Under the 2007 Energy Independence and Security Act (EISA), the EPA is required to make a determination by November 30 of each year about the projected volume of cellulosic ethanol that will be available in the next calendar year. If the projected volume is less than volume mandated by the 2007 EISA, the EPA is required to lower the mandated volume in that year to the projected volume.

Therefore, in the coming days, the EPA has to assess the situation. The legal mandate for cellulosic fuel use in 2010 is 100 million gallons. The Biotechnology Industry Organization, however, is privately projecting that there are 12 million gallons of actual cellulosic ethanol production.

While the task for the EPA sounds straightforward, the situation is more complex than waiving a few million gallons of mandated fuel use out of a total of 138 billion gallons of motor fuel supply. This shortfall actually undermines the entire rationale behind the 2007 EISA and U.S. policy on biofuels.

The statute eventually calls for at least 16 billion gallons of cellulosic ethanol--which would be close to 10 percent of the total motor fuel supply, and 44 percent of the total biofuel use of 36 billion gallons mandated by 2021. Indeed, cellulosic ethanol--which was not even commercially available at the time Congress mandated its use--was promoted as the next big thing--almost a panacea.

As then-President George W. Bush said in February 2007, after he proposed mandating cellulosic fuel use, "we're on the verge of some breakthroughs that will enable a pile of wood chips to become the raw materials for fuels that will run your car." What was lacking in all the euphoria of the time was any common-sense scrutiny of the product. For example, reconstructing that "pile of wood chips" into live trees provides a completely different perspective. It takes one 60 foot tall softwood tree to produce about 6 gallons of cellulosic ethanol. So, three trees that size would almost fill up a 20 gallon SUV tank. It takes 20-30 years of growth to get a 60 foot softwood tree, so one 15 minute fill up of cellulosic "renewable fuel" could represent up to 90 years or more of tree growth.

Apply that conversion rate to the north woods of Minnesota; the U.S. Forest Service estimates there are 5.4 million softwood trees greater than 13 inches in diameter (averaging 60-plus feet in height) in the Gopher state. That's just about enough feedstock for a one-time production of 900 million gallons of ethanol--just a little more than a third of the 2.6 billion gallons of motor fuel Minnesotans burn in-state each year.

Feedstock for cellulosic ethanol was viewed almost like manna from heaven. It was everywhere, virtually free, all for the taking. Here is what a New York Times editorial from May 2006 said: "What the experts are talking about now, however, is cellulosic ethanol, derived from a range of crops, native grasses like switchgrass and even the waste components of farming and forestry--in short, anything rich in cellulose."

That "range of feedstocks," however, is proving to be pretty narrow, as evidenced by the lack of commercial production. While a lot of things are "rich in cellulose" technology and economics stand in the way of them becoming motor fuel. Virtually the only feedstock with any commercial viability right now is the lowly corn cob, ironic since cellulosic ethanol was supposed to be the path away from corn ethanol.

Consider, in Tennessee, the state legislature in 2007 invested $70 million in a cellulosic ethanol plant designed to produce 5 million gallons per year of cellulosic ethanol from switchgrass. That plant now produces only 250,000 gallons. And it is using corn cobs as feed stock until at least 2011, even though the state is paying farmers $5 million a year to grow switch grass.

Moreover, as it turns out, using the "waste components of farming" as the New York Times put it, has its own problems. A current article published by the U.S. Department of Agriculture's Economic Research Service (ERS) is entitled: "Cellulosic Ethanol from Crop Residue is No Free Lunch." Indeed, residue is not waste. Modern agriculture purposefully leaves crop residue in fields to reduce run-off, add to soil fertility, and increase moisture. The technology to farm land over crop residue, called conservation tillage, is perhaps the greatest conservation breakthrough of modern agriculture. Now it stands to be reversed, ironically, by ethanol production. Indeed, the ERS paper says: "the costs of shifting from production of corn-based ethanol to production of cellulosic ethanol from crop residues may offset the benefits."

Perhaps the greatest irony of all, however, is that cellulosic ethanol was supposed to be our path to energy independence. The U.S. Senate Democratic Policy Committee even issued a press release shortly after the 2007 EISA was passed claiming that "The Democratic Energy Bill Will Promote Energy Independence." Instead, the U.S. Department of Energy has given grants to much foreign controlled technology.

Abengoa, a Spanish company, received a grant to put a crop waste-based plant in Kansas. BlueFire, a company chosen because of their "proven technology" in cellulosic fermentation, received a grant to work on converting landfill waste into ethanol. Their technology is now employed at their Izumi, Japan, ethanol mill. Iogen, a Canadian company, is planning on building a plant in Idaho to turn wheat straw into ethanol. Novozymes, the Danish owned company that operates a lab in North Carolina, will provide the enzyme technology to another grantee, POET, a U.S. company that is turning (guess what) corn cobs into ethanol in Iowa. And the project funded by the State of Tennessee? It is a joint venture between DuPoint and the Danish Company Danisco. Subsidizing foreign technology doesn't seem to jibe with the goal of U.S. energy independence.

The bottom line is this. President Carter, in 1979 and 1980, invested more than $1 billion (for context, remember the federal budget was $590 billion then; it is $3.1 trillion today) in ethanol--including cellulosic--technology and development. Carter proposed the goal of 10 percent of total fuel use being made up by corn and cellulosic ethanol by 1990. Corn ethanol was eight-tenths of one percent of motor fuel supply in 1990; today it is about 8.5 percent of fuel supply. Cellulosic production did not exist in 1990.

Today, 30 years and billions of dollars later, cellulosic fuel is not just subsidized, its use is mandated. The goal still is to become about 10 percent of the fuel supply in 10 years. And still, cellulosic ethanol production can't meet its mandate. Sound familiar? It is time to wipe the slate clean, eliminate the cellulosic fuel mandate, and re-think U.S. biofuels policy.

Dave Juday is a commodity market analyst.

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