Biofuels Think outside the Barrel

Biofuels: Think outside the Barrel Vinod Khosla Jan 2006 1 Ver 3.2 Assertions for Alternative Fuels       We don’t need oil for cars & light trucks We definitely don’t need hydrogen! We don’t need new car/engine designs We don’t need new distribution systems Rapid (3-5 yrs) changeover of automobiles is possible! Shift has little cost to consumers, automakers, government 2 Not so Magic Answer: Ethanol Cheaper Today in Brazil! 3 Why Ethanol    Today’s cars & today’s fuel distribution Today’s liquid fuel infrastructure Leverages current trends    Flex-fuel vehicles proven in millions! Hybrid drivetrain compatible Leverages Lightweighting & improved efficiency of cars  Already part of fuel market through “blending”     Just add E85 fuel category (third pump!) Existing ethanol market in the billions & growing! Incremental introduction possible & UNDERWAY! Ethanol is cheaper than gasoline at current prices 4 Why Ethanol  Multiple Issues, One Answer    Cheaper fuel for consumers ($20b+ per NRDC) More energy security & diversified sources Significant (80%-95%) carbon emission reduction (with cellulosic ethanol)   Higher farm incomes & rural employment Faster GDP growth, Smaller Import Bill, Lower worldwide energy prices 5 Why Ethanol Significant Upside Today & Tomorrow         New Crop uses; Use agricultural waste Improved Crop yield Improved Process technology Bioengineered crops, enzymes,…. “economic/environmental/land use” upside thru technology/scale/… Multiple sources including “clean coal”, natural gas, animal waste… Custom ethanol engines: Higher performance than gasoline! Biodiesel & heavy trucks 6 Why Now  Brazil has “proven” model of ethanol    Low risk auto conversion model to FFV Initial fuel markets thru blending- reduced “production” risk Excess supply for “kick start” available from Brazil        High oil prices accommodate “startup” costs of ethanol Breakeven at scale likely to be ~$35/barrel Carbon considerations will further improve “economics” 20% /yr+ increase of US ethanol production already in process Significant increase in farm profits feasible - better use for farm subsidies 4m+ US FFV vehicles, 4b gals ethanol supply, blending in place,…. Many US car models available at same price (FFV or gasoline) 7 Flex Fuel Vehicles (FFV)          Almost no incremental cost to produce & low risk Confidence on fuel availability to consumers Easy switchover for automobile manufacturers 4 million+ FFV cars in the US today (to earn CAFE credits) Consumer choice: use EITHER ethanol or gasoline (no risk) Fully compatible with Hybrid cars Brazil “Proof”: new car sales from 4% FFV to ~70% in 3 years! Growth in ethanol use driven by low prices of ethanol Brazil: $50b on oil imports “savings” 8 Interest Groups  US Automakers: less investment than hydrogen; compatible with hybrids  Agricultural Interests: more income, less pressure on subsidies; new opportunity for Cargill, ADM, farmers co-operatives,…  Environmental Groups: faster & lower risk to renewable future; aligned with instead of against other interests  Oil Majors: equipped to build/own ethanol “factories”& distribution; lower geopolitical risk, financial wherewithal to own ethanol infrastruct.; diversification  Distribution (old & New): no significant infrastructure change; potential new distribution sources (e.g. Walmart) 9 Interest Groups: Action Items  US Automakers: regulatory relief 100% flex-fuel new car requirement in exchange for some  Agricultural Interests: 100% flex-fuel new cars but no tax on imported ethanol; “transfer” subsidies from row crops to energy crops (equivalent $/acre)  Environmental Groups: tax-credit for “cellulosic ethanol” & debt guarantees for new cellulosic ethanol technologies  Oil Majors: new business opportunity? Distribution (old & New): assist “ethanol third pump” strategy; promote ethanol distribution at destination sites (e.g. Walmart) & fleets 10  Prioritized Action Items           Require all cars to be Flex Fuel Vehicles (FFV’s) Require E85 ethanol distribution at 30% of gas stations Assist debt financibility of first 5 plants with any “new technology” Allow fleets to import ethanol without tax burden Require automakers to promote ethanol usage to get CAFÉ credit Switch subsidies (same $/acre) from existing to energy crops Allow carbon credits for cellulosic ethanol Fully fund current legislation & reduce earmarks! Fund future demand with improved efficiency requirements! Establish early demand by creating “strategic ethanol reserve” 11 RISK: Oil vs. Hydrogen vs. Ethanol Oil Hydrogen Low Med-High Very High Very High Med-Low Very High High Biofuels Low Low Low Low Low Low Low Energy Security Risk Cost per Mile Infrastructure Cost Technology Risk Environmental Cost Implementation Risk Interest Group Opposition High Med Very Low Very Low Very High Very Low Very High Political Difficulty Time to Impact ? - High Very high Low Low 12 Objections  Land Use       Traditional numbers cited are for “corn” ethanol NRDC 2050 estimate: 114m acres required for our needs Ceres Corp Estimate: 100m+ acres of export crop & CRP lands available DOE Study estimates availability of 1.3 billion tons of biomass Conversion of 73m acres to soybeans “proves” ability to switch land use Woolsey/Shultz estimate of 60m acres (Rocky Mountain Institute estimate)  Energy Balance (Energy OUT vs. IN) “Corn” ethanol numbers ~1.2-1.8X ….but reality from non-corn ethanol is…  Sugarcane ethanol (Brazil) ~8X  Cellulosic ethanol ~4-8X  Petroleum energy balance at ~0.75   Environmental pollution    E85 better in most respects E10- gasoline has acceptable emissions performance in newer vehicles & FFV’s E10- gasoline better than MTBE+Gasoline today 13 Land Use 14 Land Use: Reality  NRDC: 114m acres can meet our transportation fuel needs in 2050   Assumes “only” 2X switch grass yield improvement (10 tons/acre) Assumes ethanol production @100 gals/dry ton of feedstock  Jim Woolsey/ George Shultz (Rocky Mountain Institute) estimate 60m acres 73m acres of soybean– can be used for co-production of ethanol & animal protein    Lee Lynd: “Re-imagine agriculture to accommodate energy production” Replace export lands with “import replacement” lands  20 tons/acre x 100gals/ton x 39m acres =78 b gals/yr from CRP lands!    Miscanthus (www.bical.net or www.aces.uiuc.edu/DSI/MASGC.pdf) New Energy crops (www.ceres.net ) 39m acres of CRP Lands  Agricultural waste products & animal waste   Lee lynd: “Using Currently Managed Lands for Energy Production” Thermochemical Ethanol from municipal sewage/ coal/ animal waste 15 Land Use: Reality  New Feedstocks – Miscanthus, Switchgrass,…  NRDC Estimates : Growing Energy Report Prof Lee Lynd: “Bioenergy from Currently Managed Lands” DOE Report: “ Potential for Billion Tons of Biomass “ Futures: New Approaches, New Technologies     Prof. Lee Lynd: Re-imagining Agriculture  Ceres – New technology Approaches 16 Switch Grass as Feedstock         Natural prairie grass in the US Enriches soil carbon content; less fertilizer; less pesticide Less water pollution (nitrogen runoff) Dramatic reduction in CO2 , other reductions More biodiversity in switchgrass fields (vs. corn) Dramatically less topsoil loss compared to corn fields Significant potential for improvement of switchgrass crops High potential for co-production of animal feed  Currently ~50% of all agricultural land use  Minimal extra land required for fuel production …and other varied crop possibilities exist …the worlds best agricultural lands were once grasslands 17 Miscanthus as Feedstock? 20 tons/acre? (www.bical.net) 10-30 tons/acre (www.aces.uiuc.edu/DSI/MASGC.pdf) 18 Economics of Miscanthus Farming 19 Source: http://www.aces.uiuc.edu/DSI/MASGC.pdf Characteristics of an Ideal Crop: Miscanthus 20 Source :http://www.aces.uiuc.edu/DSI/MASGC.pdf Bioenergy From Currently Managed Lands   Expanded use of winter cover crops & breeding of new (winter & rotation) crops Harvest of agricultural residues, particularly in conjunction with multi-year crop rotations.    Substitute crops that provide food/feed while also providing feedstocks for energy production. Breeding crops to increase co-production of cellulosic feedstocks. (soybeans 2->5 tons/acre) Changed cultivation practices for existing crops to increase recovery of cellulosic residues. (reduced till or no till; rotation of corn with grasses; etc) Increases in productivity of crops, making currently-managed lands avail for bioenergy. Changes in demand for exports (+ or -). Pretreatment of cellulose-rich biomass to make calories more available to feedlot animals Increased hay productivity on underutilized pasture land. Increased hay production/harvest from CRP land.        Recovered forest residues, potentially in relation to prevention of catostrophic fires. Dietary change 21 Source: Lee R. Lynd, “Producing Cellulosic Bioenergy Feedstocks from Currently Managed Lands;” October 7, 2005 Three Important Sources  Stovers: 250m tons  Winter Crops: 300m tons Soybeans: 350m tons Production of corn stover and stalks from other grains (wheats, oats) totals well over 250 million dry tons. A combination of different crop rotations and agricultural practices (e.g. reduced tillage) would appear to have potential for a large fraction of these residues to be removed. For example, although complete removal of corn stover would result in a loss of about 0.26 tons of soil carbon per year, cultivation of perennial crops (e.g. switchgrass, Miscanthus) adds soil carbon at a substantially higher rate. Thus, a rotation of switchgrass and corn might maintain or even increase soil fertility even with 100% stover removal. This, however, brings up questions about the length of time land might be grown in each crop, since switchgrass would benefit from longer times to distribute the cost of establishment while corn would benefit from short times to maintain productivity and decrease losses due to pests. It is likely that some crop other than switchgrass as it exists today would be best for incorporation into a relatively high frequency rotation with corn. Targets for crop development could be identified and their feasibility evaluated. Winter cover crops grown on 150 million acres (@2tons/acre) = 300 million tons of cellulosic biomass. In recent years, U.S. soybean production has averaged about 1.2 tons of dry beans per acre annually. Given an average bean protein mass fraction of about 0.4, the annual protein productivity of soybean production is about 0.5 tons protein per acre. Perennial grass (e.g. switchgrass) could likely achieve comparable protein productivity on land used to grow soybeans while producing lignocellulosic biomass at about a rate of about 7 dry tons per acre annually. The limited data available suggest that the quality of switchgrass protein is comparable to soy protein, and technology for protein extraction from leafy plants is rather wellestablished. The 74 million acres currently planted in soybeans in the U.S. could, in principle, produce the same amount of feed protein we obtain from this land now while also producing over 520 million tons of lignocellulosic biomass. Alternatively, if new soy varieties were developed with increased above-ground biomass (option 4, Table 1), this could provide on the order of 350 million tons of lignocellulosic biomass – although soil carbon implications would have to be addressed. 22 Source: Lee R. Lynd, “Producing Cellulosic Bioenergy Feedstocks from Currnently Managed Lands,”  Potential for Billion Tons of Biomass “In the context of the time required to scale up to a large-scale biorefinery industry, an annual biomass supply of more than 1.3 billion dry tons can be accomplished with relatively modest changes in land use and agricultural and forestry practices” Technical Feasibility of a Billion-Ton Annual Supply US Department of Energy Report , April 2005. http://www.eere.energy.gov/biomass/pdfs/final_billionton_vision_report2.pdf …. Or a 100billion++ gallons per year! 23 24 Biomass Will Make a Difference Turning South Dakota into… Today Farm acres Tons/acre Gallons/ton Thousand barrels/day 44 Million Tomorrow 44 Million 15 80 3,429 UAE Kuwait Iraq Libya Qatar 2,478 2,376 2,011 1,515 Saudi …a member of OPEC?! Thousand barrels/day 9,101 3,429 2,509 5 60 857 South Dakota Nigeria 818 …or ~30% of U.S. transportation fuel supply!! Source: Ceres Company Presentation 25 Land Is Not Scarce US Acreage Total = 2,300M acres U.S. Cropland Unused or Used for Export Crops 120 100 CRP Cotton Millions of acres Other 460 Crop 480 Forest 760 80 60 40 Soybean Wheat Range 600 20 Corn 0 In 2015, 78M export acres plus 39M CRP acres could produce 384M gallons of ethanol per day or ~75% of current U.S. gasoline demand 26 Source: Ceres Company Presentation 20 04 /0 5 20 05 /0 6 20 06 /0 7 20 07 /0 8 20 08 /0 9 20 09 /1 0 20 10 /1 1 20 11 /1 2 20 12 /1 3 20 13 /1 4 20 14 /1 5 Farmers Are Driven By Economics Per acre economics of dedicated biomass crops vs. traditional row crops Biomass Grain yield (bushel) Grain price ($/bushel) N/A N/A Corn 162 $2 Wheat 46 $3 Biomass yield (tons) Biomass price ($/ton) Total revenue Variable costs 15 $20 $300 $84 2 $20 $364 $168 2 $20 $178 $75 Amortized fixed costs Net return Source: Ceres Company Presentation $36 $180 $66 $120 $36 $57 27 Biomass as Reserves: One Exxon every 10 yrs!! 1 acre 100M acres = = 209 barrels of oil* 20.9 billion barrels Proven Reserves (billion barrels) Exxon Mobil BP Royal Dutch Shell Chevron Conoco Phillips * Assumes 10 yr contract Source: Energy Intelligence (data as of end of 2004) 22.20 18.50 12.98 9.95 7.60 28 ; Ceres Company Presentation Energy Balance & Fossil Fuel Use Reductions 29 Fossil Fuel Use Legend EtoH Allo. Disp. = Ethanol = Allocation = Displacement 30 Well-to-Tank Energy Consumption BTU per Million BTU Fuel Delivered Petroleum Natural Gas 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Renewable/ Electricity Non-Fossil Fossil G M er et Tr Co ha op m no sc pr l h es Di se es d el Hy Li dr qu og El id ec en Hy tro dr ly og si s en Hy dr E8 og 5 en (c Et el ha lu no lo l( se ce ) l lu lo se ) Di es el Na pt ha lin e G as o Fi sc h CN 31 Source: “Well-To-Wheel Energy Consumption and Greenhouse Gas Analysis”, Norman Brinkman, GM Research & Development Petroleum & Fossil Fuel Reduction Benefits 32 33 Environmental Issues 34 Environmental issues  Carbon emission reduction of 80%++ for light transportation Zero sulphur, low carbon monoxide, particulate & toxic emissions Co-production of animal protein & cellulosic biomass     Allows existing cropland to produce our energy needs Reduces cost of animal feed & energy  Energy Crops (Switchgrass): Carbon enrichment of soil (immediate)     2-8X lower nitrogen run-off 75-120X lower topsoil erosion (compared to corn) 2-5X more bird species Resistant to infestation & disease; lower pesticide use  Potential for coal ethanol as supplementary source (“Clean coal”) 35 Well-to-Wheel Greenhouse Gases g CO2/mile (fuel production and vehicle) 800 600 Petroleum Tank-to-Wheel Well-to-Tank Natural Gas Renewable/ Electricity Better 400 200 0 36 Source: “Well-To-Wheel Energy Consumption and Greenhouse Gas Analysis”, Norman Brinkman, GM Research & Development 37 Emission Levels of Two 2005 FFVs (grams per mile @ 50,000 miles) Vehicle Model Fuel NOx (CA std.=0.14) 0.03 0.02 0.01 NMOG (CA std.=0.10) 0.047 0.049 0.043 CO (CA std. =3.4) 0.6 0.9 0.2 2005 Ford Taurus E85 Gasoline 2005 MercedesBenz C 240 E85 Gasoline 0.04 0.028 0.3 source: California Air Resources Board, On-Road New Vehicle and Engine Certification Program, Executive Orders; http://www.arb.ca.gov/msprog/onroad/cert/cert.php 38 Ethanol Blends: Emissions •E6 (low ethanol blends) •Low Nox in modern vehicles with oxygen sensors (higher in older vehicles) •Increased RVP and increased VOC’s (and hence ozone formation) •Increased permeation emissions in older vehicles •Reduced CO emissions (not enough to offset increased ozone via VOC’s) …but •Reduced permeation emissions ( thicker hoses & plastics) in newer vehicles •California Low Emissions Vehicle II program reduces permeation and evaporative emissions (part of 2007 Federal Law) •E85 •Low Evaporative emissions (Lower RVP) •Expected Low Permeation emissions in FFV’s •Low Nox in modern vehicles with oxygen sensors … reasons to not like ethanol are disappearing! Source: Personal Communications 39 Fuel Issues  E10 Usable in today’s engine  Meets most emissions requirements E85  Easy switch  60-80%+ reduction of carbon emissions (vs. gasoline)  Exceeds hydrogen fuel cell carbon reductions Continuous production technology improvements likely  Cost  Sources  Environmental 40   More Technology to Come…. “Changes that will have effects comparable to those of the Industrial Revolution and the computer-based revolution are now beginning. The next great era, a genomics revolution, is in an early phase. Thus far, the pharmacological potentials of genomics have been emphasized, but the greatest ultimate global impact of genomics will result from the manipulation of the DNA of plants. Ultimately, the world will obtain most of its food, fuel, fiber, chemical feedstocks, and some of its pharmaceuticals from genetically altered vegetation and trees." Philip H. Abelson, Editor Science, March 1998 41 Technology Improvements  Bioengineering   Enzymes Plant engineering  Energy crops     Switch grass Poplar Willow Miscanthus  Co-production of animal protein & cellulose/hemi-cellulose Process & Process Yields       Process Cost Pre-treatment Co-production of industrial chemicals to reduce net fuel costs Process Yield gals/dry ton Consolidated bioprocessing  Other: “out of the box” technologies 42 Ceres: What one company is doing… 43 Ceres’s Traits Address all Parts of Equation Parts of the Equation   Ceres Traits & Technologies    Acres Tons per acre Tolerance to chronic and acute drought Drought recovery High salt tolerance Tolerance to heat shock 50% improvement in seedling growth under cold conditions 500% increase in biomass in arabidopsis in the greenhouse 300% increase in rice in the field 30% increase in CO2 uptake (a measure of photosynthetic effic.) Significant reduction in required nitrogen 20% improvement in photosynthetic efficiency on low nitrogen 5% increase in root biomass Decreased lignin Increased cellulose Proprietary gene expression system Strong constitutive promoters Tissue specific and inducible promoters Up to 80-fold increase in desired plant metabolites Ability to express entire metabolic pathways in plants    Dollars per acre Gallons per ton Capital & Vari. cost         Co-products Source: Company Presentations   44 Expanding Usable Acreage… Drought tolerance Heat tolerance Cold germination Drought recovery Drought Inducible Promoters Salt tolerance 45 Source: Company Presentations Increasing Tons per Acre… CO2 uptake Light density Photosynthetic Efficiency Increased biomass Flowering time Shade tolerance Stature control Herbicide tolerance 46 Source: Company Presentations Reducing Dollars per Acre… Nitrate Content in Shoots 4 3.5 Control Transgenic N (ng/ mg DW) 3 2.5 2 1.5 1 0.5 0 * * 1 2 Time Point * p < 0.001 Nitrogen partitioning Nitrogen uptake Photosynthetic efficiency under low nitrogen Increased root biomass 47 Source: Company Presentations Increasing Gallons per Ton… Gallons of ethanol per dry ton of feedstock* Hemp Stover Switchgrass Sorghum sudangrass Dahurian wild rye Big blue stem German millet Prairie sand reed Canada wild rye Hybrid millet Reed canary grass Tall fescue Orchard grass Basin wild rye Blue joint reed grass Jerusalem artichoke 0 20 40 60 80 100 120 Composition (How much carbohydrate is there?) Plant structure (How easy is it to access and digest?) *Data represents theoretical yields as reported by Iogen 48 Source: Company Presentations Reducing Cost Through Enzyme Production… Target Line UASn Trait Protein Sterility Factor Activation Line UAS Marker UASx Sterility X P1 Promoter T Fluorescent marker Transcription factor Ceres’ proprietary gene expression system Flower Seed Stem Leaf Root Ceres promoter Industry standard promoter Tissue-specific promoters 49 Source: Company Presentations Ceres : Developing Commercial Energy Crops Generating Plant Material for DNA Libraries to be Used in Molecular Assisted Breeding Transformation with Ceres’ Traits Embryogenic callus 1 day after trimming Shoot regenerated from callus Plant regeneration Re-growth after 15 days Ceres expects to have proprietary commercial varieties ready for market in 2-3 years and transgenic varieties in 5-7 Source: Company Presentations 50 Other Technology Companies…         Genecore Novazyme Diversa Iogen BCI Mascoma Canavialis (www.canavialis.com.br): ….???? 51 Hydrogen vs. Ethanol Economics  Raw Material Costs: cost per Giga Joule (gj)   Electricity @$0.04/kwh = $11.2/gj (Lower cost than natural gas) Biomass @$40/ton = $2.3/gj (with 70% conversion efficiency)      Hydrogen from electricity costly vs. Ethanol from Biomass Hydrogen from Natural Gas no better than Natural Gas Cost multiplier on hydrogen: distribution, delivery, storage Higher fuel cell efficiency compared to hybrids not enough! Hydrogen cars have fewer moving parts but more sensitive, less tested systems and capital cost disadvantage 52 Reference: The Future of the Hydrogen Economy ( http://www.oilcrash.com/articles/h2_eco.htm#8.2 ) Hydrogen vs. Ethanol          Ethanol: US automakers balance sheets ill-equipped for hydrogen switchover Ethanol: No change in infrastructure in liquid fuels vs. gaseous fuels Ethanol: Current engine manufacturing/maintenance infrastructure Ethanol: switchover requires little capital Ethanol: Agricultural Subsidies are leveraged for social good Ethanol: Faster switchover- 3-5 years vs 15-25yrs Ethanol: Low technology risk Ethanol: Incremental introduction of new fuel Ethanol: Early carbon emission reductions 53 Strategy & Tactics          Choice: Oil imports or ethanol imports? GDP – “beyond food to food & energy “ rural economy Add $5-50B to rural GDP Better use for subsidies through “energy crops” Rely on entrepreneurs to increase capacity Rely on biotechnology & process technology to increase yields …. Increased ethanol use mandates already in place ~ 20% /yr production capacity increase plans already in process! Ethanol fuel cells possibly after ethanol distribution is place (if needed) 54 Brazil: A Role Model 55 Can Rapid Adoption of FFV Happen? Brazil: FFV Market Share of Light Vehicle Sales 50% in May’05 ….from 4% in early 2003 to 70% in Dec. 2005!!! 56 Ethanol: Learning Curve of Production Cost 100 Market Conditions Ethanol (producers BR) ( Oct. 2002) US$ / GJ 1980 1986 1996 1990 2002 1993 10 1999 Gasoline (Rotterdam) 1 0 50000 100000 150000 200000 Accumulated Ethanol Production ( 1000 m3) 250000 57 (J Goldemberg, 2003) Brazil sugar-cane/ethanol learning curve Liters of ethanol produced per hectare since between 1975 to 2004 Rendimento Agroindustrial – Brasil (em litros de álcool hidratado equivalente por hectare) 6500 6000 5500 5000 4500 4000 3500 3000 2500 2000 1500 2024 5931 ?? +3,77% aa em 29 anos 08 Nov 2005 19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 Fonte: Datagro Nastari / Datagro @ Proálcool 30 anos 11 58 Consumer Price Ratio 72,00% * São Paulo (SP) Percentage: Hydrated x Gasoline 67,00% 62,00% 57,00% 52,00% 47,00% 42,00% 37,00% Ja n/ 01 M ar /0 1 M ai /0 1 Ju l/0 1 Se t /0 N 1 ov /0 1 Ja n/ 02 M ar /0 2 M ai /0 2 Ju L/ 02 Se t /0 N 2 ov /0 2 Ja n/ 03 M ar /0 3 M ai /0 3 Ju l/0 3 Se t /0 N 3 ov /0 3 Ja n/ 0 M 4 ar /0 4 M ai /0 4 Ju l/0 4 Se t /0 N 4 ov /0 4 Ja n/ 05 M ar /0 5 M ai /0 5 59 Source: Honorable Roberto Rodrigues, Minister of Agriculture, Brazil SOURCE: MAPA (Assessing Biofuels Conf., June 2005) Brazil: Ethanol Facts  Employment: Gasoline/Ethanol is 22:1 (BrazilANFAVEA) Ethanol ~40% of total consumption of spark ignition cars (non-diesel) VW planning on a phase out of all gasoline cars in 2006? Canavialis (www.canavialis.com.br): plant genetics company developing an "energy cane" (more cellulose, less sucrose) 60    Bioethanol – Relative Production Cost Bioethanol Production Cost 1.40 1.20 1.00 fuel tax EUR/L 0.80 0.60 0.40 0.20 0.00 sugarcane gasoline (Aug05) USA Brazil USA EU Germany Spain UK gasoline (Sep05) EU corn sugar beet & sugar beet & corn & sugar wheat 61 Source: The Economist, New Energy Finance, DOE, UK Petroleum Industry Association (via: Imprimatur Capital) BioDiesel – Production Cost Biodiesel production cost 1.20 1.00 0.80 fuel tax EUR/L 0.60 0.40 0.20 0.00 used cooking oil used coolking oil rapeseed rapeseed soya bean Germany Spain sunflower UK Baltics USA USA diesel (Aug05) USA diesel (Sep05) EU 62 Source: The Economist, New Energy Finance, DOE, UK Petroleum Industry Association (via: Imprimatur Capital) Status: United States 63 Ethanol Capacity Expansion is Underway 64 Ethanol FFVs Are Here! California’s Motor Vehicle Population Vehicle Type Gasoline Diesel Ethanol FFV Hybrid gas/ elec CNG Electric LPG/ other H2 Light-Duty 24,785,578 391,950 257,698 45,263 21,269 14,425 538 13 Heavy-Duty 372,849 471,340 -- -- 5,401 806 1,172 -- source: California Energy Commission joint-agency data project with California Department of Motor Vehicles. Ethanol FFV data as of April 2005; all other data as of October 2004. 65 Costs Wet Mills Electricity & Fuel Dry Mills $0.131/gallon Overalll Weighted Average $1.118/gallon $0.112/gallon Operating Labor, Repairs and Maintenance Yeast, Enzymes, Chemicals and Other $0.124/gallon $0.114/gallon $0.038/gallon $0.072/gallon $0.46/gallon $0.48/gallon $0.10-$0.20 $0.109/gallon $0.090/gallon $0.037/gallon $0.051/gallon $0.42/gallon $0.53/gallon $0.10-$0.20 Administration, Insurance and Taxes All Other Costs Total Cash Costs Combined with Net “NET” cost of corn Depreciation (plant & Equip) $0.94/gallon Note: Capital costs of ethanol production are estimated to be between $1.07/gallon to $2.39/gallon, varying with facility type, size, and technology. 66 Source: Encyclopedia of Energy (Ethanol Fuels , Charlie Wyman) Ethanol vs. Gasoline 6 Comparative Results Between Ethanol and Gasoline Are More Relevant to Policy Debate 0.74MBTU Fossil Energy/1MBTU out $80/ton of corn (100gal ethanol) = $0.20/gal raw material costs 1.23\MBTU Fossil Energy/1MBTU out $60/barrel of oil (42 gals) = $1.43/gal raw material costs 67 Source: Prof. Dan Kammen (UC Berkley, Michael Chang (Argonne) Cost of Ethanol vs. Price of Gasoline ($ per gallon of gasoline equivalent) 2.5 ~$2 2 1.5 1 0.5 0 ~$1.60 ~$1.30 wholesale gasoline price U.S. ethanol (production cost) Brazilian ethanol (production cost) 1 gallon gasoline “equivalent” fuel = 1.3 gallons of ethanol 68 Source: Worldwatch Institute U.S. Ethanol Production Facilities Source: Renewable Fuels Association 69 U.S. Fuel Ethanol Production Capacity (Dec 2004) U.S. FUEL ETHANOL PRODUCTION CAPACITY DECEMBER 2004 # of Capacity Locations Ownership (million GPY) 7 Corp. 1,070 2 Corp. 140 2 Corp. 118 3 Corp. 110 1 Corp. 100 1 Corp. 100 2 Corp. 78 1 Corp. 67 1 Corp. 62 1 Farmer 52 Only 1 36 of the 60 Total: 1,694 producer has are farmer- Range: 50 - 0.7 more than 1 owned Mean: 28 Median: 30 82 3,582 16 754 98 4,336 % of Existing Capacity 29.9% 3.9% 3.3% 3.1% 2.8% 2.8% 2.2% 1.9% 1.7% 1.5% 47.0% Rank Company/Producer 1 ADM 2 Aventine Renewable Energy 3 Cargill, Inc. 4 Abengoa Bioenergy Corp. 5 New Energy Corp. 6 VeraSun Energy Corporation 7 MGP Ingredients, Inc. 8 Tate & Lyle 9 Chief Ethanol 10 AGP 11-70 Remaining 60 companies/producers Total Existing Capacity Total Under Construction 1 Total Capacity 2005-2006 100.0% Source: Renewable Fuels Association 70 U. S. Ethanol Production Capacity Under Construction (Dec 2004) U.S. ETHANOL PRODUCTION CAPACITY - UNDER CONSTRUCTION DECEMBER 2004 Capacity Rank Company/Producer Location Ownership (million GPY) 1 VeraSun Energy Corp. Ft. Dodge, IA Corp. 110 2 Central Iowa Goldfield, IA Farmer 50 3 Illinois River Energy Rochelle, IL Corp. 50 4 Lincolnway Energy Nevada, IA Farmer 50 5 Northstar Ethanol Lake Crystal, MN Corp. 50 6 Voyager Ethanol Emmetsburg, IA Farmer 50 7 Granite Falls Energy Granite Falls, MN Corp. 45 8 Amaizing Energy Denison, IA Corp. 40 9 Bushmills Ethanol Atwater, MN Farmer 40 10 Mid-Missouri Energy Malta Bend, MO Farmer 40 11 United WI Grain Producers Friesland, WI Farmer 40 12 Western Wisconsin Boyceville, WI Farmer 40 13 East Kansas Agri-Energy Garnett, KS Farmer 35 14 Panhandle Energies Dumas, TX Corp. 30 15 Pine Lake Corn Processors Steamboat Rock, Farmer 20 IA 16 Liquid Resources of Ohio Medina, OH Corp. 4 Total Under Construction 754 Total Existing Capacity 3,582 Total Capacity 2005 - 2006 4,336 Source: Renewable Fuels Association 71 Energy Bill 2005 72 The Numbers     Ethanol cost today: ~$0.75/gal (Brazilian ethanol wholesale) E85 “gasoline equivalent” blended cost: ~$1.30/gal (US) Gasoline cost ~$2.00/gal wholesale Long term ethanol price potential of $0.60 “gasoline equivalent” NRDC 2050 Forecast: 165 billion gals of ethanol from existing cropland while meeting current agricultural needs!   $40/ton of extra income for farmers for waste biomass – lower government subsidies for price support (5-12 tons/acre yield) 73 STATES CAN HELP Example: Pennsylvania  Ethanol off-take contracts at $1.25/gal for 10 years (vs. today's gasoline @~$2/gal)  Providing Demand aggregation  Providing debt to assist biofuel plant financing Providing feedstock price guarantees / contracts  74 Unfair Expectations?  Level of “cleanliness” too high for biofuels : better than petroleum or “100% Pure” Level of “domestic supply expectations” : why a 100% domestic supply initially when petruleum is imported? Agricultural standards too high: far more rigorous debate on new crops than on traditional crops?    Debate on subsidy on ethanol but not on the tax on cheapest worldwide ethanol supply (Brazilian)? 75 Non-Transportation Impacts of Ethanol  Coal & “Clean Coal” Biofuels impact on oil prices Fuel Cells & Stationary Power   76 References  NRDC Report: “Growing Energy” (Dec 2004) http://soilcarboncenter.k-state.edu/conference/carbon2/Fiedler1_Baltimore_05.pdf George Schultz & Jim Woolsey white paper “Oil & Security” Rocky Mountain Institute: “Winning the Oil Endgame” http://www.unfoundation.org/features/biofuels.asp http://www.transportation.anl.gov/pdfs/TA/354.pdf The Future of the Hydrogen Economy ( http://www.oilcrash.com/articles/h2_eco.htm#8.2 ) Fuel Ethanol: Background & Public Policy Issues (CRS Report for Congress, Dec. 2004)        77 Comments? Vinod Khosla vkhosla@kpcb.com 78 ETHANOL: MARKET PERSPECTIVE Luiz Carlos Corrêa Carvalho Sugar and Alcohol Sectorial Chamber, Ministry of Agriculture, Brazil Assessing the Biofuels Option Joint Seminar of the International Energy Agency, the Brazilian Government and the 79 United Nations Foundation Paris, 20 – 21 June 2005 Consumer Prices Ratio* * São Paulo (SP) 72,00% Percentage: Hydrated x Gasoline 67,00% 62,00% 57,00% 52,00% 47,00% 42,00% 37,00% Ja n/ 01 M ar /0 1 M ai /0 1 Ju l/0 1 Se t /0 N 1 ov /0 1 Ja n/ 02 M ar /0 2 M ai /0 2 Ju L/ 02 Se t /0 N 2 ov /0 2 Ja n/ 03 M ar /0 3 M ai /0 3 Ju l/0 3 Se t /0 N 3 ov /0 3 Ja n/ 0 M 4 ar /0 4 M ai /0 4 Ju l/0 4 Se t /0 N 4 ov /0 4 Ja n/ 05 M ar /0 5 M ai /0 5 80 Source: Honorable Roberto Rodrigues, Minister of Agriculture, Brazil SOURCE: MAPA (Assessing Biofuels Conf., June 2005 Current Situation  Acohol-gasoline mixture set to 25% since July, 2003.  The automotive industry has launched “flexible-fuel cars” in March, 2003. Advantage to alcohol consumption if oil prices are above US$ 35 / per barrel.  Total consumption: ~ 200,000 barrels / day of equivalent gasoline (30,000 gas-stations).   ~ 40% of total consumption of spark ignition cars (Otto Cycle Engines). May, 2005: for the first time, flexi-fuel vehicles sales exceeded gasolinefueled vehicle sales, 49.5% against 43.3%.  Source: Honorable Roberto Rodrigues, Minister of Agriculture, Brazil (Assessing Biofuels Conf., June 2005 81 Comparative Energy Balance Raw Material Corn Switchgrass Sugarcane Total Energy Ratio 1,21 4,43 8,32 82 Source: Leal, Regis, CO2 Life Cycle Analysis of Ethanol Production and Use, LAMNET, Rome, may 2004 LIFE CYCLE GHC EMISSIONS IN ETHANOL PRODUCTION AND USE Kg CO2 equiv./ t cane Average Emissions Avoided Emissions Net Avoided Emissions Anhydrous Ethanol 34,5 255,0 220,5 Best Values 33,0 282,3 249,3 2,6 to 2,7 t CO2 equiv./m3 ethanol 83 Source: Leal, Regis, CO2 Life Cycle Analysis of Ethanol Production and Use, LAMNET, Rome, may 2004 Ethanol: LEARNING CURVE 100 (J Goldemberg, 2003) Market Conditions Ethanol (producers BR) ( Oct. 2002) US$ / GJ 1980 1986 1996 1990 2002 1993 10 1999 Gasoline (Rotterdam) 1 0 50000 100000 150000 200000 Accumulated Ethanol Production ( 1000 m3) 250000 84 ETHANOL AND EMPLOYMENT ( IN THE PRODUCTION OF THE VEHICLE AND OF FUEL) VEHICLES RATIO OF EMPLOYMENTS ETHANOL “C” GASOLINE “A” GASOLINE 21,87 6,01 1 Considering that an ethanol driven vehicle consumes, on average, 2.600 litres of ethanol per year ( one million litres of ethanol, per year, generates 38 direct jobs );for gasoline, spends 20% less fuel ( one million litres of gasoline, per year, generates 0,6 direct jobs); “C” gasoline contains 25% ethanol. Source: Copersucar/Unica/ANFAVEA/PETROBRAS 85 86 The Ethanol application as vehicular fuel in Brazil. Brazilian Automotive Industry Association - ANFAVEA Energy & Environment Commission Henry Joseph Jr. 87 Brazil: FFV Market Share of Light Vehicle Sales ….from 4% in early 2003 to 67% in Sept. 2005 88 89 3. Brazilian Domestic Production of Vehicles Passenger Cars, Light Commercials, Trucks and Buses 14 12.1 12 2003 10.3 10 1.000.000 units 8 6 Brazil: 10th World Production 1.828.000 vehicles / year 5.5 4.4 3.2 3.0 4 3.6 2.5 1.8 1.3 1.3 1.2 2 1.6 0.9 Belgium 0 Japan India S. Korea Canada France Germany Source: AAMA, OICA, ANFIA, IMT, INA, ANFAVEA, SMMT, Mexico Russia Turkey China Spain Brazil USA Italy UK 0.5 Vehicle Modifications Carburetor The material of the carburetor body or carburetor cover cannot be aluminum or exposed Zamak; if it is, must be substituted, protect with surface treatment or anodize; Any component in polyamide 6.6 (Nylon) that has contact with the fuel must be substituted by other material or protected; Engine The engine compression ratio should be higher; Camshaft with new cam profile and new phase; New surface material of valves (intake and exhaust) and valve seats. Intake Manifold With new profile and less internal rugosity, to increase the air flow; Must provide higher intake air temperature. Fuel Tank If the vehicle fuel tank is metallic, the internal surface of tank must be protected (coated); Any component in polyamide 6.6 (Nylon) that has contact with the fuel must be substituted by other material or protected. Higher fuel tank capacity, due to the higher fuel consumption. The material of buoy, nozzle, metering jet, floating axle, seals, gaskets and o-rings must be appropriated. Catalytic Converter Electronic Fuel Injection Substitution of fuel injector material by stainless steel; New fuel injector design to improve the “fuel spray”; New calibration of air-fuel ratio control and new Lambda Sensor working range; Any component in polyamide 6.6 (Nylon) that has contact with the fuel must be substituted by other material or protected. It is possible to change the kind and amount of noble metal present in the loading and wash-coating of catalyst converter; The catalyst converter must be placed closer to the exhaust manifold, in order to speed up the working temperature achievement (light-off). Exhaust Pipe The internal surface of pipe must be protected (coated); The exhaust design must be compatible with higher amount vapor. Fuel Pump The internal surface of pump body and winding must be protected and the connectors sealed; Any component in polyamide 6.6 (Nylon) that has contact with the fuel must be substituted by other material or protected. The pump working pressure must be increased. Fuel Pressure Device The internal surface of the fuel pressure device must be protected; Any component in polyamide 6.6 (Nylon) that has contact with the fuel must be substituted by other material or protected. The fuel pressure must be increased. Motor Oil New additive package. Cold Start System Auxiliary gasoline assisted start system, with temperature sensor, gasoline reservoir, extra fuel injector and fuel pump; Fuel Filter The internal surface of the filter must be protected; The adhesive of the filter element must be appropriated; The filter element porosity must be adjusted. Ignition System New calibration of advance control; Colder plugs. heat rating spark Evaporative Emission System Due to the lower fuel vapor pressure, it is not necessary evaporative emission control. The vehicle battery must have higher capacity. (Otto Engines) 91 8. Relative Performance of Ethanol Engines 140 120 100 110.0 % 106.4 % 80 103.2 % 105.3 % 103.3 % 40 20 0 Power Torque Max Speed Acc Time (0~100 km/h) 89.3 % 60 102.1 % Consumption (L/100km) Gasoline 0% Gasohol 22% Ethanol 100% 92 105.5 % 95.5 % 129.4 % 10. Comparative Raw Exhaust Emission 120 100 104 80 85 60 80 86 40 51 20 53 0 CO HC NOx Gasoline 0% Gasohol 22% Ethanol 100% 93 15. Comparative Aldehyde Emission 500 450 400 350 300 250 200 150 100 50 0 RAW AFTER CAT Gasoline 0% Gasohol 22% Ethanol 100% 94 16. Comparative Evaporative Emission 120 100 80 60 40 20 0 RAW AFTER CANISTER Gasoline 0% Gasohol 22% Ethanol 100% 95 11. The Fossil Fuels Carbon Dioxide at Atmosphere Plants Photosynthesis Animal Breathing Plants Breathing Photosynthesis of Algas Soil and Organisms Breathing Vegetable Garbage Rooths Breathing Fossil Fuels: Coal, Natural Gas, Oil Aquatic Life Breathing Oceans, lakes 96 12. The Renewable Fuels CO2 97 Comparative Vehicle Prices (Brazil) Ford EcoSport XL  1.6L 8V gasoline  1.6L 8V Flex Fuel Volkswagen Gol 2d  1.0L 8V Special gasoline  1.0L 8V Special alcohol  1.0L 8V City Total Flex Renault Scénic Privilège 4d  2.0L 16V gasoline  1.6L 16V Hi-Flex - € 14.859,00 - € 15.231,00 - € 7.496,00 - € 7.649,00 - € 8.035,00 - € 22.597,00 - € 21.540,00 (€ 1,00 = R$ 2,933) 98 http://www.transportation.anl.gov 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 Wholesale Prices 116 Source: http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/petroleum_marketing_monthly/current/pdf/pmmall.pdf Projected World Oil Prices (EIA) 117 US Domestic Oil Consumption & Supply 118 Prices of Selected Petroleum Products 119 Source: http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/petroleum_marketing_monthly/current/pdf/pmmall.pdf Tutorial  http://www.eere.energy.gov/biomass/understanding_biomass.html 120