4 Responses to “A bad idea whose time has come?”

1. Will Neuhauser Says:
   April 10th, 2007 at 7:13 am

   I’m not sure the Oregon bill is as blindly bad as you imply. To start, the incentive is a tax credit, so the producer needs to make a profit, that is produce more than it costs. Second, for the most part, the kind of issue you address is only one of many biofuels (as taken from the bill text):

   “(A) Forest or rangeland woody debris from harvesting or thinning conducted to improve
   forest ecological health and reduce uncharacteristic stand replacing wildfire risk;
   “(B) Agricultural residues;
   “(C) Offal and tallow from animal rendering;
   “(D) Food wastes collected as provided under ORS chapter 459 or 459A;
   “(E) Yard or wood debris collected as provided under ORS chapter 459 or 459A;
   “(F) Wastewater solids; or
   “(G) Crops grown solely to be used for energy.
   ”

   Third, of course we are subsidizing a “more costly” energy mechanism because there isn’t the infrastructure, economies of scale and design effciencies because we haven’t generated energy this way to scale before. (I am not defending the use of excess energy input, but rather things like forest biomass for which we don’t have conversion plants and for which we don’t have convenient hook-ups to the grid located where the biomass is, etc.). Those are reasons to subsidize the process in order to help get it to scale.

   Fourth, Oregon isn’t a big corn or other producer of ethanol feed stock, so I’m not as concerned that suddenly this will turn around and the other 6 renewable fuels will diminsh in importance here.

   While I like the “net renewable” concept, it would penalize new technologies if it wasn’t a penalty also applied to fossil fuels as well, which use fossil fuels to refine them, transport them, etc. Normally this is accounted for in the cost of production, and I’m unsure of why this wouldn’t be the case here too for renewables as well for the most part. A net renewable would also be very difficult to calculate for each separate producer.

   An easier approach, and to level the playing field, would be to increase the tax on fossil fuels — this would build in the incentive to find alternatives and to cut mileage.

   All in all, I would much rather have this bill in place even as it stands and modify it to improve it in the future than to throw out the baby with the bathwater and have no support for other fuel types today.

2. George Seldes Says:
   April 10th, 2007 at 8:35 am

   Yes, the bill specifies many POSSIBLE biofuel sources that would qualify for subsidy. Meanwhile, what’s being built is ethanol plants. None of the other processes you mention are ready for prime time in any sense, and some are destructive (we need Ag residues where they are–if we keep mining the soil for biomatter to push cars around, we just end up on a treadmill of having to put even more additives on the fields). Subsidizing R&D in a lab is one thing, subsidizing producers is another thing entirely.

   The argument about “getting the process up to scale” implies that it will become more efficient at some unspecified “scale.” But this is not true–unless the biofuels plants are required to use their own output to fuel their processes (like fossil fuel refineries do**), they will simply grow larger and larger, so long as the subsidy fertilizer is applied.

   The failure of biofuels has nothing to do with scale, because it’s a simple chemical equation that determines the efficiency of the process, and that doesn’t scale. Moreover, biofuels plants must necessarily be small or else they soon outrun their feedstock, and then even more fossil fuel is spent bringing the feedstock to the plants. Even the most generous calculations only give ethanol a tiny net energy gain (and if you don’t include the miller’s grain, it’s probably negative).

   Also, there is no difficulty calculating the net energy for any biofuels producer: every US producer keeps careful records of fossil energy purchases in order to deduct those from its gross revenues at tax time. Convert total fossil fuel purchases to BTUs, convert output quantity to BTUs, subtract one from another and _presto_, you have the net non-fossil energy output of the plant (net of process energy). Similarly, all feedstock purchases are recorded for the same reasons, so we know where all the feedstock comes from and how far it had to travel to get to the processing plant. From the net process energy amount, now deduct the energy used in shipping the feedstock to the plant. Pay the subsidy on this amount only.

   (This is still overgenerous because it assumes that no fossil fuels were used to plant, tend, or harvest the feedstock, but so be it. We’ll pretend that we’re actually using all that woody biomass harvested from otherwise unplanted acreage, rather than corn, which is what we’re actually using. Except where we’re importing tropical palm oil grown on former rainforest land to make biodiesel.)

   Because biomass doesn’t pipe, this issue of “scale” actually undermines the case for biofuels. Every biofuels plant requires a huge tract of land to supply it with feedstock. And that feedstock all travels by truck, further and further and further each day as the local feedstock is consumed.

   Don’t get me wrong, I’m FOR renewable energy–that’s why we should not let the dirty bathwater makes us think that a subsidy monster is actually a beautiful baby. Nationally, if we took the billions being squandered on fossil fuels for biofuels and actually subsidized TRUE net renewables, we’d likely have something.

   There’s such a thing as not-ready-for-primetime technology, and if you subsidize the technology before it actually works, all you get is an expensive subsidy program that enshrines the failed way of doing business. You will never get much of a net energy result from biofuels if you subsidize them as they currently work. It just doesn’t happen.

   There’s a famous article in a business journal titled “On the folly of hoping for A while rewarding B”– that’s the biofuels biz in a nutshell. We’re madly rewarding increased fossil fuel consumption in the name of renewable energy. It’s not smart, it doesn’t lead to some better place, and it doesn’t even lead to more efficient biofuels processes.

   So while I absolutely respect your goodwill and good intentions in this issue,
   I think you’ve got it completely wrong. Let’s just give small farmers money if that’s what we want to do. But let’s NOT couple our Ag system to our highway system.

   (** note that all fossil fuel processors use fossil fuel inputs, but they only get to sell their net production. The subsidy for fossil fuels through biofuels plants occurs because biofuels plants don’t use biofuels as process energy or to operate the machinery needed to gather the feedstocks–thus, biofuels plants promote demand for fossil fuels and, therefore, higher prices.)

3. Will Neuhauser Says:
   April 11th, 2007 at 7:55 am

   Let me provide a real-life counter-example given me yesterday. Biomass plant in Roseburg processing waste from Metro landfill. It looks crazy, but the economic situation is more complicated than you admit. The trucks carrying the biomass from Portland to Roseburg had been delivering goods from Roseburg to Portland and returning empty. Now they are full. In addition the plant operater is being paid by Metro to “dispose” of the biomass because they have landfill size issues to manage. So the fuel cost is really the marninal cost over running an empty truck to Roseburg. And is harder to calculate than total cost of fuel — not impossible, just more complicated.

   BTW, by scale I don’t simply mean big plants. It means things like, if you only build one or two it is much more costly per unity than if you build many. You get manufacturing economies of scale — not just purchasing efficiiencies, but you learn more and build them more efficiently, you get engineering efficiences as they figure out how to get more energy per unit of input out of them, etc. It is about building an industry to scale. Same deal as with hybrids — the first ones off the line were much more marginally expensive than later ones, which also get more oomph. So part of the value of the subsidy is to catalyze the business industry to “scale” better. Imagine if you will that we had electric engines in every car and that is all we knew: if someone proposed gasoline engines we’d say that they could never be economical because of fuel distribution, the inefficiencies of gas engines since there were only a few early hand-built prototypes, etc.

   As a long-time entrepreneur and investor I know that it is important, as you imply, to distinguish between “research” investments (where you are exploring and don’t know what works) and “development” expenses (where it works, but you are still trying to get to economic efficiency). The US subsidies of hybrid cars was a good example, I believe of the latter — hybrids, in several variations, worked, but were not up to market efficiences. Many biofuels options are in the same boat. But we do have a market chicken-and-egg problem: it is tough to invest in the plants if you don’t have an assured supply and people are unwilling to invest in supplying if there are not plants. The Rewable Production Standard mandating a growing percentage of electricity purchases come from renewables is a way to help get around that: it assures some market without picking winners and losers.

   I never implied “let’s just give small farmers money”. It should be done smartly. But I’m willing to get the whole industry started in Oregon even if it isn’t perfect, and perfect it. And I agree that, especially corn-based, ethanol is a poor option, mostly supported for midwest big ag special interests.

4. George Seldes Says:
   April 11th, 2007 at 9:39 am

   Thanks for your perspective on the question. I will try to respond briefly to the points you made (I tend to get windy on this subject) and I hope we can continue the dialogue about this important topic for the benefit of Onward Oregon visitors.

   1) The Roseburg plant–if I understand you correctly, this is not a biofuels plant, but rather a biomass electricity (waste-to-electric) plant. I have no beef at all with this, and totally support the Governor’s renewables portfolio standard requirement (25% by 2025), which will spur demand for this product. Obviously filling trucks that were formerly deadheading is good, and helping Metro deal with waste is good–both reduce the need for any subsidy, but let’s assume that the plant output costs more than coal or hydro, even with those positive factors.

   Note, however, the key difference: the RPS only includes NON-fossil fuel systems. The biofuels proposal grants a subsidy even to operators who use fossil fuels as process energy directly (burning coal or natural gas) or indirectly (using electric derived from fossil fuels).

   2) “Scale”–as an engineer myself, I think I have a handle on your argument. The problem is that we’re talking past each other because of this: You are suggesting that there’s something to be learned that will increase the efficiency of biofuels, whereas I’m talking about the max possible efficiencies already–that is, I’m willing to assume, for the sake of argument, that you can design, build, and operate biomass-to-biofuels plants that reach and maintain their top theoretical efficiency at all times, so there’s no “learning curve” benefit to your argument, because even maximum theoretical efficiency STILL puts the plants in the hole on an energy-out/energy-in basis. That’s just the fact–in the tropics the answer seems to be different, but here in Oregon the upper limit of the process still puts us in a hole where the plants would have to shut down if they depended on their own output.

   3) So, yes, I would support a biofuels R&D program to find catalytic enzymes or alternative processes that would make non-food biomass-to-biofuels capable of succeeding (although it would still be a much better use of our money to improve and electrify our transport infrastructure so that people and goods can move without combustion of anything).

   4) But we’re not at the chicken and egg stage that you suggest with biofuels. We’re at the point where the processes are net energy losers and can only be sustained by fossil fuel inputs. There’s simply no lack of demand for biodiesel or bioethanols at all–there’s enough flex-fuel vehicles out there to choke a horse, and virtually every truck and city bus in America could be running on biodiesel today. So there’s no holdup on the demand side–the supply side is the issue: we can’t make the stuff at a net energy gain (if we could it wouldn’t need a subsidy) no matter how many of the plants we build or how good we get at it.

   5) Chicken and egg is the wrong metaphor for biofuels; the more apt one is the goose that laid the golden egg. There’s a reasonable hope (not certainty) that, with a LOT of serious R&D, we can figure out how to make biofuels that aren’t net energy losers (and therefore don’t simply turn BTUs from fossil energy into BTUs of biofuels). I think we agree that this would be a goose that could lay golden eggs.

   But giving subsidies to anyone who claims that they own a goose is NOT the right approach, mainly because plants aren’t like sand-castles. If we subsidize existing processes, we’re essentially making an expensive long-term commitment to failed designs that would have to be overhauled or completely rebuilt if/when we do find out how to get those golden eggs (a net energy positive process). We don’t know what the golden eggs will look like or how to get them yet, so why would we commit the capital to building plants on designs we know will not and cannot produce those eggs?

   6) As an investor/entrepreneur, you know that you would not invest your own money in a venture that could not show a profit without subsidies. You might well invest in further R&D to see if the fundamentals could be strengthened so that the subsidies aren’t required. But, right now, biofuels are like Amway, and they only sustain themselves through new money from others.

   7) Again, everything I say concerns only biofuels (liquid fuels); all the calculus changes if you are talking about using biomass for combined heat and power plants or even just power plants (or using biomass for process heat in industrial facilities). The biofuels bills are being sold as doing something to help Oregon wean itself from foreign fossil fuels and that’s just not the case at all, and it shouldn’t be subsidized.

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