Will power plants get caught in ethanol’s food fight?
Lori Burkhart is Fortnightly’s managing editor.
The debate over food vs. fuel never has been louder. Using corn to make the biofuel ethanol is perhaps the best known point of argument. Everyone is asking: Should the United States require a certain percentage of U.S. corn crops be turned into fuel in the face of global food shortages and exorbitant food prices? And what are the effects of diverting food croplands into producing fuel? About one quarter of all corn produced in the United States last year went for ethanol production. While U.S. government studies claim biofuel demand accounts for only 3 percent of the global increase in food prices, a recent World Bank study suggests a far greater correlation—as much as 75 percent (see “Secret report: biofuel caused food crisis,” The Guardian, July 4, 2008).
But the food-vs.-fuel dispute might affect the electric power industry too.
Part of the problem is that not much of a distinction is being made among biomass fuels. Not all such fuels are the same. Biomass generally is the umbrella term for many fuel sources and biomass energy is derived from three distinct energy sources—wood, waste, and alcohol fuels. Wood energy is derived both from harvested wood and wood waste streams. The largest source of energy from wood is black liquor, a waste product from processes of the pulp, paper and paperboard industry. Waste energy is the second-largest source of biomass energy, mainly from municipal solid waste, manufacturing waste and landfill gas. Biomass alcohol fuel, or ethanol, in the United States is derived almost exclusively from corn, and its principal use is as an oxygenate in gasoline. However, renewable biofuels can come from a diverse set of organic plant materials, including feed grains, plants, trees, other agricultural commodities, algae and various related waste materials.
Irrespective of these distinctions, the nexus between energy and agriculture has sparked the argument that biofuels policies in the developed nations are causing food shortages and price increases. As a result, the prospect of using biofuels for electric generation might become a casualty of the corn-for-cars fight. On a short term basis, the situation likely will be exacerbated by recent flooding in the Midwest; Standard & Poor’s reports that flooding contributed to a 30 percent increase in corn prices in June alone, with full impacts still unknown.
With an increased interest in renewable sources of energy in general, biofuels offer tantalizing promise for low-carbon or carbon-neutral electric generation. Wood and derived fuels are the largest non-hydro renewable electricity source. Wood energy has been used for decades to generate electricity, but according to the DOE’s Energy Information Administration (EIA), its contribution has remained virtually flat since 2003. And it might not increase due to fights over air pollution (see sidebar, “Wood Burning Plant Canceled.”) So to meet the growing demand for energy from renewables, new sources of fuels for electric generation are being developed, such as biodiesel.
Biodiesel can be made from more than one plant or animal source and traditionally has come from the byproduct oil of soybeans. The first biodiesel-fueled electric generator in the United States went online in February 2007 and began selling power into the ERCOT grid. The Oak Ridge North plant, built by Biofuels Power Corp., produces up to 5 MW of generating capacity for the Centerpoint grid via three biodiesel-fired engines.
The biodiesel used to run the Oak Ridge North plant is produced two miles away by Safe Renewable Corp., which supplies biodiesel made from soy, cottonseed, canola oil and animal fats. Safe Renewables is one of the few companies producing commercial quantities of biodiesel in the United States, and can switch among multiple vegetable oil and animal fat feedstocks. It might be the only biodiesel supplier that serves both the transportation and electric power generation industries. Biofuels Power also is careful to make clear it does not use corn—ethanol—and does not remove vegetable oils from the food chain. Oak Ridge North’s fuel primarily comes from poultry fat, sourced from large poultry processing operations in Texas.
Biofuels Power recently began building a larger turbine-based biodiesel power plant at the Safe Renewables refinery site. It would deliver approximately 10 MW into the Entergy power grid for customers in East Texas and Louisiana.
Although the new plant is expected to provide twice as much capacity as the Oak Ridge North plant, its relatively small size illustrates a key problem for the biomass power industry: scalability. Fuel supply constraints thus far have kept most such plants small, but some larger projects are being developed. In October 2007, Hawaiian Electric Co. filed an application with the Hawaii Public Utilities Commission for approval of a biodiesel supply contract with an affiliate of Imperium Renewables to serve a new 110 MW electric generating station, with startup expected in 2009. Imperium Renewables also is in the process of developing a biodiesel refinery in Hawaii, which the company says will rely on locally grown feedstocks, such as palm oil.
Whether biodiesel for electric generation (and other nascent biofuels) catches on could depend on whether biofuels in general survive a wave of negative publicity and political attention.
For example, a battle erupted on Capitol Hill this spring, stirred in part by a new farm bill. Rep. John H. Dingell (D-Mich.), chairman of the Committee on Energy and Commerce, noted that “the ink had hardly dried on this new law when the clamoring began to alter the [renewable fuels standard].”
The law, the Food, Conservation, and Energy Security Act of 2008 (H.R.2419) garnered enough votes in the House and Senate to override a veto by President Bush and was enacted into law on May 22. It expands the biofuels research and development programs enacted in December 2007 in the Energy Independence and Security Act of 2007 (EISA). It also strengthens the renewable fuels standard (RFS) enacted in the Energy Policy Act of 2005 and expanded under EISA.
But the salvos have come from all sides. On May 12, Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Committee on Energy and Natural Resources, sent a letter to Secretary of Energy Samuel Bodman and Secretary of Agriculture Ed Schafer expressing concern over recent suggestions that biofuel policies might be responsible for global increases in food prices. He specifically asked for answers as to whether there is a link between food prices and the RFS, while pointing to the required increase in EISA to 9 billion gallons of renewable fuels being blended in the U.S. fuel supply in 2008.
Texas, meanwhile, has become a hotbed and even microcosm of the furor over biofuels. In April, Texas Governor Rick Perry petitioned the Environmental Protection Agency (EPA) to waive temporarily the requirement to increase the amount of renewable fuels used for motor vehicles. He cited the diversion of corn for fuel as driving up food prices. Perry has the backing of Sen. Kay Bailey Hutchison (R-Texas), who wants to challenge the EISA ethanol mandate of 15 billion gallons produced from corn and 1 billion gallons from biodiesel by 2015. Bailey asked EPA to waive all or a portion of that 2007 ethanol mandate, citing the World Bank’s findings that global food prices increased by 83 percent in the last three years, and the United Nation’s findings that food costs will increase another 10 to 15 percent due to biofuels production, assuming scheduled mandates remain in effect.
A potential major blow to the industry came when Texas officials proposed banning biodiesel fuels in the state last year. But in December 2007 officials voted to study issues surrounding biodiesel emissions for another year. Apparently, while biodiesel generally is considered more environmentally friendly because it produces almost 50 percent less CO2 and particulates than does standard fuel, competing studies on nitrogen oxide (NOx) emissions raise concerns NOx emissions are above state-allowed levels. Texas is the second-largest consumer of biodiesel in the nation behind Iowa, and a ban could have dire consequences for the industry in that state.
Congress continues paying attention. Republican Sen. Chuck Grassley, from corn-producing Iowa, recently accused food manufacturers of a smear campaign against ethanol, and sent a letter to 13 companies such as ConAgra and Archer Daniels Midland asking them to repudiate that movement by the Grocery Manufacturers Association. He noted that “biofuels are a small factor in rising grocery costs and just 19 cents of every food dollar spent by consumers goes to farmers.”
At a May 6 House Energy & Commerce Committee hearing, Bob Dinneen, president and CEO of the Renewables Fuels Association, said the 147 ethanol plants nationwide have enough “capacity to turn more than 2 billion bushels of grain into 8.5 billion gallons of high octane, clean burning motor fuel, and more than 14 million metric tons of livestock and poultry feed.” With 55 more ethanol plants under construction and six being expanded, Dinneen said emissions are being reduced, energy security is increasing and rural America is gaining jobs. Also, he pointed to a host of factors contributing to the rise in food prices, such as record oil prices, soaring global demand for commodities from oil to grains, poor weather conditions, the collapsing dollar and restrictive agricultural policies around the world.
Dinneen also pointed to the promise of advanced biofuels such as cellulosic ethanol for easing food-fuel tensions. Several commercial cellulosic plants are contributing to that promise, he says, such as one under construction in Georgia by Range Fuels that will use wood and wood waste from the state’s pine forests and mills. A demonstration-scale facility is expected to be completed this year by Verenium in Louisiana that uses plant matter and farm scraps such as sugarcane bagasse and wood chips as feedstock to produce cellulose ethanol. Also, he noted that advanced biofuels are required to meet a 50 percent reduction in greenhouse gas emissions.
But Charles T. Drevna, president of the National Petrochemical & Refiners Association, disagreed, testifying that recent reports confirm biofuels mandates have led to price increases for food, especially soybeans, corn and wheat. Furthermore, cellulosic ethanol, he says, is costly and not yet commercially available. And while EPAct included a cellulosic ethanol mandate of 250 million gallons starting in 2013, the U.S. Food and Drug Administration predicts only about 213 million gallons will be available in that year.
Bucking the trend of campaigning against biofuels, on May 12, 2008, Minnesota Gov. Tim Pawlenty signed a bill increasing that state’s current 2 percent biodiesel mandate to 20 percent by 2015. It marks the largest biodiesel mandate in the country. But before being enacted, the bill ran into the same legislative food fight as stirred on Capitol Hill.
The Minnesota legislation fosters using nontraditional feedstocks to fulfill its mandate by requiring 5 percent of the feedstock come from nontraditional state agricultural resources, including algae, waste oils and tallow, as well as those being researched such as cuphea (an oilseed plant that can grow on marginal soils) and industrial hazelnuts. But the bill contains the nation’s first ban on use of palm oil. It states that virgin palm oil cannot be used to produce biodiesel to meet the mandate, which was included to help assure that Minnesota does not contribute to environmental destruction and rainforest clearing associated with palm-oil production.
For better or worse, fuel policies for electric generation and transportation seem to be intertwined—with the stakes getting higher as energy prices continue their ascent.
In September 2007, the EIA responded to a request for analysis by U.S. Senator James Inhofe (R-Okla.) of a “25 by 25” legislative proposal combining the requirement that a 25 percent share of electric sales be produced from renewable sources by 2025, with a requirement that a 25 percent share of liquid motor transportation fuels also be derived from renewable sources by 2025. The electricity requirements would be implemented as a renewable portfolio standard (RPS) and the motor fuels standard as an RFS.
While realizing long-term uncertainty in making any such projections, EIA found that to comply with such mandates, it would be necessary for electricity and motor fuels producers to dramatically increase their use of technologies that play a relatively small role in today’s energy markets. For example, the amount of qualifying renewable generation needed to comply with the RPS would require almost a 13-fold increase in non-hydropower renewable generation levels from 2005 levels by 2025. Similarly, the amount of ethanol and biodiesel needed to comply with the RFS would require more than a 12-fold increase from 2005 levels.
EIA said compliance with the twin 25-by-25 mandates would require successful development and rapid deployment of new technologies, such as biomass gasification power plants and cellulosic ethanol plants that currently are not commercially available. It says that costly hurdles could arise—such as resistance to siting of new plants, higher-than-expected transmission interconnection costs, and fuel supply limits—all holding back development and deployment of renewable energy technologies.
Large increases in bioenergy production, from corn and other energy crops, could have significant impacts on agricultural markets and put upward pressure on food and feed prices worldwide, according to EIA. In addition to technological uncertainties, the policy case implies structural changes in the U.S. economy that don’t necessarily follow from aggregate impacts on economic health or energy prices. If EIA’s analysis is correct, then growing dependence on renewables would bring higher electric and food bills to U.S. consumers, particularly in 2025 and beyond.