Oil dependence has been a major concern in the energy industries when referring to Energy Security. Energy Security is known as the reliable and adequate supply of energy at reasonable prices”[1]. For the United States (US), its energy security issues come mainly from its core dependence on oil. It is a major oil importing country and majority of its oil come from regions that are volatile such as the Middle East. Its oil consumption has grown increasingly over the last 50 years; net oil imports grew at a steady rate up till 1977 then dropped a bit from then till 1982 after which it has been on the increase due to increase in demand. In ‘70s, policy makers were alarmed by the increase in imports by 50% and tried to look for ways to change the demand pattern by “reducing it”[2] and invariably imports to about 1/3 of oil consumption; but despite their efforts, oil import dependence still stands at about 60% and is expected to increase[3] if there is no change in the US’s consumption pattern or sources.
Due to this energy security issue, the Obama Administration has given itself the task of releasing the country from this bondage of sorts by concentrating on a strategy to increase the use of alternative fuel sources in the country- such as Biofuels to alleviate the problem. A target was set via a policy on Renewable Fuels called the Renewable Fuels Standard (RFS2) to achieve a 36bn gallons of renewable fuel production by the year 2022. This Renewable fuel will involve the development of home-grown fuels –with ethanol consumption of about 31bn gallons yearly from corn and cellulose; biodiesel of about 1bn from soybeans and the balance of 4bn will be from imports.
This two-part series of articles will focus on the feasibility of achieving this set target by the year 2022. In this article I will give a brief appraisal of the biofuel industry in the US as regards ethanol and biodiesel. I will take a look at the uses and sources of both fuels as applied in the transport sector- which is the main area in which these fuels are being used.
Biofuels and U.S Energy Security
Ethanol is an alternative fuel which is blended with petrol and made through fermentation and other processes while biodiesel is used as is or mixed with other materials through chemical processes. The figure below shows the various sources of ethanol and biodiesel- and the production process.
Source: 2008 The State of food and Agriculture[4]
The rate of growth in these industries has been staggering. In 2008, about 9bn gallons of ethanol was produced as against the 6.5bn in 2007; and about 700mm gallons of biodiesel were produced by the US in 2008 as against about 500mm in 2007.
“The increase in consumption of ethanol coincides with reduced demand for gasoline by 5% in 2008 but its share (ethanol) compared to the overall gasoline consumption is said to remain relatively lower – 10% by 2020 and between 15 and 17% by 2030 despite the fact it cost almost 3-5 times more to produce than gasoline.”[5] Graph below shows the trend in production, consumption and trade of ethanol fuel.
Figure 2: Graph showing U.S. Production, Consumption and Trade of Fuel Ethanol from 1998 to 2008.
Source: U.S. Department of Energy[6]
We can observe a growth in the various criteria shown in the graph which justifies our earlier statement of the rapid increase in ethanol use generally. Production costs of ethanol, however in the short run, such as operating expenses, feedstock costs, and producer credits- but not including transportation fees, fuel taxes, capital costs and tax credits- actually vary depending on the size and design of the plant and supply of feedstock. Approximately 97% of ethanol produced in the US is from corn-based ethanol and is produced by either a wet milling or dry milling process which uses corn as feedstock.
Ethanol can be used as a fuel additive and substitute to gasoline in the transport sector; at blends of ethanol with gasoline at 10% level or below (i.e. 10% ethanol and 90% gasoline); ethanol can be considered an additive as the level of oxygen in it improves the combustibility of gasoline. This helps to reduce the amount of Green House Gases (GHG) emitted from vehicles. At higher levels of blending for example E85, (which contains 85% ethanol and 15% gasoline), ethanol can be seen as a substitute of gasoline in the transport sector this is because of the low gasoline requirement in its blend.
Biodiesel on the other hand comes from various sources such as soybeans, vegetable oil or fats, canola oil, corn oil etc by chemically reacting with alcohol. In the US, majority of its biodiesel comes from soybeans oil or yellow grease. Production rates can be observed in the graph below.
Figure 3: Graph showing biodiesel production rate between 2000 and 2008
Source: Biodiesel Organisation[7]
Vehicles that have diesel engines can easily use biodiesel with little or no modifications. It has about 8% energy content with a high fuel density and better quality of ignition with higher cetane number (combustion quality of diesel fuel during ignition). Some blend ranges from between B2 – B100; – a biodiesel blend of maybe B20 means 20% biodiesel and 80% petroleum diesel. B5 are generally permissible but B20 is most preferred because it can work all year round in any type of diesel engine no matter the weather condition. These blends are scattered all over the US. Biodiesel can be used safely and has less risk to health than fossil diesel and also procures less harm to the environment because of its biodegradability.
In the biofuel industry, profitability is mainly based on the production cost of feedstock. Any kind of changes in the prices of this feedstock can have effects on cost of production and a huge market risk is also akin to the industry based on its core reliance on limited feedstock.We will now take a brief look at the biofuel policy which targets the 36bn gallons production by 2022.
Barak Obama, on assumption of office as the President of the United States emphasized the need for the US to go green. The Green Revolution is part of the government’s drive to combat climate change and more importantly a major policy direction to address America’s energy security problem in different ways. The President along with Congress began work in 2009, to pass various legislations to protect the country from economic and national security risks due to foreign oil dependence and effects of changing climate. The major item being addressed in this paper is the RFS (Renewable Fuel Standard). Under this policy “targets were previously set by the Energy Policy Act of 2005 (EPAct 2005) through the RFS to increase the amount of biofuels mixed with gasoline supply yearly; Under this program, about 7.5bn gallons of renewable fuel (1 gallon = 3.785 ltrs) was targeted to be produced yearly by 2012”[8]. “But in a bid to increase the ethanol use, the Energy Independence and Security Act (EISA) 2007, increased this target under the RFS2 stating that the renewable fuel being mixed with gasoline be increased from 9bn gallons in 2008 to 36bn in 2022; 31bn of which should be ethanol both conventional and unconventional, 1bn of biodiesel and 4bn of imports.”[9]
First, the implementation of RFS program of 36bn gallons by 2022 by the Environmental Protection Agency (EPA). Secondly, a proposal by the US Department of Agriculture (DOE) on a rule that will make available financing for the conversion of biomass to bioenergy called the Biomass Crop Assistance Program (BCAP). Lastly, a report was released by “President Obama’s Biofuels Interagency Working Group – Growing Americas Fuel.”[10] This report states a strategy on how to increase production and outlines the commercialization of a biofuel industry, sustainable enough to meet the biofuels needs.
Despite all these, there are still a few challenges which are being faced by the industry. These will be discussed briefly.
Challenges of Biofuels Use in US
The Food Vs Fuel Debate
FOOD VS FUEL THEORY
Biofuels which have been proposed as a solution to energy security are also being classified as a bad idea by critics who believe biofuels could add to world hunger instead of reducing it. It is important to note that if food crops grown on farm land are being used in biofuel development, care should be given as to the effect this would have not only on the land being used but also the food market. Ethanol alone is produced from over “2bn bushels of corn in the U.S; critics are asking – are people going hungry due to the growing demand for fuel in the US?”[11] Should crops be grown for food or for conversion to fuel? “In 2007, the price of corn shut up from $2 per bushel to about $4; in 2006, the US produced its largest harvest of corn (10.5mm bushels), nearly a fifth of which was used for the production of the 5bn gallons of ethanol used in that year for fuel.”[12] How justifiable is this when the same portion could have been applied towards the undernourished in the country? In other words, the food vs fuel theory challenges the US to thoroughly examine food in the country, trade and farm systems and how these systems can be shifted to fight poverty and hunger as well as making sure that there is adequate food for present and future generations.
Environmental Cost of Biofuel Use
The extent of the impact of biofuels on the environment depends greatly on “how feedstock for biofuels are produced and transformed into fuel and how land-use change, intensification and international trade are influenced.”[13] Though replacing fossil fuel with biofuels has a positive effect on climate change based on the reduced Green House Gas (GHG) emission, scientific studies have shown that when compared with petrol, different types of biofuels have varying GHG balances. Some crops can actually generate higher GHG than fossil fuel depending on methods of production of feedstock and transformation to fuel. The biofuel production methods being used in the US increase waste, soil desertification and depletion.
Therefore investments should be aimed at crops which generate the highest positive GHG balances and also it is imperative that biofuels be produced in ways in which natural resources are conserved instead of contributing to the pollution of water and global warming.
Other Challenges
Anoother challenge is basically related to the use of cellulose Biofuels. Cellulosic ethanol is expected to produce about 16bn gallons by the year 2022. This target is set for a relatively new technology which is yet to be tried and tested. If for some reason, the technology does not work as expected, the target would invariably be affected.
Nutshell:
Adebola’s next article will include some data presentation and analysis based on past, present and projected data to see how feasible it is for the Obama Administration to actually achieve this Biofuel target. She will be matching her data based on requirements needed to meet the targets against projections from EIA for the analysis. Subsequently she will examine the Brazilian example to see if there are lessons to be learnt by the US. Adebola has provided us with an enlightening article; giving us a better appreciation of the energy challenges in the US and for me- a better appreciation of changes in commodity prices as they in fact can signal demand pressures or otherwise for Ethanol. This has its linkage effects on the economy and on energy security.
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