with strong support for clean, domestic renewable energy is a clear sign that we've got a lot of work ahead of us to keep up the Power Shift! We need to work hard to ensure that political realities change over the next year to closely match what real reality demands of Congress!

However, it still looks like an energy bill well worth passing is heading for a vote tomorrow and it's time again to get on the phone and urge your Senators to get the job done and pass a clean energy bill!

The bill heading for a vote is expected to include:

• The first increase in fuel economy standards in 30 years, up to 35 miles per gallon by 2020. These provisions will save American families $700 - $1000 per year at the pump, with $22 billion in net consumer savings in 2020 alone.


• The best energy efficiency standards in U.S. history, including new efficiency standards for lighting, appliances and boilers and incentives for home weatherization and industrial energy efficiency. The bill also directs the federal government to be a leader in energy efficiency with cutting-edge, efficient building practices and lighting in all federal buildings.


• A "Green Jobs" provision that creates an Energy Efficiency and Renewable Energy Worker Training Program to train a quality workforce for “green” collar jobs -- such as solar panel manufacturer and green building construction worker -- created by federal renewable energy and energy efficiency initiatives. This program will provide training opportunities to our veterans, to those displaced by national energy and environmental policy and economic globalization, to individuals seeking pathways out of poverty, to at risk youth and to those workers in the energy field needing to update their skills.


• A biofuels standard that requires 36 billion gallons of renewable fuels by 2022, including at least 21 billion gallons that come from advanced biofuels that do not rely on corn or other edible feedstocks. While the expansion of corn-based ethanol raises environmental, economic and justice concerns, advanced biofuels using inedible biomass or even algae could displace significant amounts of oil and help decrease greenhouse gas emissions from transportation.


• Some clean energy tax package. The House version of the bill included $21 billion in tax incentives for renewable energy, energy efficiency and plug-in hybrid vehicles, financed in part by reinvesting $13.5 billion in unnecessary tax subsidies for Big Oil in the clean energy technologies of the future. The final Senate version will likely include a smaller tax package but should retain critical renewable energy tax incentives that will ensure the industry can continue to grow, providing more and more clean, domestic renewable energy for America.

So call your Senators today and urge them to finish the job and pass a clean energy bill tomorrow! The future prosperity of this country depends on the success of the clean, domestic energy technologies of the 21st Century, and this bill is a critical first step towards unlocking a clean energy revolution.

You should feel free to let your Senators know you were disappointed that they couldn't pass the House version of the energy bill, but tell them you expect them to still pass a strong bill tomorrow, including critical tax incentives for renewable energy generation.

So what are you waiting for? Get on the phone...

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Before We Get Drunk on Ethanol, Let's Make Sure We Get It Right

Not all biofuels are created equal: in fact, depending on how they are produced, biofuels like ethanol and biodiesel can be environmentally destructive, raise the price of food, and even hurt efforts to tackle global warming.

Biofuels - ethanol and biodiesel - present a potentially important (partial) solution to concerns about global warming and our over-reliance on oil. However, to paraphrase a great LA Times op ed on the ethanol craze, alcohol is best enjoyed in moderation, and the same goes for these alcohol-based biofuels.

So before we all get drunk on ethanol, we'd better take a close look at the benefits and potential drawbacks of biofuels and make sure we get it right.


The Benefits - In Pursuit of Energy Independence and a Safe Climate

Biofuels offer the potential to displace foreign oil and depleting fossil fuels with a more sustainable and domestic fuel while reducing greenhouse gas emissions.

Still, depending on how they are produced, ethanol and biodiesel require considerable fossil fuel inputs - diesel for tractors, natural gas for fertilizers, fuel to transport the feedstocks, and typically fossil fuels to produce the biofuels at a biorefinery. So while the biofuel itself may be made from renewable crops and contains only carbon that was absorbed from the atmosphere during the growth of the plants, the total net benefit of biofuels after taking into account inputs is far from carbon neutral nor fossil fuel free.

Exactly how much net benefit there is to biofuels depends largely on the production methods and feedstocks and has been the subject of much debate. While some have repeatedly made the case that conventional biofuels - corn-based ethanol and soy or rapeseed-based biodiesel - take even more fossil fuels to produce than the offset, the consensus has been that conventional biofuels offer a moderate reduction in fossil energy use and greenhouse gas emissions - on the order of a 10-30% reduction when compared to conventional petroleum-based gasoline and diesel.

Next-generation biofuels produced from cellulosic feedstocks - a fancy term for a wide variety of generally inedible plant matter including wood, straw, and grasses as well as agricultural wastes like corn stalks and rice hulls - are an exciting prospect and could maximize the potential for biofuels to offset oil and fossil fuel use and greenhouse gas emissions.

Making ethanol or biodiesel from cellulosic feedstocks can be a much more energy efficient process than conventional corn or soy-based biofuels, can be made from inedible crops and even agriculture, forestry, or urban waste materials.

However, next-generation, cellulosic biofuels are currently in the early stages of commercialization. The first pilot and commercial scale cellulosic biofuel refineries are under construction or on the drawing boards these days and how long it will take to fully scale up and commercialize the emerging biofuel technology remains to be seen.


Up in Smoke - How Slash and Burn Agriculture Wipes Out the Climate Benefits of Biofuels

Land use changes - most notably the loss of tropical forests - account for about 20 percent of total global greenhouse gas emissions - roughly the same as both the total annual emissions from the United States or China.

That's right: slash and burn agriculture can be just as large a threat to the climate as China's rampantly growing economy or the hundreds of millions of cars plying American highways!

So if we're going to start replacing oil with biofuels, we'd better not be trading one problem - rampant oil consumption - for another equally devastating problem - accelerating the conversion of tropical rainforests into farm and grazing lands.

Unfortunately, that's exactly what we're beginning to see, with massive swaths of tropical forests, savannas and grasslands - all productive carbon 'sinks' - being slahed, burned and replaced by biofuels plantations. Massive expansions of palm oil plantations in Malaysia and Indonesia, soy and sugar plantations in Brazil, and jatropha plantations in China's forested Southeast have all been proposed to feed the growing global demand for biofuels.

Slashing massive swaths of forests to clear the way for biofuel plantations clearly amounts to a devastating ecological loss. These tropical and semi-tropical forests are some of the most biologically-diverse habitats in the world and have already been devastated by traditional timber and agricultural demands. It's no wonder the Worldwatch Institute has called China's biofuels expansion "an ecological disaster," and the same can be said for similar biofuel expansion plans across the world.

But even beyond the massive loss of biodiversity and habitat when forests are converted to biofuel plantations, the destruction of these forestlands also wipes out any global warming benefits of biofuels.

According to a new study published in Science last week ($ub req., see this New Scientist summary) the climate benefits of ethanol and biodiesel are completely wiped out by tropical deforestation.

When you destroy forestlands, grasslands, savannas and other wilderness, much of the carbon stored in the ecosystem's living matter ends up in the atmosphere - burned, decomposed or otherwise oxidized. Additionally, forestlands represent an important carbon sink, 'breathing' carbon dioxide out of the atmosphere and storing it as trees and other plants grow.

The loss of these important natural carbon 'scrubbers' more than makes up for the moderate reductions in greenhouse gas emissions from burning biofuels instead of gasoline or diesel: according to the study, it would take up to a century for the benefits of biofuels to recoup the initial loss of the tropical forestland and the emissions associated with slashing and burning the land to make way for biofuel plantations!

"We cannot afford that, in terms of climate change," says Renton Righelato, co-author of the new study.

Furthermore, the study concludes that the climate benefits of biofuels are trumped by reforestation efforts, even in temperate climates. "You get far more carbon sequestered by planting forests than you avoid emissions by producing biofuels on the same land," says Righelato.

The study's authors found that reforestation would store and sequester between two and nine times as much carbon over 30 years than would be saved by burning biofuels produced on the same amount of land instead of gasoline (see bar chart below).

[Graphic: the carbon savings from burning biofuels instead of gasoline (top six bars) compared to the carbon emissions resulting from clearing tropical forestland for biofuel plantations (red bar) and the carbon savings from reforestation efforts (bottom three bars). Figures are expressed as metric tons of carbon equivalent saved or emitted per acre devoted to biofuel production or reforestation. (Source: New Scientist)]


No Free Lunch When Fuel Competes with Food

We all know the old adage: there's no such thing as a free lunch. Well, when fuel competes with food, everyone's lunch gets more expensive (as the LA Times accurately observes).

The vast bulk of global biofuels production utilizes edible feedstocks like corn and soy. As demand for corn to make ethanol has soared, corn prices have shot up, nearly doubling in the past year. Record high prices are encouraging a record acreage of corn planted in the United States - the highest in 63 years - and prices for other foods are on the rise as farmers plant corn in acreage they have otherwise planted wheat or soy.

Prices for all kinds of food have soared in the first half of 2007 (see chart below) and the LA Times op ed reports that grocery-store food prices rose 8%. It's unknown how much of that hike is attributable to corn, and rising fuel and fertilizer costs are certainly a major factor in rising food prices, but soaring demand for corn for ethanol production is certainly playing a significant role as well.

[Graphic: Food prices on the rise in 2007. (Source: McClatchy Newspapers)]

Middle class Americans may be able to shrug off higher prices at the grocery store, but increasing food costs hit lower income folks harder.

And if low-income Americans are feeling the crunch, things are even harder in the developing world. When you get buy on just a few dollars a day, doubling corn prices are no small matter. Rising corn prices have already launched public outcry and even riots in Mexico, which depends on imported American corn for tortillas and other affordable, nutritious stables.

Producing biofuels from inedible cellulosic feedstocks could provide a solution to this fuel-or-food dilemma, although producing energy crops like switchgrass - an excellent biofuel feedstock and native North American grass that once dominated much of the Great Plains - on limited agricultural land could continue the competition between biofuels and foodstuffs.


Clean Green Fuels? - Other Environmental Effects

Industrial farming to produce biofuel feedstocks, particularly corn, consumes large amounts of water and chemical fertilizers, herbicides and pesticides. Many of these chemicals seep into waterways, polluting the water and providing nutrients for algae blooms that suck up all the oxygen and kill everything else. A 'dead zone' the size of Connecticut and Delaware put together has repeatedly formed in the Gulf of Mexico, caused by algae gorging on chemical fertilizers carried into the Gulf by the Mississippi river.

Additionally, farmers ordinarily rotate crops annually to avoid soil exhaustion, but high corn prices encourage them to plant corn in the same fields year after year. This high-intensity farming accelerates the loss of topsoil and depletes soil nutrients and the only way to make this work is to pour on more fertilizers, further exacerbating problems.

Finally, while ethanol may be "cleaner burning" when it comes to many pollutants and is a better fuel additive or "oxygenate" than toxic MTBE, burning ethanol in high concentrations could increase certain air pollutants. A recent Stanford University study argued that E85 - a blend of 85% ethanol and 15% gasoline - produces so much ozone, a key ingredient in smog, that if it were used in Los Angeles instead of gasoline, it would raise ozone-related deaths 9%.


Don't Throw the Baby Out With the Bathwater - If We're Smart, Biofuels Still Have a Role to Play

Given all of these concerns about increased use of ethanol and biodiesel, should we just bag the whole idea and move on to something else? No, I would argue.

When it comes to confronting the climate crisis and ending our oil addiction - two massive problems - we're going to need all the tools we can get. Biofuels, if done right, still have an important role to play in reducing our reliance on oil and our contribution to global climate change.

I present the above concerns about biofuels because understanding the potential pitfalls, problems and limitations of biofuels - both conventional and next-generation - will be crucial to developing the standards that are necessary to ensure that biofuels can help make a dent in our oil addiction and help solve the climate crisis without exacerbating other environmental problems.

We should focus on developing cellulosic biofuels that rely on readily available cellulosic biomass in existing waste streams - timber slash and mill residues, urban wood wastes, agricultural residues, etc.

These feedstocks offer the least environmental impacts, do not compete with food crops, and according to this study (pdf) are available in large enough quantities to be worth pursuing - roughly 3/4 of a billion dry tons each year, or enough to produce around 75 billion gallons of ethanol or biodiesel if estimated yields from next-generation biorefineries prove correct.

That is enough biofuel to provide about 1/3rd of all the energy consumed by cars and light trucks in the United States.

Additionally, unlike producing ethanol from corn, which typically requires large amounts of coal or natural gas, converting cellulosic biomass to biofuels requires little or no fossil fuel inputs. In fact, cellulosic biorefineries should be able to utilize the lignin portion of the biomass left over after the cellulose is removed to produce all of the energy inputs for the refinery process and even produce electricity for export (potentially offsetting electricity from coal or natural gas).


Getting on the Right Path - Time for a New U.S. Biofuels Strategy

To be done right:

Biofuels should not come from edible feedstocks, including corn, soy or wheat.

Biofuels should preferably be produced from readily-available, existing waste streams of cellulosic biomass.

If produced from an energy crop, sustainable harvesting practices should be employed, the crops should be grown on existing farmland and should be planted as part of a regular, sustainable crop rotation so as to not compete with foodstuffs.

The full, lifecycle greenhouse gas emissions of all biofuels should be considered, including (and especially) emissions from land use changes. Under no circumstances should a biofuel feedstock be utilized that results in the clearing of rainforest or other wilderness areas or results in a net increase in greenhouse gas emissions.

Employing these kinds of standards in our public policy would necessitate a dramatic shift away from heavily supporting corn-based ethanol and soy-based biodiesel.

It would necessitate the creation of environmental sustainability standards for the U.S. biofuels industry and would imply a ban on imported biofuels from countries that do not adopt satisfactory sustainability standards on their own domestic biofuels industries.

It would require a focus on commercializing next-generation cellulosic biofuel technologies and exploring the most sustainable feedstock sources and harvesting/collection methods.

So, given all of the concerns about biofuels, why aren't any of our elected officials calling for a change in direction for the U.S. biofuels industry? Why do we continue to subsidize the corn ethanol industry to the tune of several billion dollars a year? Why do all of the presidential candidates pay at least lip service to corn ethanol, even those like Hillary Clinton and John McCain that have been openly critical of corn ethanol in the past?

Well, the political power of agri-giants like ADM and Cargill and the importance of corn-growing Iowa in presidential elections are certainly standing in the way of a sensible biofuels policy. It's hard to find another explanation for an energy policy that is so clearly designed to do little to actually solve any of the problems it's supposed to solve while so clearly benefiting narrow but politically powerful special interests.

The latest Senate energy bill continues this trend with a massive 36 billion gallon/year by 2022 biofuels requirement, 40% of which will likely come from good old corn-based ethanol, necessitating a quadrupling in the U.S. corn ethanol industry! (To be fair, the bill does require that 60% of the standard is met with next generation biofuels...)

It's time for a change in American energy policy when it comes to biofuels. It's time to actually have an energy policy when it comes to biofuels, and not a massive agricultural subsidy program disguised as an energy policy.

Let's heed the warnings of climate scientists, ecologists and rioting Mexican peasants: the path we're on right now means biofuels exacerbate the climate crisis, amount to an environmental disaster, and drive up prices for food around the world.

But there's another path, a path where sustainably-harvested, next-generation biofuels coupled with a dramatic increase in fuel efficiency and the adoption of plug-in hybrid electric vehicles makes gasoline a thing of the past.

It's time to get ourselves on the right path.

[A hat tip to Glenn Hurowitz at Gristmill]

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An Interview with Docter James Hansen

[It's Getting Hot In Here has a great interview with Dr. James Hansen, widely regarded as America's top climate scientist. Dr. Hansen discusses a moratorium on coal-fired power plants, the role of 'clean coal' technology, and youth participation in the climate solutions movement. Special thanks to Whit Jones and the It's Getting Hot In Here community for putting together this interview...]

Last weekend Iowa native Dr. James Hansen of NASA’s Goddard Institute made a homecoming trip to the Hawkeye state to join the March to ReEnergize Iowa and deliver the keynote address at the final rally. See the complete transcript of his speech here and read about the rally in the Des Moines Register.

Dr. Hansen echoed his call for a moratorium on coal and increased youth participation in the preservation of our future. The It’s Getting Hot In Here community generated a list of questions that were delivered to Dr. Hansen and his responses are included below. Please be sure to leave your thoughts and responses in the comments section.

1) In the span of your career, public opinion on global warming has shifted dramatically, have we reached the tipping point necessary to effectively combat it?

That is unclear. Although there has been a recent widespread increase in awareness, it comes at just the same time as an energy crunch due to a booming global economy (especially emergence of China) that is causing a sudden surge of increased coal use. If this is not nipped in the bud, we could lose the ball game.

2) In one of your recent email dispatches (pdf), you made a bold statement by calling for a moratorium on coal without carbon capture and sequestration (CCS) technology. Does the attention and recognition paid to CCS technology divert money and energy from clean energy and efficiency technologies?

It certainly should not. CCS technology is still somewhat of a mirage. As of yet there is no “clean coal” in reality, and commercial availability is probably at least 10 years away with current efforts. If a requirement is placed that coal can only be used if it is truly clean, that will cause a sudden stop in any increased use of coal. Efficiency and renewable energies are likely to be the big winners from such a constraint, at least for a decade and perhaps forever. CCS may be so expensive that it will cause a big change in the attractiveness of coal. Coal is presently very cheap, partly because it is often subsidized and because it almost never has to pay for the environmental damage it does, including mercury pollution of lakes and oceans.

3) What role do you see for youth in bringing forth a moratorium on coal?

The damages of dirty coal will be visited mainly on the youth of today and on the unborn. This is true especially for the climate changes that will be put “into the pipeline” to appear in future decades, but also for effects of water pollution such as brain damage due to mercury in fish, and the mess that is left behind on bull-dozed mountains.

4) What was the major issue on campuses when you were a student? Were you involved?

The Vietnam war. I was a post-doc by the time students really got heated up. They took over buildings on the Columbia University campus. No, I was not involved. It doesn’t fit my personality, I prefer working on science problems. I have had to force myself to get involved in the present case. It seems to me that the most useful thing that I can do is try to contribute to the court cases against inefficient vehicles and coal-fired power plants.

5) If we remove subsidies from carbon-intensive energy sources and manage to put a price on carbon, won’t CCS coal be priced out of the market?

Perhaps, but only if there are alternatives, much of which would probably be energy efficiency. Much more than half of the energy that we use is wasted. So if coal is priced out, that would be great. Imagine the cleaner atmosphere and ocean, and all the good high tech jobs that would be needed to replace that energy source. There are a lot of jobs associated with energy efficiency, as well as renewable energies.

6) Do you think CCS Coal technology will be essential for a low-carbon future for countries like China? Is it problematic, practically, ethically and scientifically, to transfer this technology to China when it is basically untested here?

It will surely be tested here and elsewhere. It can be tested there, as well as here. It is not like this is a dangerous technology that is going to explode and kill people.

7) In light of the fact that the impacts of fossil fuel use extend beyond the greenhouse effect, to what extent should we address the life cycle costs, such as mountain top removal mining and exploitation of impacted communities when confronting global warming?

Absolutely, it is very important to look at the life cycle costs, especially for things such as ethanol. Germany is finding that the huge subsidies they gave coal are now coming back to haunt them. Some villages are sinking a few feet — there are tens of billions of dollars of future costs due to land subsidence. These costs will be born by today’s youth, and the unborn.

8) Traditional media has failed to reach youth with the message that fighting coal is necessary to preserve our future, what do you think is the role for new media.

Well, one problem is that the media always focuses on today. It shortchanges the young and future generations. I don’t know how to fix that.

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Senate Passes Energy Bill But End Product is Far From Comprehensive

Energy bill passes Senate with renewable fuels standard and fuel economy provisions but lacks important tax provisions and a renewable energy standard.

In what can at best be considered a partial victory for clean energy advocates and the Democratic leadership, the Senate passed a stripped down energy package last Thursday night. Shortly before midnight, the Senate voted 62-32 to end debate on the bill, HR 6, and then quickly passed the bill with a 65-27 vote.

While a compromise was reached that preserved a 35 miles per gallon (mpg) by 2020 increase in fuel economy standards, the first major increase in fuel economy standards in two decades, the final energy bill was far from the 'comprehensive' energy package Senate leaders had originally promised.

The bill ultimately excluded an important tax package that would have shifted $32 billion in tax incentives from the oil and gas industry to support alternative and renewable energy and energy efficiency. It also left out a renewable energy standard requiring electric utilities to obtain at least 15% of their electricity from renewable energy sources (see previous post).

In a parliamentary maneuver to block more controversial proposals, Senate Republicans required cloture votes on nearly every amendment offered to the energy package as well as on the final vote to approve the bill itself, meaning that any amendment needed 60 votes to pass (enough to block a threatened filibuster).

Thus, while both the tax package and the renewable energy standard had support from a majority of senators, both provisions were left out of the final bill.

“Republicans continue to pander to the big oil and energy companies,” Senate Majority Leader Harry Reid (D-NV) complained after conceding defeat on those issues. “Republicans repeatedly demonstrate that they do not care about the priorities of the American people, throwing up roadblocks at every turn instead of working with us...”

The tax provision (Amendment 1704) fell just three votes shy of the 60 needed to reach cloture (it failed 57-36).

An amendment offered by Senator Jeff Bingaman (D-NM) that would have created a nationwide renewable energy standard for electric utilities never received an up or down vote, although all indications are that it was also just a few votes shy of 60 and was supported by a majority of senators.

Bingaman had circulated a compromise energy standard proposal (pdf) on Wednesday seeking to shore up support for the standard, but Republicans blocked this compromise as well. The revised energy standard amendment would have moved the 15% renewable energy target back two years to 2022 and would have given individual states the option of allowing their utilities to meet up to 4% of the standard with energy efficiency investments rather than renewable energy generation (making it a 4% energy efficiency and 11% renewable energy standard by 2022).

Debate over the national renewable energy standard will now shift to the House where debate on a 20% by 2020 standard is expected. A resurrected Senate proposal could also be attached to future energy legislation later this session and both Senator Bingaman and Senator Reid have pledged to continue pushing for a national renewable energy standard this session.

Despite these disappointments environmentalists [and anyone concerned about climate change!] scored a victory by keeping support for coal-to-liquids (CTL) synthetic fuel production out of the final energy bill. Two competing CTL amendments failed on Tuesday (see previous post), and the final bill moved without any tax incentives or fuel standards for CTL fuel.

Environmentalists and several progressive grassroots groups have been pushing hard to keep CTL out of the bill (see previous post), arguing that CTL fuels will exacerbate global warming pollution and involves expanded strip mining and mountain top removal, environmentally destructive practices used to mine coal.

First Fuel Economy Standard Improvement in Decades; Closes "SUV Loophole"

The most notable provision in the final energy bill is a first major revision to corporate average fuel economy (CAFE) requiring automakers to increase the average fuel economy of their vehicles to 35 mpg by 2020.

The new standards would for the first time establish a single fleet-wide fuel economy standard applicable to both cars and light trucks and SUVs, closing the so-called 'SUV loophole' that sets separate, lower standards for SUVs and light trucks.

Cars are currently required to average 27.5 mpg and SUVs and light trucks - which now account for roughly half of all new vehicle sales - are required to average only 22.2 mpg. Fleet-wide average fuel economy requirements are therefore roughly 25 mpg. The new standards would require an overall fleet-wide average - including both cars and light trucks - of 35 mpg by 2020, an increase of roughly 10 mpg in 10 years.

The minimum fuel efficiency requirement would vary for different classes of vehicles based on vehicle weight and size, but all vehicle classes would be required to increase their fuel economy by 10 mpg over today's levels by 2020 and manufacturers would be required to meet an overall fleet-wide average of 35 mpg.

The vehicle classes will be established by the Department of Transportation’s National Highway and Transportation Safety Administration (NHTSA).

Creating several new attribute-based vehicle classes should also help end the 'buy a hybrid, save a hummer' syndrome (see previous post). Currently, with only two vehicle classes - one for cars and one for light trucks - purchasing efficient vehicles on the leading edge of a vehicle class - a hybrid Toyota Prius or Ford Escape for example - essentially amounts to a 'free pass' for auto manufacturers to crank out more gas guzzling SUVs and luxury sedans at the trailing edge of a vehicle class. Creating several separate vehicle classes will help end this counterproductive scenario.

The new fuel economy standards apply to all light duty vehicles up to 10,000 pounds in weight and applies to model years 2011 and beyond.

The original fuel standard proposal had called for a 4% annual increase in fuel economy standards for each year after 2020. This requirement was dropped in a bi-partisan compromise aimed at shoring up support for the 35 mpg standard in the face of a much weaker automaker-backed proposal offered by Michigan Senators Levin and Stabenow. Car manufacturers had lobbied ferociously to fight the 35 mpg standard and backed the weaker Levin-Stabenow proposal which would have created a 30 mpg by 2022 standard and kept the separate standards for cars and light trucks.

The bill now says that from 2021 to 2030, NHTSA must set fuel economy standards that are "the maximum feasible" and ratchet these standards up at a reasonable rate, without specifying a specific rate.

Finally, while not specifying a particular efficiency standard, the energy bill directs NHTSA to develop and require improvements in the fuel economy of medium and heavy duty vehicles over a 20 year period as well.

Environmental groups and Democratic Senators, though disappointed by the setbacks on renewable energy, nevertheless hailed the vote on higher mileage requirements as a long-sought victory that could eventually reduce American gasoline consumption by more than 1 million gallons of gasoline a day and cut greenhouse gas emissions from the transportation sector.

“We are thrilled,” said Kevin Curtis, a lobbyist for the Pew Campaign for Fuel Efficiency. “This is the first time in decades that the Senate has passed a significant increase in fuel economy standards.”

“Today, the Senate roundly rejected the automobile industry’s scare tactics,” said Michelle Robinson, director of the Union of Concerned Scientists’ clean vehicle program.

A Biofuels Bananza - Energy Bill Includes 36 Billion Gallon Renewable Fuels Standard

In addition to increasing fuel economy standards, the energy bill calls for dramatic expansion in the use of renewable fuels including ethanol and biodiesel.

The energy bill establishes a renewable fuels standard of 36 billion gallons per year by 2022. The standard includes a requirement for advanced biofuels, which does not include ethanol derived from corn starch, to meet 60% of the total renewable fuel requirement by 2022.

However, without the tax package that would have provided tax breaks and subsidies to support the development of renewable fuels infrastructure, the bill is missing the package of financial incentives intended to support this renewable fuels standard.

The final energy bill includes an amendment offered by Senator Bingaman and passed on Wednesday that contains a number of provisions to make sure biofuel production would remain environmentally sensible. These provisions call for studies on environmental impacts of biofuels and include a requirement that advanced ("next generation") biofuels have "life cycle" global warming emissions at least 50 percent less than that of conventional gasoline.

The biofuels standard received major support from lawmakers from farm states, which already benefit from government supports for corn-based ethanol and stand to gain even more by expanded support for both conventional and advanced biofuels such as cellulosic ethanol made from agricultural residues like corn stover or dedicated energy crops like switchgrass.

Farm state Senators, many of them Republicans, also lobbied hard with their colleagues to drop their opposition for the tax package which would have expanded tax incentives for biofuels as well as wind power development, much of which is centered in mid-West and Western states.

“We’re taxing the oil industry to get a renewable energy industry started,” Senator Charles E. Grassley of Iowa, the ranking Republican on the Senate Finance Committee, said on the Senator floor. “I hope you’ll understand that God only made so much fossil fuel and that there’s got to be a follow-on if we’re going to have growth in our economy.”

Other Energy Provisions

The energy package passed by the Senate includes the following other provisions:

Calls for a new a consumer labeling program that includes greenhouse gas emissions along with fuel economy ratings.

Calls for ensuring that 50% of vehicles sold in the US are alternative fuel vehicles by 2015, including but not limited to flex-fuel vehicles, hybrids, electric vehicles, fuel cells and others.

Anti-price-gouging provisions that unlawful to charge an "unconscionably excessive" price for oil products during a time of designated national emergency.

A controversial provision known as "NOPEC" that makes it illegal for foreign governments to engage in oil or gas price cartels - e.g. OPEC - and allows the Attorney General to bring foreign governments to court for violations. (This provision is largely symbolic but is nonetheless controversial and may invoke a veto from President Bush who warns it will harm relations with Middle Eastern states).

New appliance and lighting efficiency standards.

A requirement that the federal government purchase at least 15% of its electricity from renewable energy sources by 2020 and accelerate the use of more efficient lighting in public buildings.

Establishes a public program and funds other initiatives that provide training for jobs that are created through renewable energy and energy efficiency initiatives with authorized funding of $100 million per fiscal year.

Electric-Drive Transportation Program to promote the development of plug-in electric vehicles, deploying near-term programs to electrify the transportation sector, and including electric drive vehicles in the fleet purchasing programs.

Gives the U.S. Secretary of Energy authority to establish 'national interest transmission corridors' for clean energy; expands the “federal backstop” transmission siting role given to the Department of Energy and the Federal Energy Regulatory Commission in the Energy Policy Act of 2005.

Directs the Executive Branch to develop and publish a plan to reduce oil consumption by 2.5 million barrels per day by 2017, 7 million barrels per day by 2026 and 10 million barrels per day by 2031.

Green Car Congress has a full list of the literally hundred plus amendments offered to the energy package in the Senate including the results of any votes on these amendments.

Debate Moves to House; Bush Veto Possible

The energy package now awaits action by the House which is expected to begin debating energy legislation next week. However, after facing a storm of criticism and division within their own caucus, House Democratic leaders agreed on Monday to drop the most controversial issues from this summer's energy bill debate, including CAFE standards, support for coal-to-liquids fuel and perhaps the national renewable energy standard as well.

In a memo circulated among Energy and Commerce Committee members on Monday, Chairman John Dingell (D-MI) wrote that several issues floated by the committee in a draft earlier this month need more consideration, according to Energy and Environment Daily (subscription required).

"These issues are important, and we are committed to addressing them and others when we take up comprehensive climate change legislation in the fall," Dingell wrote. "This will also give us the needed time to achieve consensus on these issues if at all possible."

Translation: Congressman Dingell has apparently decided to effectively punt until later in the year the entire fuels title, which contained an alternative fuels mandate, a low-carbon fuel standard, a boost in corporate average fuel economy (CAFE) standards and coal-to-liquids provisions.

According to E&D Daily:

The move comes after two weeks of closed-door negotiations among senior Democrats, some of whom vigorously objected to the proposed language. In particular, many Democrats -- among them Speaker Nancy Pelosi (D-Calif.) -- said they would not support a bill that contained language the would block California and other states from setting their own GHG emissions rules for motor vehicles.

The controversy on this and other issues forced the committee to postpone a markup of Dingell's draft legislation, and Pelosi and Dingell had been meeting over the last few days in an effort to hash out a compromise.

According to Dingell's memo, Pelosi has signed off on the deal and thinks the pact could pave the way for smoother passage of a summer energy package.

It therefore looks like both the Senate and House energy bills will be missing important clean energy provisions with the House measure likely to include some provisions absent from the Senate version - most notably a package of clean energy tax incentives - and vice versa - the Senate bill includes CAFE standards and a renewable fuels standard. This will leave a lot of details up to conference committee later this year which will be tasked with syncing up the House and Senate energy packages.

And to add further uncertainty to the mix, a presidential veto is still a real possibility, depending on what provisions are present whatever energy package finally passes Congress. President Bush has said that while he supports the biofuels standard, he is unhappy with much of the Senate proposal, particularly the CAFE standards, the anti-price gouging provisions and the "NOPEC" amendment.

According to an Oregonian/AP article:

The White House said the president would be urged to veto an energy bill that includes the price-gouging measures, arguing that they amount to price controls. The president also repeatedly has said he opposes Congress mandating a specific mileage number for auto fuel economy. Bush believes the Transportation Department should be given increased flexibility to set a standard.

The future of the energy package is thus still largely uncertain. Stay tuned...

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Eye On China: China May Ban Ethanol Production From Foodcrops, Halt Coal-to-Liquids Projects

Chinese officials indicate that China may turn away from corn-based ethanol and coal-to-liquids synthetic fuels over concerns about the sustainability of these alternative fuels

China may halt the production of grain-based ethanol and coal-to-liquids synthetic fuels, a Chinese official told a seminar on China's fuel ethanol development held in Beijing last weekend.

The official, a deputy director with China's National Development and Reform Commission (NDRC), the nation's top economic planning agency, told seminar attendees that the country no longer approve any ethanol projects designed to produce fuel from edible feedstocks, including corn.

Xu Dingming, vice director of the Office of the National Energy Leading Group, echoed these comments saying, "Food-based ethanol fuel will not be the direction for China." The Office of the National Energy Leading Group is responsible for energy planning and is an office of the NDRC.

China may also "put an end to projects which are designed to produce petroleum by liquefying coal," the official Xinhua News Agency said, citing the NDRC official who spoke on condition of anonymity.

The State Council, China's cabinet, also recently approved, at least in principle, a 'long-term renewable energy development plan,' a Forbes.com article reports. The development plan calls for restrictions on developing the corn-based ethanol and coal-to-liquids fuels due to their environmental impact, the paper said.

It was not immediately clear when the plan would be formally approved.

China's rapidly increasing oil demand and lack of domestic oil resources has led the country to turn to alternative fuels, including corn ethanol and coal-to-liquids synthetic fuels. The Chinese government said earlier it would invest more in developing alternative energy resources including biomass fuel and liquefied coal to substitute petroleum during the 11th Five-Year Program (2006-2010) period, amid concerns over the country's growing dependence on petroleum, Xinhua reports.

This apparent change of course, motivated by concerns about the environmental sustainability of these alternative fuels, may indicate a shift in thinking for the industrializing nation.

"The rapid development of grain-based ethanol biofuels has resulted in commodity price pressures in non-developed nations," the development report said.

China's grain stores should be focused on feeding its 1.3 billion people and crop lands should be reserved for food production, not energy production, the report said.

The renewable energy plan would restrict China's ethanol industry to producing fuel from non-grain sources, such as grasses, corn stalks or other plant by-products.

The development plan also calls for China to restrict its fledgling coal-to-liquids industry due to the high capital investment needs and its high demand for water and energy during the production process.

It seems that concerns about water and food shortages may be beginning to trump concerns about energy supplies as China's massive population and rapid economic growth strain available resources.

China produced 1.54 million tons of ethanol in 2006, of which 850,000 tons were made from corn, Forbes reports. Ethanol production, which currently occurs at four large ethanol plants, consumed about two percent of Chinas total corn production in 2006.

Coal liquidification, or coal-to-liquids technology, is a process which turns coal into liquid gasoline, diesel or other fuels (such as dimethyl ether). Coal-to-liquids fuel production produces large amounts of carbon dioxide emissions as well as sulphur dioxide, lead and mercury pollution. It also consumes large amounts of water to produce steam used in the liquedification process.


If China is indeed moving away from corn-based ethanol and coal-to-liquids fuels, they may be wiser than us here in the United States.

China's massive population and rapid economic development have put it between a rock and a hard place.

The Chinese government wants to continue to grow the economy, but the country has come face to face with significant resource constraints - including water, food, energy and raw materials - as well as a rapidly deteriorating environment.

These three pressures - economic development, resource constraints and environmental issues - are all significantly more intense in China than they are in the United States, leading the country to take seemingly more extreme and sometimes conflicting actions. Ultimately, I think that the realities of resource limitations and the dismal state of China's environment will mean that China will either find a path towards sustainable development, or the country will implode amidst water shortages, famine and riots over unlivable environmental conditions.

And as usual, whichever scenario eventually plays itself out, China's course forward will have significant impacts on the rest of the world.

This seemingly changing stance on corn-based ethanol and coal-to-liquids fuels is at least an encouraging indication that China is beginning to change its thinking and search for a sustainable way forward.

[A hat tip to Green Car Congress here and here and Climate Progress. Image source: MDIdea.com]

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Challenges Remain as Fledgling Cellulosic Ethanol Industry Moves Forward

[From the Omaha World-Herald:]

The logistics of collecting and storing a million tons of corn stubble each year for an ethanol refinery are mind-numbing.

It would take 67,000 semitrailer loads to haul the baled stubble out of the field. That's 187 truckloads a day, or one every eight minutes. To complicate matters, the need for trucks, machinery and manpower would come during harvest, already the busiest time of the year on the farm.

And that's where a massive federal initiative into cellulosic ethanol may find its biggest bottleneck - on the farm.

"Naturally, the farmer says, 'Wait a minute. I've got enough stuff in my field,'" said Lex Thompson, president of the Imperial, Neb., Young Farmers and Ranchers Association.

The question is whether farmers will harvest and sell the nongrain plant material, known as cellulose or biomass, to make the federal government's plan for renewable fuels work.

The U.S. Department of Energy wants to replace 30 percent of the nation's petroleum needs with ethanol by 2030. That goal would require some 40 billion to 45 billion gallons a year from biomass ethanol, a technology not yet in commercial production.

"If we can get the farming community's support," said Andy Aden, senior researcher at the National Renewable Energy Laboratory in Golden, Colo., "then all the pieces are falling into place and some real progress can be made."

But farmer buy-in remains to be seen, said Imperial farmer Rod Johnson.

"Our main concern is $4-per-bushel corn (worth $750 to $800 an acre)," Johnson said. "Thirty dollars an acre for biomass is a minor concern for our operation."

The Energy Department wants researchers to develop a harvest and storage process that would provide material to a refinery for $35 a ton, a level that probably would make ethanol production profitable.

Opinions differ, however, on whether that is achievable. Some in the industry believe the cost to ethanol plants would be closer to $60.

Iowa State University researchers agree that the technology is not yet developed that will allow farmers to profit from harvesting some of their stubble for ethanol production.

ISU researcher Stuart Birrell and others have been experimenting with techniques that would allow farmers to reap and bale corn stubble simultaneously while harvesting corn.

That could lower costs significantly, Birrell said. "Every time you put another machine in the field, your costs really start going up."

Even with a one-pass system, Birrell said, the cost of harvesting would be greater than the $35 sought by the Energy Department. And there are other drawbacks. One-pass harvest experiments have slowed combines to about 60 percent of normal harvest speed, too slow to suit farmers, Birrell said.

"Our target is 80 percent of harvest speed," Birrell said. "We feel farmers would live with that."

Researchers are also studying how much of the corn plant can be removed without causing soil erosion and loss of soil nutrients.

There are advantages to leaving stubble in the field, Birrell said. "The bottom part is fairly high in nutrients."

Many of the questions surrounding cellulosic ethanol could be answered in the next 10 years as six pilot plants are built with the help of $385 million in grants from the Energy Department.

Some of those refineries will experiment with corn stover and other crop residues. Others will experiment with woody materials, others with switchgrass and others with municipal waste.

Right now, the cost of producing ethanol from corn stover is about twice the cost of producing ethanol from corn kernels.

"It cannot compete without subsidies," said Sam Tagore, a Department of Energy feedstocks specialist in Washington, D.C.

Not the least of the concerns with corn stover is the problem of storage, Tagore said. The harvest of corn stover would occur during a six-week harvest window in the fall, but the ethanol plant would require regular deliveries throughout the year.

Even a small ethanol plant using 2,000 tons of stover a day would require 100 acres stacked 25 feet high with stover to run a refinery for a year.

A three-year study in Chase County indicates that an 80-million-gallon ethanol plant would require corn stover from 500,000 acres of corn within a 50-mile radius of the plant and 500 acres to store it after harvest.

"That will give you an idea of the logistical nightmare this thing is," said Lex Thompson, one of the Chase County coordinators.

On the other hand, an additional $30 profit per acre would put $15 million into the pockets of farmers operating near the refinery.

The question, Thompson said, is whether such a scenario is feasible.

"We're at the stage now where we are going to know the answer in a few years," he said.

Imperial farmer Johnson, although still not sure what the future will hold, said there is potential for success.

"We believe there will need to be a return (profit) of $30 an acre for a farmer to want to participate," Johnson said.

That is the key, said Hettenhaus, the biomass consultant. "I compare farmers to the OPEC guys. They control the feedstocks. Unless it is a benefit to the farmer, forget it."

Pilot projects

These are the six pilot projects awarded $385 million in grants by the Department of Energy to construct biomass ethanol plants:

Emmetsburg, Iowa - ($80 million). Broin Companies of Sioux Falls, S.D. Using 842 tons per day of corn fiber, cobs and stalks.

Soperton, Ga. - ($76 million). Range Fuels of Broomfield, Colo. Using 1,200 tons a day of wood residues and wood-based energy crops.

Shelley, Idaho - ($80 million). Iogen Biorefinery Partners of Arlington, Va. Using 700 tons a day of wheat straw, barley straw, corn stover, switchgrass and rice straw.

Southern California - ($40 million). BlueFire Ethanol of Irvine, Calif. Using 700 tons per day of sorted green waste and wood waste from landfills.

Kansas (site undetermined) - ($76 million). Abengoa Bioenergy Biomass of Missouri. Using 700 tons a day of corn stover, wheat straw, milo stubble and switchgrass.

Hendry County, Fla. - ($33 million). ALICO Inc. Using 770 tons per day of yard, wood and vegetative wastes.

Clearly, challenges remain to the commercialization of cellulosic ethanol, both in the fields and in the production facilities. It may be some time before someone finds a production model that works, from logistical, technological and economical standpoints.

I'm encouraged though by the number of pilot projects moving forward and the fact that each seems to be using a different set of feedstocks. I think this is important at this stage, as each feedstock will present different logistical and technological challenges and some may emerge first as more feasible feedstocks in the near term.

If we can find a few feedstocks that pencil out and work, they will give us the opportunity to work out technical and economic kinks on the production side while we continue to work on collection and transport methods that will make other feedstocks viable in the longer term.

Check out Robert Rapier's posts on the challenges facing cellulosic ethanol development over at the R-Squared Blog. I am personally more optimistic that these challenges will be solved, but Robert presents a good analysis of the hurdles still standing in the way of commercial cellulosic ethanol production. See posts here and here.

The industry still has a lot of work to do to become commercially viable. If it can, the potential is tremendous.

Cellulosic ethanol and plug-in hybrids together can likely replace all of our gasoline and diesel use for light duty transport (with ethanol providing the liquid fuel for plug-ins for about 1/3 of vehicle miles traveled, with the remainder running on electricity from the grid) while slashing our greenhouse gas emissions from transport.

This is my personal favorite for the future of transportation, and I hope that the logistical, technological and economic hurdles standing in the way of this future can be solved (and soon!).


[A hat tip to Robert Rapier of R-Squared Blog]

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News From My Backyard: City of Portland Awards Grants to Five Local Biofuels Projects

[From the OregonLive.com:]

Portland's Sustainable Development Office has awarded $450,000 in grants to five biofuels projects.



Grant were awarded to:

Oregon State University, to support a project that will develop planting and fertilization methods to increase production of canola and camelina, two crops needed in the biodiesel industry.

Madison Farms of Echo, to install two new 10-ton canola crushers that will increase its production of canola oil, increasing the supply available to the industry.

Portland Biodiesel, to expand capacity at a biodiesel-production facility in development in North Portland.

Carson Oil Co., to install a high-speed injection blending rack that will allow the company to fill tanker trucks and fuel trailers with blended biodiesel at a faster rate.

SeQuential Biofuels, to support construction of a gas station in Portland that will be solely dedicated to the sale of ethanol and biodiesel blends.

[Image credit: OregonLive]

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For Goldman Sachs, Going Green Means Making Green

[From EcosystemMarketplace via GreenBiz.com:]

In November 2005 Goldman Sachs surprised many people in the financial sector when it announced an ambitious new environmental policy framework. The slew of green measures included commitments to consider the environmental and social impacts of investments, encourage the development of environmental markets, and reduce the investment bank's overall climate footprint.

Now a little over a year later (and on the back of soaring profits) the investment giant is taking stock of its efforts. On January 21, 2007, it quietly released its year-end environmental report, demonstrating that environmental commitments are indeed in line with Goldman's raison d'etre: making money.

"We tried to make the framework as business-oriented as possible, because we believe it would be the best way for us to have a positive impact on the environment," says Sonal Shah, vice president of corporate citizenship at Goldman Sachs. "We want to show that there is a way to make money on this."


Winds of Change

"Goldman Sachs really pushed the envelope with [its] policy framework," says Jon Sohn, a senior associate at the World Resources Institute. "They are sending a message that valuing the environment can go hand in hand with wealth creation."

In particular, Goldman Sachs chose to focus its efforts on the renewable energy sector in 2006, where it thinks profits may just be blowing in the wind. Due to strong demand and opportunity, it exceeded its original pledge to invest $1 billion in alternative energy by 50 percent. In June 2005 the investment bank acquired Horizon Wind Energy (formerly Zilkha Renewable Energy), and then acted as a joint book runner on the syndication of $263 million in project financing for the company in April 2006. Horizon says it will put the money to work constructing turbines capable of producing enough electricity (4,000 megawatts) for 1.2 million homes.

In addition to betting on wind, Goldman Sachs kicked in support for companies in the solar, biodiesel and ethanol businesses. The investment bank made a private equity investment in SunEdison LLC, a Baltimore-based company in the solar photovoltaic systems business, and arranged $217 million in debt financing for Northeast Biofuels. Reflecting its appetite for innovation, Goldman also purchased a minority stake in Iogen Corporation, which is attempting to pioneer the conversion of agriculture materials like straw, corn stalks, and switchgrass into ethanol.

Of course, environmental advocacy groups are quick to point out that upping investment levels in alternative energy addresses just one side of the climate change problem facing the current economy. Sohn argues, for instance, that Goldman's year-end report did not say enough about the nature and number of transactions it screened when making project investments in environmentally-sensitive industries.

"Investment banks need to carefully evaluate who they're doing business with, and the environmental and social impacts of the full range of financial services that they provide," says Dana Clark, global finance campaigner for the Rainforest Action Network. "They need to reduce their involvement with the dirtiest industries, and find ways to reduce the carbon intensity of their investments."

Goldman admits that controversies about project finance decisions may become more commonplace in the future, but argues it is difficult to turn down such investments in light of the growing demand for energy, and the current inability of alternative sources to meet it. According to Shah, investing in alternative energy and technology is not without its own problems. For example, wind farms sometimes face local not-in-my-backyard opposition, and there are still some unresolved questions with regards to the implementation of certain technologies.

So instead of an abrupt shift from fossil-fuel based- to alternative energy, Goldman Sachs envisions a phased approach in which different sectors of the economy gradually become less and less dependent on coal and oil. In this context, Shah says Goldman Sachs will continue to make investments in proven alternative energy sources and will help develop the carbon market.

"Money is already flowing to alternative energy sources," says Sohn. "But with this policy, Goldman Sachs recognizes that markets have to be enhanced to significantly increase these flows globally and reduce our reliance on fossil fuels."


Making Markets

The investment bank's strategic investments in renewable energy are just one part of its market-making strategy.

Goldman Sachs purchased a 10.1 percent stake in the UK-listed Climate Exchange, the parent company of the European Climate Exchange (ECX), in September 2006. The investment formed part of the Climate Exchange's merger with the Chicago Climate Exchange (CCX), strategically positioning the company—and by extension Goldman Sachs—in two significant markets. Goldman liked this position enough to double its stake in the deal to 19 percent last week, fueling a five percent surge in Climate Exchange stock on January 19, 2007.

Goldman Sachs is also looking to stoke the fires of less established sectors of the carbon market. Just last month, the investment bank's new Center for Environmental Markets commissioned Resources for the Future, the World Resources Institute and the Woods Hole Research Center to research: policy options for federal greenhouse gas regulations in the United States; the promise of various clean technologies; and the value of avoided deforestation. The research will be made available to the public and discussed in a series of global conferences. The aim, says Shah, is to inform current policy debates about the potential of environmental markets in reversing environmental degradation.

Yet, in relation to other ecosystem services, such as the preservation of water-quality or biodiversity conservation, there was little progress to report. But Goldman Sachs says it is evaluating opportunities in relation to water and biodiversity, and may commission research or make investments in this area in the coming year.

"I would be disappointed if a market for valuing biodiversity does not emerge in the next 10-15 years," says Alice Chapple, director of sustainable financial markets at Forum for the Future, a UK-based organization. "I expect that financial institutions, alongside other companies, will begin to understand the role they play in both the extinction and protection of vulnerable species."


Long-Term Greed

Goldman Sachs has a history of making long-term strategic investments in new product lines. Gus Levy, its former legendary partner, famously conceded that the investment bank was greedy, but clarified, "long-term greedy." The fact that the powerhouse of capitalism is taking the plunge into environmental markets is perhaps the embodiment of this mantra, and the surest signal yet that there is money to be made on sustaining ecosystem services.

"People do perceive Goldman Sachs in a different way from other investment banks," says Chapple. "So when it released its environmental policy framework, some skeptics in the financial sector did reconsider their views on the commercial viability of green investments."

As with its investments more generally, thorough internal research will underpin Goldman Sachs' latest move. While the research grants provided to explore public policy options totaled $2.3 million, the investment bank's support for internal research is much more substantial. Last year, Goldman became a partner of ASSET4, a provider of non-financial data on corporations worldwide that incorporates environmental, social and governance (ESG) data into its investment research. The aim is to understand the relationship between ESG performance and share prices.

"We have done a lot of research on this and we feel we will become better investors," says Shah. "We are really trying to get to our clients and the investing audience out there, and demonstrate why these issues are important to think about."

If Goldman Sachs can drive interest in environmental markets, it would certainly be timely. According to the Millennium Ecosystem Assessment, approximately 60 percent of ecosystem services are being degraded or used unsustainably. Fortunately, Shah says the demand for advice on ESG issues is rising, particularly among corporations in Europe, and among utilities worldwide. But more importantly, as many clients will increasingly be exposed to such risks, Goldman Sachs wants to be in a position to help them.


The Hibernating Giant

A notable finding of Goldman Sachs' research is that the impact of pressures from NGOs and SRI funds, or single pollution incidences, impacts shareholder value much less than government regulation. Accordingly, the investment bank has strongly come out in favor of regulation that creates long-term value for greenhouse gas emissions reductions and new technologies. Voluntary action, it reasons, is insufficient.

"We are not advocating for any specific federal regulatory policy," says Shah. "Rather, we want to inform decision-makers of good market-principles that they should think about."

Chapple agrees with this approach: "The best input into policy that investment banks can provide is to conduct and present research to government and stakeholders that identifies the obstacles they face in expanding their investments into alternative energy and clean technologies," she says. In turn, government should set clear policy targets and stick to them, thereby providing regulatory certainty for investors.

Based on its financial standing and reputation, Goldman Sachs is a bellwether for investors. When it speaks, Wall Street listens. So given its endorsement of the sustainability agenda, are we seeing the contours of a green arms race in the financial industry?

Well, perhaps. Last October Morgan Stanley tripled Goldman's $1bn commitment, announcing plans to invest roughly $3bn in carbon credits and energy projects to reduce greenhouse gas emissions during the next five years. In the long run, however, only effective and stable federal regulation can put a robust price on carbon.

Market analysts have called the U.S carbon market a "hibernating giant." With Goldman Sachs leading the way, the conservative wing of Wall Street seems to have woken up. And so the question is: when will lawmakers on Capitol Hill follow suit?


Resources:

Goldman Sachs' Policy Framework (pdf)

Goldman Sachs' Year-End Report (pdf)

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News From My Backyard: OSU Study Burns Biofuels

[From the Eugene Register-Guard:]

A new analysis by a team of Oregon State University economists concludes that biofuels offer only marginal progress toward energy independence and reduction of greenhouse gases and do so at a much higher cost than other alternatives.

The study found that the "net energy" from biofuels - the amount of energy in the end product after subtracting the amount of energy used to produce and distribute it - is as low as 20 percent for corn-based ethanol. That compares with 75 percent for standard gasoline.

Also, although each of the three types of biofuels studied would help reduce greenhouse gas emissions, the reduction would be as much as 200 times more expensive than other options, such as improving gas mileage or establishing a carbon tax.

Biofuel supporters don't necessarily dispute the numbers but suggest that the math would tilt in alternative fuels' favor by changes in existing production and distribution systems and future improvements in technology. They say the biofuels market is a necessary first step and that rising consumer demand will help bring about advances that will improve cost effectiveness.

"We must keep in mind that biofuels are not the end answer to our liquid fuel problems," said Ian Hill, founder and a managing partner of SeQuential Biofuels. "What they are is a progressive step in the right direction."

The study was done by professors William Jaeger and Thorsten Egelkraut and research associate Robin Cross in OSU's College of Agricultural and Resource Economics. Jaeger said its purpose was not to tell people whether it makes economic sense to put biofuels in their gas tanks, but to help in the debate over steps Oregon can take as a state to address energy and environmental needs, such as encouraging development of biofuel refineries.

He said the report probably won't be welcome news for those who advocate greater use of biofuels, but he said it helps show where investments are needed to help make such fuels a more viable alternative.

The analysis looked at three types of biofuels: corn-based ethanol, wood cellulose-based ethanol and canola-based biodiesel. It looked at the cost of growing and processing the crops used to produce and transport the fuel, the net energy of the fuel and the effect on greenhouse gas emissions.

Importantly, the study did not factor in the environmental cost of refining and burning gasoline or of producing biofuels.

According to the study, only wood cellulose ethanol has a greater net energy return than gasoline, 84 percent, but it still produces fewer Btus per gallon, and with current technology it costs more to produce than it would generate in sales. Canola biodiesel has a net energy of 69 percent, 6 1/2 times that of corn ethanol, which is 20 percent.

But a big part of the net energy calculation comes from the byproducts of biofuel production. Both biodiesel and corn ethanol produce large amounts of left over vegetable matter that is used as animal feed, and that adds substantially to net energy because it reduces overall feed production.

Biodiesel also creates glycerin as a byproduct, which contributes to the net energy figure.

But producing biofuels in large quantities could flood the market for such products, dramatically lowering their price or creating more than can be used. If that happens, the net energy of biofuels will drop dramatically.

The study also found that the cost of greenhouse gas reduction is very high using biofuels. It said policy changes such as carbon sequestration, carbon taxes and "cap and trade" rules would cost about $50 per ton of carbon while corn ethanol would cost $10,700 per ton, biodiesel $580 per ton and wood ethanol $350 a ton.

The study said the energy benefit from increasing automobile fuel efficiency by one mile per gallon in Oregon alone would be equivalent to the gain from building three or four large-scale corn ethanol plants or 13 biodiesel plants.

Also, the study said, to meet 1 percent of Oregon's current petroleum energy consumption with biodiesel would require 400,000 acres of canola, 100 times the current acreage. That would produce 600 million pounds of leftover canola meal, enough to feed five times the numbers of cows currently raised in the state.

The gloomy findings aren't likely to deter biofuel supporters, who see alternative fuels in terms of environmental costs avoided as much as overall cost effectiveness. They say today's cost structure will change.

Hill said feedstocks other than canola could change the economics of biodiesel and increased corn production in Oregon could do the same for ethanol. The important thing, he said, is to keep moving ahead.

"We don't have a perfect solution today, but we do have some solutions that take us toward a sustainable system and move us away from the fossil fuel system," he said. "Is it better to take that step now or not? We would argue as a company that it's absolutely better to take that step and always be critical of where we are and push for greater efficiency."

This is a surprisingly good article, for the ole' Eugene R-G. The OSU study's energy figures are pretty much in line with my thesis research findings, and the economic numbers make sense.

And the quotes from the biofuels supporters are pretty good too. Clearly, biofuels can't be THE solution - to either energy independence, or global warming. They can help make an incremental difference and get us one (maybe small) step closer, but they certainly aren't a silver bullet. The guys at Sequential know this (I've heard both of the Oregon-based biofuels company's founders speak a several of times now), and their quotes in the article are pretty spot on.

The study's findings are yet another indicator that if we are really serious about energy independence and climate solutions, we need to be looking at increased efficiency first - raise fuel economy standards, increase appliance, lighting and building codes and capture all cost-effective industrial efficiency. This will be by far the most cost-effective effort to reduce energy use and greenhouse gas emissions.

And while the study did not focus on other alternative transportation options (see my thesis for a comparison of the energy use and emissions of a much broader set of alternative transportation options), it is also clear that plug-in hybrid electric vehicles will trump the energy and emissions savings of biofuels, especially corn-based ethanol. Plug-in hybrids fueled with cellulosic ethanol are even better...

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Eye On China: China One-ups President Bush

China Shoots for 25% Biofuels by 2020

[From Green Car Congress:]

The Chinese government plans to use liquid biofuels produced in rural areas to cut the country’s consumption of petroleum products by 10 million tons [roughly 72 million barrels], or more than 25%, by 2020.

China is the world’s third largest oil importer after the United State and Japan, and imported a record-high 36.38 million tons (about 267 million barrels) of refined oil products last year, 15.7% up on 2005, to fuel an estimated annual economic growth of 10.7% percent.

[Will China imitate the United States and turn to its cornfields to meet it's biofuels targets, or will they adopt a more sustainable (environmentally and economically) biofuel?]

In his State of the Union Address this week, US President George Bush unveiled his Twenty in Ten goal—a reduction in gasoline consumption of 20% in 10 years through the use of biofuels (15%) and increased fuel efficiency (5%).

China's one-uped you Mr. President! Mr. Bush's 20 in 10 proposal calls for biofuels to displace 15% of gasoline by 2017, while this Chinese proposal calls for biofuels to replace 25% of total national petroleum consumption.

On an absolute basis, the President's proposal does take the cake, calling for 35 billion gallons of biofuels by 2017, as compared to roughly 72 million barrels of oil equivalent, or nearly six billion gallons of ethanol.

Still, these are ambitious goals for China, and will help take a large chunk out of their growing oil consumption, if they can produce that much biofuel, that is (six billion gallons should be pretty achievable though).

I'm assume that China is calling for a 25% reduction over demand in 2020, not a 25% reduction over current demand, which would be much more ambitious. The president's proposal calls for a 20% reduction in gasoline consumption over forecasted demand in 2017, not a 20% reduction over current demand levels. While this amounts to a larger number in absolute terms, it means the US gasoline consumption, let alone petroleum energy consumption, may continue to increase in the future.

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