There’s an amazing study by researchers at Oregon State University (pdf file) that ought to be on every single desk in the Legislature and on every reporter’s computer as we get down to the short strokes in this session and the real heavy hits start getting laid down by lobbyists looking to deliver for their owners.

I can’t add much to this damning study. Read the executive summary here or there, and then read the whole thing there. The result in a nutshell:

Whether you care about the phony issue of “energy independence,” the very real issue of global warming, or you are concerned with preparing for an energy scarce future after peak oil, the result is the same: money spent subsidizing biofuels could be far better spent on other things that pay off far better for your goals.

Before spending a dime on state subsidies for biofuels, we should

• reduce the speed limit to 55 mph (this is equivalent to a sharp increase in CAFE standards);
• require gas station attendants to check and report tire pressure to the driver, and to properly inflate tires with each fill up;
• require insurance companies writing auto policies in Oregon to offer a “by the mile” rate so that drivers who reduce their driving see a reduction in insurance premiums;
• forbid extended diesel idling and require diesels trucks and buses to install auxiliary power supplies so that the main engine can be turned off and restarted as appropriate (this would also have a huge air quality benefit);
• Institute a parking tax on all parking spots for employees and customers in the top five metro areas, proceeds to go to fund transit, pedestrian improvements, and bicycle network improvements systems.

Biofuel Potential in Oregon:
Background and Evaluation of Options

William K. Jaeger, Robin Cross, & Thorsten M. Egelkraut
Department of Agricultural and Resource Economics

Oregon State University
January 29, 2007

Report Summary

Biofuel Potential in Oregon: Background and Evaluation of Options

This study examines the economics of three biofuel options for Oregon: corn-based ethanol, canola-based biodiesel, and cellulosic wood-based ethanol. In each case we address three questions:

1) Is the biofuel commercially viable?;

2) Does it represent a cost-effective way to further our national goal of energy independence?; and

3) Does it represent a cost-effective way to pursue the environmental goal of reducing greenhouse gas emissions?

A key observation in our analysis is that the commercial viability of a biofuel is not, by itself, sufficient to conclude that the biofuel addresses the energy independency or environmental goals at an acceptable cost. The “net energy” of a biofuel may be significantly less than than the energy in a gallon of the fuel because of the energy required to produce the fuel. The cost per unit of net energy, therefore, may be much higher than price per gallon would suggest.

Our analysis draws on existing studies, private sector information, and our own analysis.

We evaluate commercial scale production of these fuels, and our assumptions reflect the costs and technologies currently available for the appropriate scales of operation. In the case of corn-based ethanol, we assume that corn feedstock is imported from the Midwest rather than coming from Oregon (because little corn grain is, or is likely to be, produced in Oregon). In the other two cases we assume that feedstock would be available in sufficient quantities in Oregon, or from both Oregon and Washington. We also examine some of the consequent issues that arise for these options. For example, in the case of canola, the limited ability to increase feedstock production at reasonable cost, potential conflicts for increased production due to pollen drift and pest issues, and the limited capacity of regional markets to absorb coproduct production.

To address the energy independence question we must estimate the “net energy” contribution of each of these biofuels where “net energy” is the energy contained in the biofuel minus the energy required for its production, processing and transportation. This consideration is crucial because if the net energy contribution were zero or negative (meaning equal or greater energy is needed to produce the fuel than is contained in the fuel), then production of the biofuel will not contribute to energy independence.

Our analysis estimates the net energy contribution of corn ethanol to be just 20% of the energy contained in the fuel (or about 18,600 Btus/gallon). For canola biodiesel the share is 69% (or 123,000 Btus/gallon), or about 6.5 times the net energy per gallon of corn-ethanol. The importance of this difference is that if these two biofuels had the same production cost per gallon, corn-ethanol would actually cost 6.5 times as much per unit of net energy. Cellulosic wood-based ethanol is estimated to have a net energy contribution of 84% (or about 76,300 Btus/gallon).

When net energy and cost aspects are combined, our estimates suggest that the three biofuels considered are significantly more costly than gasoline and petroleum diesel (including direct and indirect subsidies). Per unit of net energy, corn ethanol is estimated to cost 750 percent more than gasoline; canola biodiesel is estimated to cost 125 percent more than petroleum diesel; and the cost of cellulosic wood-based ethanol is nearly 200 percent higher than gasoline.

On the question of reductions in greenhouse gas emissions, we combine information for each biofuel on their greenhouse gas emissions, net energy, and cost of production. The biofuels were then compared on this basis to the current alternatives of gasoline and diesel. The biofuel costs include existing subsidies and, in the case of cellulosic wood-based ethanol, the additional subsidies that would be necessary to make the fuel commercially competitive. For each biofuel we find that if it were promoted as an alternative to gasoline or diesel it would reduce greenhouse gas emissions, but at a significant cost.

The cost of reducing CO2-equivalent emissions by promoting biofuels is compared to various economic studies that have evaluated the costs of other types of climate change policies. These policies include regulatory controls on CO2 emissions, carbon sequestration actions of various types, and market-based approaches such as carbon taxes or ‘cap-and-trade’ schemes.

Those studies suggest a midrange estimate of $50 per ton. Compared to this benchmark, the cost of reducing CO2 emissions with corn-ethanol is found to be more than 200 times higher, or $10,700 per ton of CO2-equivalent emissions. For biodiesel, the cost is estimated to be 11 times as high as the $50 estimate, or $580/ton. And in the case of cellulosic wood-based ethanol, the cost is 7 times as high, at $350/ton. Hence, other policies aimed at reducing greenhouse gas emissions appear to be significantly more cost-effective than a shift to these three biofuels.

These cost estimates, however, do not take account of the intangible costs associated with dependence on foreign oil or climate change. Therefore, the policy question can be framed with the following two questions: Are the higher costs of biofuels justified given energy independence and environmental goals? Are there other ways to achieve those same goals but in a more cost-effective way than with biofuels? For comparison, promoting energy independence with an increase in the average fuel economy standards (CAFE standards) is estimated to cost 20 to 40 percent more than gasoline, compared to 750 percent for corn ethanol and 125 percent for canola biodiesel.

To address the question of commercial viability, we have taken account of existing market conditions, existing costs of production, technologies and government incentives. Government incentives include subsidies as well as regulatory requirements including ethanol targets for gasoline and the banning of the MTBE additive. Our results indicate that corn-based ethanol and canola-based biodiesel appear to be commercially viable under current conditions. In both cases we find that revenues cover, or nearly cover, the costs of production. In the case of wood-based cellulosic ethanol, however, costs appear to be at least 25% above revenues, suggesting that current conditions do not provide adequate incentives for commercial production.

For each of these biofuels, its byproducts or “coproducts” play an important role in the analysis. Corn-ethanol and canola biodiesel generate significant quantities of animal feed. Canola biodiesel also produces glycerin; and wood-based ethanol generates lignin and other coproducts. In each case these coproducts represent significant measures of revenue, energy, or both. Indeed, in the case of dry-milled corn-ethanol, most of the positive “net energy” is accounted for by the distiller dry grains and solubles (DDGS) used for animal feed. The analysis summarized above assumes that these coproducts are used efficiently and are valued at current market rates. If these coproducts are not able to be used efficiently, or if their markets prices decline as a result of increased supply, then the economic calculations summarized above may be too optimistic.

The potential impact of these three biofuel options on energy independence, given the scales of operation being evaluated here, would be small. For a 50 million gallon corn ethanol plant, a 50 million gallon wood-based ethanol plant, and a 2 million gallon canola biodiesel plant, the combined contributions of their net energy generation to Oregon’s annual petroleum energy consumption would be slightly more than one percent. Together they would reduce U.S. greenhouse gas emissions by 1/8th of one percent. In contrast to these small energy and environmental contributions, the resource requirements and coproduct quantities are large in some cases. To satisfy one percent of Oregon’s current petroleum energy consumption with canola biodiesel would require over 400,000 acres, or 100 times the current canola acreage in regon. This amount of canola would generate 600 million pounds of canola meal, enough to feed five times the number of cows currently raised in Oregon. For comparison, the degree of energy independence resulting from a one mile-per-gallon increase in average motor vehicle fuel conomy in Oregon would be equivalent to 3 – 4 corn ethanol plants like the one evaluated here, or 13 biodiesel plants like the one evaluated here.

This entry was posted on Sunday, June 17th, 2007 at 11:00 pm and is filed under Economy, Energy Future, Environment, General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.