Archive for biofuels

Should there be a tariff on foreign biofuel?

Apparently, the consensus of the 25x’25 biofuels working goup I spoke of over the weekend was an illusion based on the fact that the opponents had not spoken up and we had moved on to other subjects.  We’re currently discussing the subject over email, and I thought my rationale for opposing a tariff was worth posting here:

1. Why a tariff on foreign biofuel would not be effective at raising the price for domestic biofuel:
The primary competition for domestic biofuels is not foreign biofuels: it is petroleum.  Petroleum will remain the primary competitor in a 25x’25 world (after all, it will have around a 75% market share.)  The price of both foreign and domestic biofuels will be set in competition with gas and diesel, the most commonly available substitutes.  To raise the price of domestic biofuels, a tariff would have to be placed on foreign oil, not just foreign biofuels.

2. Why a tariff on foreign biofuel would be counter to the 25x’25 goal:
Potential builders of distribution infrastructure for biofuels (pipelines, retail pumps, Flex Fuel Vehicles, etc) want to know that there will be a reliable supply before they build distribution.  While some might argue that a tariff would not impact supply (an argument which, if true, would re-enforce point #1), it is very difficult to argue that it would not negatively impact the perception of the availability of reliable supply.  It is the perception of reliable supply that will help get the distribution infrastructure we need built.

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25x’25

I spent much of the last week at the 25x’25 “Twenty-Five by Twenty-Five” second implementation planning meeting.  25x’25 is a coalition advocating the vision that “By 2025,
America’s farms, forests and ranches will provide 25 percent of the total energy consumed in the
United States, while continuing to produce safe, abundant, and affordable food, feed and fiber.”   That’s at least 25% of our energy from renewable sources.

            25x’25 is an open alliance; the participants are the organizations who have endorsedthe 25x’25 vision outlined above.  These include 18
US Senators, 91 Congressmen, 18 state governors, 4 state Legislatures (including
Colorado).  I attended the conference as the representative of the
Colorado Renewable Energy Society. 

            I highly encourage my readers to endorse 25x’25 (you can endorse as an individual, or as an organization, or both.)  Your endorsement helps them demonstrate that a broad swath of Americans support the 25x’25 vision, and will help convince the US House and Senate to pass the concurrent resolutions for 25% of the nation’s energy supply to come from renewable sources.

We are currently in the process of coming up with our vision of how
America can achieve 25x’25.  Any endorsing individual or organization can participate.  The goal is agree on a series of recommendations (the Implementation Plan) as to how we can achieve the 25x’25 vision.  When the Implementation Plan is complete, which we plan to achieve by January, in time for the next congressional session, all partners will have a chance to endorse the plan.

Since the whole process is by consensus, and the 25x’25 goal is an ambitious one, it would be easy to believe that the Implementation Plan will turn out to either be watered down to the point where it does not say anything, or end up endorsing so many points of view that it would be ludicrous to call it a plan at all.

Having now participated in two conference calls and two days of face-to-face meetings, I’m happy (and somewhat surprised) to report that we’re actually managing to form a consensus among a large group of people and organizations you would not expect to get along under ordinary circumstances.  For this, I can only shake my head in wonder at the diplomacy and perseverance of the Steering Committee.  They managed, though two days of what could have turned into a verbal free-for-all, to keep us all focused on the need to work together to reach the very ambitious goal we’ve all agreed upon.  (In that same spirit, and understanding that many of the participants have been willing to voice their true opinions and step away from the party line, I will not name any names here.  This also has the advantage of covering for my lousy memory for names.)

How do they do it?  By keeping us focused on the fact that we all agree on the goal: 25% of our nation’s energy from renewable sources by 2025, and reminding us that we’re never going to get there by half measures.   The second thing they did was keeping the discussion focused on “Yes, if…”: continually reminding people to stay in the mode of working together, and instead of thinking about all the reasons that something was impossible to accept, to instead say “I could accept that if it were this were also to happen.”

So my kudos to the people I met on the steering committee.  I was impressed.

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There’s Ethanol and then there’s Ethanol

In the renewable energy community, Ethanol has a bad rap, due to some often-quoted, seldom checked studies on energy payback.

It’s received wisdom that ethanol from corn has an energy return on energy invested (EROEI) of somewhere between 0.8 and 1.0; i.e. you get less out than you put in.  The persistence of this idea is possibly due to some great cartoons.  I’m probably going to undermine my whole argument here, by including this one…

Then again, I expect that my audience is highly intelligent, and not easily distracted.  If you weren’t, you probably wouldn’t still be reading my extremely dense and often-tortured prose.  You deserve a good cartoon every now and then…

Back in the world of ethanol, times have changed.

Even though cellulosic ethanol is still very much in its technological infancy, a lot of companies and people are doing a lot of interesting things with corn ethanol to make the process more efficient, and, get those energy inputs in the form of “free” waste heat from some other process, or from renewable sources such as cow manure or landfill gas.

I’ve been educating myself a lot about this reading C. Scott Miller’s Bioconversion blog.  I admit I’m having to do a lot of catch up on this, because I was one of those people who believed ethanol was a total government subsidized boondoggle until recently.

All that said, even at an EROEI of 1.25 to 1.8, ethanol is not much of an energy “source.”  Sure, we’re getting a little energy out of the process, but one way to think about EROEI is how much effort it takes to get our energy. 

As a rough illustration, at an EREOI of 2, there has to be one person working to get energy for every person doing something else.  So if civilization were to exist one out of every 2 people would have to be employed in the energy sector… the other 50% would then have the energy they needed to do other useful things, like be doctors, politicians, soldiers, engineers, builders, investment advisers, bloggers, artists, manufacturers, scientists, psychologists, food farmers (as opposed to energy farmers), talk show hosts, etc.

 You might argue that some of those professions aren’t very useful (investment advisors and politicians perhaps), but even if we eliminate all those “useless” professions, I think the more useful professions like talk show hosts and artists might start finding themselves a little squeezed.

There is a reason that the human race was 95%+ farmers or hunter gatherers for most of of our history: the energy sources we were using were not powerful enough, with too low EROEI to sustain higher forms of civilization, such as talk show hosts.

If you don’t believe me, read this great article on “Peak Wood,” the cause of the iron age.

Back to ethanol: it’s not going to solve our world energy problem.  It’s a useful way to turn non-liquid fuels (manure, biogas, or coal) into something you can put in your car, but if we in the U.S. are  looking for a domestic source of energy that will wean us off the Middle Eastern oil teat, we can do it, only if we want to be a nation of farmers, witha much smaller population and lower standard of living than we have now.

Ethanol is big business these days, and it will make a tiny dent in our oil addiction, so all the investment is probably doing some good.  I predict that the biggest beneficiaries will be the farmers, and considering how hard farming is, that’s not a bad thing.  It’s probably better than out-and-out farming subsidies.

Basically, I’m no longer worked up about ethanol subsidies and mandates.  There are a ton of better ways we could be spending the money, but it’s hardly the stupidest thing our government does with our money.   I’d even be happy about it if they’d simply replace the money spent on all farm subsidies with subsidies for farm based energy.

I just don’t want it to distract from the important work we have to do to deal with the twin probems of peak oil and global warming:

  1. Improve energy efficiency (especially of our vehicle fleet.)
  2. Develop high ERoEI energy technologies: Wind, Solar concentrating, Geothermal.  PV will probably make it on this list as the technology improves.
  3. Displace some of that oil in transport with renewable electricity, via plug-in hybrids.  (Economic fuel cells are still too far away to make hydrogen a viable transportation fuel in the next 20 years)

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Distributed Water

Ever since the green revolution of the middle of the last century, food, at least in the developed world, has not been a scarce commodity.  By the introduction of more productive varieties of cereals, mechanization, as well as the (often unsustainable) application of chemical fertilizer and
irrigation, yields increased dramatically, leading to food becoming a smaller and smaller portion of the budget of the first-world 
 consumer.

 

That green revolution has gone about as far as it can go.  A combination of more erratic and warmer weather due to global warming, and the over-exploitation of aquifers are making water for farming a much scarcer resource.  Meanwhile, rising fossil fuel prices due to increasing demand, combined with flat or diminishing supplies are making chemical fertilizer a much greater cost to the farmer, as well as making it much more costly to run farm equipment.

 

On top of this, biofuels are a new and growing source of demand for agricultural products. 

I see a new pattern emerging.  Water, food, and energy are each becoming scarcer, and as it becomes easier to convert one into another of the triad, their prices are becoming increasingly coupled, as they rise in unison.

 

I’ve written elsewhere how conventional electricity generation technologies require vast amounts of water.   Biofuels allow us to use food as energy.  As cities turn increasingly to desalinization, energy can be converted to potable water.

 

Rising energy prices are generally a good thing (so long as they don’t rise too quickly), in my mind, because they increase the incentives to switch to new, less polluting forms of energy.  Rising food prices will be a force for rural revitalization in the rich world, and may make third world farming more economic… so long as they have reliable access to water, which makes wise investment in water infrastructure all the more important.

 

A study from the Consultative Group on International Agricultural Research finds that large scale water projects are much less cost effective than small scale efforts.  I can’t find a link to the study, but here are some excerpts from the Economist article where I read about it.

 

A recent study of vegetable farmers in
Ghana, for example, found that those irrigating their fields with wastewater carried by buckets earned a 230% return on their investment, versus 30% for big state-sponsored schemes.

 

The assessment argues that modest outlays on rain-fed agriculture, in particular, could drastically improve the productivity of farming in poor countries and so help both to raise farmers’ incomes and also to cut the need for an expansion of agriculture elsewhere. More than half of the world’s food comes from rain-fed farms, as opposed to irrigated ones. If the rains fail, so do the crops. Channels to harvest and direct rainfall and small, sealed reservoirs or tanks to store it, would not only see farmers through dry spells, but also allow them to entice bigger or more valuable harvests out of the same fields. More reliable income, in turn, allows farmers to invest more in seeds, fertilizer and machinery.

 

Like our energy infrastructure, our water infrastructure needs to become more diverse and distributed.  “Think globally, act locally,” as they say.  I like to add, “Unless you can act globally,” which is what the financial markets allow us to do… but this is one problem that the financial markets are not suited for.  Just because I have a hammer, does not mean every problem is a nail, and wishing it were so will not change that.

 

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Paul Notari on confronting the Oil crisis

If you’re wondering about how the US should deal with the looming oil crisis, Paul Notari wrote an excellent overview on RE Insider this week.   His prescription for the US is exactly what we need.

High oil prices are starting to move us in the right direction, but not nearly fast enough.  We need to take action before Adam Smith’s invisible hand forces action on us, through demand destruction.  Demand destruction is a nice way of saying that when gas hits $20 a gallon, people will start taking their bikes to work because they can’t afford to do otherwise. 

Economists who pooh-pooh peak oil becase “demand destruction will take care of the problem” are forgetting the human element: demand destruction is incredibly painful.  We need to take proactive steps to solve the problem, such as those outlined in Paul’s article, or the problem will be solved for us… and it will hurt.  A lot.

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Over the limit on ethanol?

What are the limits on ethanol production? 

According to NREL’s John Sheehan, at this months Energy Analysis Brown Bag, ethanol production from corn is set to reach 4 billion gallons this year, and 7.4 billion gallons per year by 2011, based on current and planned production capacity.  (As an aside, on August 10, the Douglas County News-Press published a very pointed editorial from him on the travesty of IREA funding disinformation about global warming.)   Given that a bushel of corn will produce 2.8 gallons of ethanol, that will make ethanol demand for corn in the
US 1.4 billion bushels in 2006, and 2.6 billion bushels in 2011.  Since the annual corn production in the
US is around
11 billion bushels, ethanol production is already having a significant impact on the price of corn for food.

As Lester Brown, President of the Earth Policy Institute pointed out in the Aug 21 issue of Fortune(the particular article I’m referring to does not seem to be available online), the market is already setting the price of agricultural commodities at their oil equivalent value.

Unlike Lester Brown and John Sheehan, I think this will be a good thing for the world’s poor.  Yes, food prices will go up, but the poor are not only consumers of food; they are also producers and potential producers.  In the
US, the percentage of poor rural residents has been
consistently higher than the percentage of poor urban residents throughout the last 50 years.   In
Africa, the world’s poorest continent, farmers can often not make a living because they
cannot compete with subsidized first-world farmers.

If world food prices rise because of demand for biofuels, this may at last reverse a great injustice, where subsidies for first world farmers have prevented third world development.  Allowing myself to get wildly optimistic for a moment, if fuel demand permanently boosts agricultural commodity prices (which seems very likely), that might even open the way to removing subsidies for European and North American farmers.  The Doha round of world trade talks failed in large part because of rich world unwillingness to cut agricultural subsidies, which is a great shame, because cutting subsidies would be a great boon to first world taxpayers, as well as third world farmers.

I think the best way to play the biofuels boom as an investor is by betting on the trend of rising agricultural prices.  While large agricultural companies like ADM have already seen the benefits of this trend, the currencies of third world agricultural based economies should benefit, as well as the price of agricultural land in the US.  Much US farmland may benefit twice from renewable energy, since land in windy areas also has the opportunity to gain income from wind leases.  This was a large part of the theme of the Intermontain Harvesting Energy Summit I attended this spring.

On the downside, stimulating agricultural production can lead to deforestation.  Greenpeace can push for all the moratoriums it wants on soy from deforested areas, but that won’t keep soy oil or ethanol from deforested areas going into our tree-hugging gas tanks.  Global commodities, such as soy, corn, soy oil, and ethanol will just go to countries and companies who don’t participate in the boycott, removing their demand from the world market, and lowering the world price for everyone else.  This is the same principle we use in our favor when we buy Green Power: the actual electrons running my laptop are probably from a coal fired plant, no matter if I pay for green power or not.  What I’m actually purchasing with green power (in theory… may green power markets still have kinks that need to be worked out) is the fact that I’m stimulating green power production as much as I would if all my power actually did come from green sources.

Another worry about the rapidly rising biofuels capacity is distribution.  John Sheehan’s estimate of 7.4 billion gallons of ethanol in 2011, and 700 million gallons per year of biodiesel would amount to a around 5% of gasoline consumption and less than 2% of diesel consumption.  Since the current fleet of engines can run with no problem on 10% ethanol (in
Brazil “gas” typically contains
25% ethanol.), we would not need to use any E85 to use all the planned ethanol production.  Similarly, B20 can be used in all but the coldest parts of the country year round, so converting just 2% of diesel consumption to biodiesel could also be accomplished through existing distribution.

I find it likely that the constraints on biofuel production will come in the form of the price of the feedstock, which will be driven by oil prices.

While ethanol and biodiesel will be necessary parts of weaning us off our dependence on oil, current technologies cannot go very far to getting us there without a much greater push towards more efficient automobiles.  Raising average fuel economy by just 10% would reduce fuel use and greenhouse gas emissions over twice the amount the flat-out biofuels production we’re seeing will. 

We can easily double the fuel efficiency of our current fleet with a combination of plug in hybrids (powered by cheap wind) and more efficient engines.  Only when we’ve done that can we hope that cellulostic ethanol and biodiesel can start to supply our remaining fuel needs. 

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Why I Bought a Jeep

            First published on the Colorado Renewable Energy Society Website in April 2006.

            I started by looking at hybrids.  After all, I love my Prius to a degree most people reserve for friends, family, and pets.  While another Prius would not be big enough to haul the occasional sheet of plywood for my woodworking hobby, and lacked 4WD for


Denver snow, there are now four distinct hybrid SUVs on the market that would do quite nicely.

            So my wife and I looked at the Ford Escape and the Toyota Highlander. 

I did extensive web research.

We took test drives.

We got sticker shock.

Value for money is very important to me.  In fact, it is a central passion in my life.  As an investment advisor, I know that finding great companies is not particularly difficult.  Great companies are all around us.  Finding a great company that’s also a great value is another thing altogether, but that is where the real money in investment is made.

The problem with all the hybrid SUVs out there is that they are targeted at Blue Sun Libertythe luxury market.  Rather than using hybrid technology to primarily boost efficiency, the makers instead decided to focus on power.  The end results are fun to drive, but the relatively small boost to economy does not justify the increase extra $8,000 to $9,000 you can expect to pay when you leave the dealer’s lot.

At current gas prices, buying a hybrid SUV saves only about $0.02/mile, so the vehicle would have to last for about 450,000 miles to make back the extra cost of the vehicle, and that does not count the cost of replacing the battery pack once or twice in that time.  I believe that gas prices will continue to rise, but not enough to make the miniscule savings from a hybrid SUV justify the sticker price.

But what about the environmental benefits?  Were my wife and I doomed to squander our planet’s resources just because we wanted a roomy vehicle with four wheel drive?

Then I thought of diesel.  Diesel engines are more efficient than gasoline engines to begin with, and the newer “common rail” diesel (CRD) engines start quicker and create less particulates than the old diesel engines we remember from the last gas crisis.  Using B20, or 20% biodiesel, further reduces emissions, and since it comes from soy and canola, it is renewable, and the amount of energy necessary to make it is lower than the rather controversial ethanol.

While it is possible to cook up biodiesel from used cooking oil, I have neither the time nor confidence in my rusty chemistry skills to try that for myself.  Fortunately, we have a local company, Blue Sun, (www.gobluesun.com) that pays farmers to grow soy and canola for use in biodiesel, and sells it through about 15 gas stations throughout
Colorado, including in Denver, Boulder, Golden, Fort Collins, Colorado Springs, and Pueblo.  My only complaint about Blue Sun is that it’s private, so I can’t invest in it.

I would have to plan my fill ups (although I could use regular diesel in a pinch), but it would be quite possible to fill up with B20 most of the time, with a little planning.  As an added benefit, I would know I was aiding the distribution of a renewable energy technology.  My B20 purchases would encourage the expansion of the biodiesel-at-the-pump network, to the point where it wouldn’t just be compulsive renewable energy advocates like myself who fill up with B20.

I had a vision of a day when every gas station had a biodiesel pump, and diesel engines running on B20 were as popular as…, well, as popular as hybrids are today, with people paying way too much for them.

There was only one thing to do, and I looked up diesel SUVs on my favorite car research site, Edmonds.com, looked under diesel SUVs…And found the Hummer H1.

My heart sank… until I scrolled down the screen.

Below the Hummer, looking very out of place, was the Jeep Liberty.  Apparently Daimler decided to equip a few models from its recent Chrysler acquisition with their diesel engines.  It was a match made in renewable energy heaven, as far as I am concerned.

I ended up paying about $25K for my Jeep Liberty CRD, or about $8,000 less than I would have paid for a comparably equipped Ford Escape Hybrid (the
Toyota costs more.)  I’ll be spending about 50% more for fuel for the Jeep than I would be spending had I bought the Escape, but it will be 100,000 to 200,000 miles (depending on how quickly fuel prices rise) before the extra fuel costs add up to $8K. 

In addition, diesel engines last longer and need less maintenance than gasoline engines, and using biodiesel only adds to their longevity.  Hybrids, on the other hand, need an expensive battery pack replacement around 100,000 miles.

How does the diesel Jeep Liberty compare to the base model?  Fuel for the diesel engine costs about the same as gas for the standard V8, because B20 currently costs more than regular gas, although the diesel gets about 20% better mileage.   There are some savings in maintenance for a diesel engine over a gas engine, and the vehicle will probably last longer, but unless diesel prices fall, it probably won’t make up for the extra cost (about $2000… the diesel option costs more than that, but the current high cost of diesel fuel meant that the salesman was happy to get it off his lot, and I had more bargaining power.)

I paid about $2000 over the base model Jeep so I could feel good.  People buying Hybrid SUVs are also paying extra so they can feel good, too.  I think that’s wonderful, but even when you’re paying extra to feel good about your purchase, it’s important to keep in mind how much extra you are paying.

Is my Jeep better for the environment than the Escape I didn’t buy?  Probably not, but it’s not much worse, and I can leave that $8,000 I saved invested in one of my favorite renewable energy companies.  The earnings may even pay for that extra $.04 a mile I’m spending on B20… it would only require a 5% return if I drive 10,000 miles a year.

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Ethanol vs. Biodiesel

A new study from the university of Minnesota comparing the lifecycle energy costs and emissions of corn ethanol to soy biodiesel is all over the press this morning. 

The results are no surprise to any of us who follow the industry: corn ethanol yields 25% more energy than it takes to produce it; while soy biodiesel yields 93% more.

The numbers for ethanol ar not new: people have been arguing about the EROEI (Energy Return on Energy Invested) for ethanol for years, and the numbers have slowly risen with improving technology from about -10% to today’s 25%.  What are new, are the EREOI numbers for soy biodiesel.  I had only heard one number for the EREOI of “biodiesel” before – and no mention of the feedstock was made, nor was I able to trace it back to a reputable source… I suspect it was a back of the envelope calculation by a biodiesel advocate.  That number was a 220% return, quoted to me twice, once by management at Blue Sun Biodiesel, and once by the person manning the booth for the International Center for Appropriate and Sustainable Technology, both of whom do good work, but who have an incentive to believe this highest number they hear.  Disclaimer: I too have an incentive to believe the highest number I hear because I have a Jeep that I use biodiesel in to minimize my carbon emissions.   Using the new numbers, my Jeep Liberty has about the same carbon footprint as my 2002 Prius, when running on B100.  On B20, which I use in the winter, the Prius still looks much better.   I’m pining for a plug-in hybrid diesel.

But I’m very happy to see reality injected into the whole biofuels debate.  Neither ethanol not biodiesel (nor both together) is going to save the US from having to import petroleum: if our entire corn and soybean output were shifted to these biofuels, that would only replace about 12% of gasoline demand, and 6% of diesel demand… are we ready to start talking about massively investing in increasing the efficiency of our vehicles yet?

One other new note in the article, which I like given my affection for biodiesel, is that soy is a much less fertiliser intensive crop than corn, and so growing it has fewer local environmental impacts. I hope these authors continue their work, and expand the study to include other feedstocks for both ethanol (sugarcane, cellulostic) and biodiesel (canola, algae, recycled oil).

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