June 2009 No.3

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Developing a Biofuel Industry in Illinois

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Developing a Biofuel Industry in Illinois

by Jessica Maiorca*

Illinois, like much of the United States, seeks to address two current troubling issues - rising unemployment levels and fluctuating energy costs – through one coordinated strategy. To wit, Illinois can use its natural resources, central location, geography, and current infrastructure to develop a biofuels industry that will both “green” its transportation sector and create a sustainable demand for labor. Using biofuels will lessen dependence on foreign oil, help decrease fuel price volatility, and contribute to a cleaner environment. The biofuels industry will also create sustainable jobs while stimulating related industries.

Before discussing biofuels in detail, it is important to consider the broader issue of energy efficiency in comparing biofuels with petroleum. We must recognize that (1) while we have measured petroleum in terms of efficiency, we need to measure biofuels in terms of sustainability, and (2) the development of biofuels requires the same trial-and-error process as other scientific endeavors and technological developments will only improve biofuels’ efficiency.

Biofuels
Among the several types of biofuels are bioethanol (“ethanol”) and biodiesel. Both are renewable, clean, and the focus of much research. Ethanol utilizes the sugars of several types of grains (corn, sorghum, wheat, etc.) and other plant “scraps” (potato skins, sugarcane stalks, yard clippings, etc.). Biodiesel utilizes the oils of vegetables (algae, jatropha, etc.), animal fats (beef tallow, pork lard, etc.), and/or grease (trap grease from restaurants and float grease from waste water treatment plants).

In describing biofuels, the terms “first generation” and “second generation” are used, with “first-generation” describing biofuels produced from plant matter containing oil, starch or sugar and “second-generation” describing biofuels that are cellulose-based.¹

Ethanol
The U.S. is currently the world’s largest ethanol producer with almost 200 ethanol fuel biorefi neries.² The vast majority use corn, while all of Illinois’ 15 biorefineries use corn and one also uses wheat starch.³ United States public and private groups are currently researching and experimenting with new technologies in order to derive ethanol from several other sources including sugarcane and cellulose. As indicated by Chart 1 above, domestic production and consumption of ethanol fuel has increased signifi cantly in recent years.

Corn Ethanol
Corn ethanol results from the fermentation of corn’s starch into sugar, which is then fermented into alcohol. Corn ethanol’s use reduces total emissions by 10-20%. ⁴ Corn is grown during the spring and summer months primarily within the U.S. Feed Grains and Livestock Belt (formerly known as the Corn Belt).⁵ Forty-five states currently have laws encouraging corn ethanol use and production.⁶ In the United States today, about 95% percent of ethanol is derived from corn. Illinois ranks second among all states in corn-based ethanol production^.7

Corn ethanol has largely been dismissed as a good alternative energy source. First, while corn ethanol’s energy efficiency is highly debated, it is generally considered lower than that of petroleum and other forms of ethanol.

Second, there are serious land issues regarding corn’s harvest. Corn uses the strongest pesticides and fertilizers of any U.S. food crop and its fertilizers have created oxygen-starved zones in the Gulf of Mexico^.8 Additionally, the Earth Policy Institute estimates that even if the country converted its entire grain harvest to corn, the resulting ethanol would satisfy only 16% of our fuel needs, while the corn used to fill a 25-gallon vehicle tank with ethanol one time would feed one person for an entire year.⁹ It is also estimated that 71% of U.S. farmland would need to grow corn if the country were to replace the 200 billion gallons of petroleumbased fuel used by domestic drivers each year.¹⁰

Finally, corn’s global value has also been a matter of frequent debate. The U.S. corn crop accounts for 40% of the global harvest. If only corn were used for ethanol production, some believe it would reduce the amount of corn available for export.¹¹ Additionally, if corn prices rise, the prices of other grains rise. In 2007, yellow corn on the world market hit a ten-year high partially due to ethanol’s rising popularity,¹² causing many of the world’s poor to be negatively impacted by a price increase of imported grains.¹³

Sugarcane Ethanol
Sugarcane ethanol is derived from sugarcane. Compared to gasoline, sugarcane ethanol reduces total emissions by 90% – a figure comparable to that of second-generation biofuels. Compared to corn, it is eight times more productive and causes less soil erosion. Sugarcane is also replanted every six years, grows year round,¹⁴ and generates a carbon credit by capturing large amounts of carbon. From its planting to use in a vehicle, sugarcane
ethanol produces 9.3 units of fuel for every unit of fossil energy used. It is also argued to be “ . . the first renewable fuel to be cost-competitive
with petroleum fuel for transport.” ¹⁵

As with corn ethanol, sugarcane ethanol is not as energy efficient as petroleum when burned. Also, U.S. climate is not conducive to mass growing of sugarcane, though small quantities are grown in Florida, Hawaii, Louisiana, and Texas. Brazil is by far the largest sugarcane producer. Current U.S. policy places a tariff on Brazilian sugar – a measure that both the American Sugar Alliance and corn lobbyists are fighting to maintain.¹⁶ There are also concerns over Brazil subsidizing its sugarcane industry. Critics have pointed out that the amount of sugarcane ethanol required to provide all of the U.S.’s fuel needs exceeds Brazilian production.

Cellulosic Ethanol
Cellulosic ethanol is part of the second generation of biofuels, utilizing a variety of non-food plant waste (corncobs, saw dust, switchgrass, etc.). Compared to gasoline, cellulosic ethanol reduces total emissions by 80% and is signifi cantly more efficient than gasoline and corn ethanol.¹⁷ Several cellulosic inputs are native to the Midwest, making them easy to harvest in Illinois. However, since it is harder to break down cellulose, the production process is more complicated and expensive. Technology does not yet exist for mass production of cellulosic ethanol. Some believe that it still requires substantial subsidies and tax incentives for research and development before it can truly enter the biofuels market.¹⁸

As is indicated in Map 2, on the previous page, there are currently 24 cellulosic ethanol plants under development and construction in the United States. There are no cellulosic ethanol plants in Illinois. However, a 2008 New York Times article stated that General Motors was partnering with renewable energy company Coskata to build a cellulosic ethanol plant in Illinois.¹⁹

Other Sources of Ethanol Currently Being Researched

• Miscanthus: Native to Asia and related to sugarcane, some research indicates that miscanthus requires less acreage than corn or switchgrass and is just as productive.²⁰ It can also grow in marginal soil and improve it.

• Molasses: A byproduct of sugarcane, it is cost competitive with corn for ethanol.¹²

• Sorghum: Native to Africa, sorghum is currently grown in the Great Plains, Arizona, and California. Grain sorghum, or milo, can be processed into ethanol. A few U.S. ethanol plants currently use milo as an input.

• Sugar beets: Generally grown in cooler climates such as western Minnesota and eastern North Dakota, they are also grown in regions such as the Pacific Northwest, Great Plains, and the Great Lakes, as well as in warmer climates such as California.²² Compared to sugarcane, they are easier to process into ethanol and yield more ethanol per ton.²³

• Sweet sorghum: Also native to Africa, sweet sorghum was once cultivated in the Midwest but is now primarily planted in the Southeast. Many producers prefer sweet sorghum to sorghum because it requires less water and contains more sugar, thereby having a higher energy content. At least one U.S. sweet sorghum ethanol plant is in development.

• Switchgrass: Native to the U.S. Plains, switchgrass is extremely adaptable and grows quickly. One study estimates that switchgrass delivers 540% of the energy used to produce it.²⁴

Biodiesel
Biodiesel is a renewable biofuel that is produced from the oils of vegetables, animal fat, and/or grease. Oils from soybean, rapeseed, peanuts, sunflower, and palm nuts are commonly used. Biodiesel can be mixed with regular diesel or used by itself. Biodiesel must meet American Society of Testing and Materials specifications and is the only alternative fuel to have fully completed the health effects testing requirements of the Clean Air Act.²⁵ Compared to petroleum diesel, biodiesel reduces carbon dioxide emissions by 78%, carbon monoxide by 48% and particulate matter by 47%.²⁶ Biodiesel mileage is higher than gasoline but lower than conventional diesels. Drawbacks to biodiesel include emissions and fuel-system problems at lower temperatures. Researchers are currently working to resolve these issues.²⁷

There are approximately 176 biodiesel plants in the United States. Since 2001, the Illinois EPA has received permit applications for 22 new biodiesel plants and granted permits to 20.

Five are currently operating. For a current map of commercial biodiesel production plants in the United States, visit the National Biodiesel Board’s Web site at www.biodiesel.org.

US biodiesel production has dramatically increased over the past several years, as can be seen in Chart 2.

Sources of Biodiesel Currently Being Researched

• Jatropha: Native to Africa, Asia, and the West Indies, jatropha is a plant that grows well in poor soils and produces four times more fuel per hectare than soybeans.

• Algae: Viewed by many as a key fuel for the future because it is fast growing, algae can be grown virtually anywhere and does not compete with food crops for arable land. Algae yields up to 30 times more fuel than standard energy crops, and one estimate claims algae produces 2,000 times more oil than soybeans.²⁸ It will be a while before biofuels from algae can be commercially competitive – some say around five years.
  Nevertheless, algae’s potential encourages its use, and on January 8, 2009, Continental Airlines test fl ew a commercial jet using fuel partially derived from algae (and jatropha).²⁹

Government Policies & Initiatives
The US government is increasing its support of developing biofuels via tax credits, tariffs, acts and programs. Below is a time line of major government legislation regarding biofuels.

• 1978: The Blender’s Tax Credit, valued at 51¢ per gallon, is given to those blending with ethanol.

• 1980: The Ethanol Import Tariff imposes a 54¢ per gallon tariff on imported ethanol.

• 1990: The Clean Air Act Amendments identify areas of the country that must reduce or eliminate air pollution.

• 1992: Among requirements of the Energy Policy Act, fleets must purchase a certain percentage of new vehicles that can use alternative fuels.

• 1998: The Energy Policy Act is amended to include biodiesel as an alternative fuel.

• 2001: The CCC Bioenergy Program is created, providing money to people who produce biodiesel. The program ended June 2006.³⁰

• 2004: The Jobs Act provides tax credits for biodiesel blenders.³¹

• 2005: The Energy Policy Act provides tax credits for biodiesel suppliers and mandates fuel producers to phase in renewable fuels, encouraging both supply and demand. The tax credit for suppliers was set to expire at the end of 2008.³²

• 2007: The Energy Independence and Security Act requires production of 36 billion gallons of ethanol by 2022 and establishes minimum use standards for conventional, advanced, cellulosic, and undifferentiated advanced biofuels as well as biomass-based diesel. From 2012 on, the
  majority of new ethanol must be “secondgeneration” biofuels derived from plant cellulose, municipal wastes and other crops.³³

• 2008: The Farm Bill reduces subsidies to the ethanol industry from 51¢ per gallon to 45¢ per gallon. However, the tariff on imported sugar ethanol remains at 54¢ per gallon.³⁴

• 2008: The U.S. Department of Energy (DOE) announced funding of nearly $200 million for five to 12 biorefinery project grants.³⁵ The DOE is also offering tax credits and deductions for hybrids, diesels, alternative fuel vehicles (AFVs), and electric cars.

The DOE is partnering with various public and private organizations to research and develop alternative energy sources, including 13 biorefineries (nine small-scale and four commercial-scale). For most up-to-date information regarding DOE biofuel projects, visit www.ethanolrfa.org.

The current challenge for the U.S. government is to create policies that encourage both supply and demand of biofuels. As one article opined, “Necessity is the mother of invention. But developing a major new industry based around cellulosic feedstocks able to operate on a semi-commercial basis in such a short period presents a huge technical and scientific challenge.”³⁷

Biofuels & Jobs
Domestic ethanol production creates jobs, with many of them in rural communities. A 2008 study by global consulting fi rm LECG, found that the processing of grains into ethanol created 46,000 American jobs. Additionally, production and construction for increased capacity of ethanol resulted in economic activity that created more than 238,500 jobs in all sectors of the economy.³⁸

Many states have been significantly impacted by the biofuel industry. In 2007, Iowa’s biofuel industry created more than 96,000 construction, processing, refining, administration, and transportation jobs.³⁹ In the same year, Missouri’s ethanol and diesel industries report claimed a yearly average of 6,600 new jobs created.⁴⁰

Illinois has also taken incredible steps. In 2006, the governor revealed a plan under which 50% of Illinois’ motor fuels will be derived from local crops and coal by 2017. Every gas station in Illinois will offer 85% ethanol fuel (E85), requiring the tripling of ethanol production. If successful, not only will the plan make Illinois the fi rst state to achieve such a level of energy independence, it will create 30,000 new downstate jobs.⁴¹

The Midwest
According to the DOE, most states have a blend of laws regulations and incentives relating to “alternative fuels and vehicles, air quality, fuel efficiency, and other transportation-related topics.”⁴²

Some states have developed unique approaches. Iowa’s Department of Agriculture and Land Stewardship gives out the Secretary’s Biodiesel and Ethanol Marketing Awards to those residents who excel at promoting and marketing biofuels.⁴⁸ In 2005, Indiana changed the name of Reynolds, a town, to BioTown, declaring its goal of creating “. . . a model community that is energy self-suffi cient.”⁴⁹ In Kansas, the Department of Commerce supports the Kansas Fuel Retailers Ethanol Guide, a publication connecting consumers with ethanol fuel retailers.

Conclusion
With the fluctuation of oil prices, Illinois’ challenge is to continue creating both supply and demand markets for biofuels. While the federal government has implemented several supply initiatives, more can be done to increase demand such as increasing subsidies of biofuels, increasing taxes on petroleum, and working closer with the automotive industry to increase flex fuel vehicle production.

Currently, the United States is not producing significant quantities of any secondgeneration type of non-corn ethanol, and it is set to be one of the biggest industries in the United States within the next 10 years.⁵⁰ Illinois has the opportunity to be a leader in this movement towards sustainability.

Among Midwestern states, Illinois ranks first for alternative energy initiatives and among those with the highest number of laws and regulations.⁵¹ Illinois can utilize its abundance of farming byproducts such Illinois Labor Market Review | ¹⁶ as corn stalks and soybean remnants as well as native grasses and vegetables to create cellulosic ethanol. It can also utilize its supplies of sunflowers and soybeans to create biodiesel.

Geographically, Illinois can utilize its more rural areas – some of them with abandoned manufacturing plants – as plant locations. Its central location, the meeting place for several railway lines connecting Eastern US with the West,⁵² is ideal for distributing biofuels inputs and finished products.

By recognizing all of these as competitive advantages, Illinois has the opportunity to create a sustainable system of fuel production and consumption while strengthening a new industry that will employ residents for years to come.

* Jessica Maiorca is working on her Masters Degree at Cornell University. She wrote this paper as an Intern with the Illinois Department of Employment Security, Economic Information and Analysis Division.