Post by Mr. Clean on Mar 8, 2009 11:00:24 GMT -5
The market opportunity for cellulosic ethanol is driven by fundamental factors and public policy imperatives that are reflected in two key pieces of recent legislation.
Energy Independence and Security Act of 2007 (EISA)
Enacted on December 19, 2007, this comprehensive energy legislation amends the Renewable Fuels Standard, or RFS, which was first signed into law in 2005. The amended RFS mandates the annual use of 9 billion gallons of renewable fuel in 2008, growing to 36 billion gallons by 2022, including 16 billion gallons of cellulosic biofuels. With recent ethanol prices above $2.50 per gallon, the cellulosic ethanol mandate translates into an addressable market of over $40 billion annually within the US alone.
Food, Conservation and Energy Act of 2008 (FCEA)
Enacted on June 18, 2008, this landmark revision of the nation’s food program puts in place a $1.01-per-gallon production tax credit for cellulosic ethanol, new forms of assistance for biorefinery development, transition into energy crop production, and research into techniques for processing cellulosic biomass feedstocks for biofuels production.
The US market for ethanol, or ethyl alcohol, for use as a motor fuel is both large and well-established.
As of January 1, 2008, there were 139 ethanol plants in the United States with a combined production capacity of over 7.8 billion gallons of ethanol per year (BGY). An additional 61 plants and seven expansions under construction were expected to add more than 5.5BGY of new capacity. While the nation produced less than one billion gallons of ethanol annually before 1991, by 2007 production had reached 6.5BGY –representing an increase of more than 32% from 2006 and more than 300% since 2000.
Experts are generally agreed that corn-based ethanol production cannot exceed 15BGY without major impacts on food markets, and Congress set a ceiling of 15BGY on corn ethanol production in the recently-expanded RFS. However, US demand for ethanol is expected to grow beyond this level for reasons that include the following:
Strong legislative and government policy support - As stated above, EISA mandates minimum annual use of 36BGY of renewable fuel by 2022.
Expansion of gasoline supply - By blending ethanol into gasoline, refiners can expand the volume of fuel available for sale especially when refinery capacity and octane sources are limited. Between 1985 and 2005, USDOE reports, petroleum refining capacity in the United States increased only 9.7% while domestic petroleum product demand increased by 32%. We believe that increased pressure on domestic fuel refining capacity will result in greater demand for ethanol.
Favorable Tax treatment – The Volumetric Ethanol Excise Tax Credit (VEETC), a federal credit available to blenders/retailers, is currently set at $0.46 per gallon and is scheduled to expire on December 31, 2010.
Environmental benefits - Ethanol, as an oxygenate, results in more complete combustion of gasoline and reduces tailpipe emissions of carbon monoxide and nitrogen oxide. Prior federal programs that mandated the use of oxygenated gasoline in areas with high levels of air pollution spurred widespread use of ethanol in the United States.
Geopolitical Concerns - The United States currently imports approximately 60% of its oil needs, a dependency that is expected to continue. Political unrest and attacks on oil infrastructure in the major oil-producing nations, particularly in the Middle East, have periodically disrupted the flow of oil, which has added a “risk premium” to world oil prices. While global supplies are limited, developing nations such as China and India have substantially increased their demand for oil. As a result, world oil prices have risen rapidly, rising above $140 per barrel for the first time in June 2008. As a renewable source of energy based on domestically abundant feedstocks, cellulosic ethanol can help to reduce American dependence on foreign oil.
Ethanol as a gasoline substitute - Ethanol’s role in the United States is gradually shifting from that of an oxygenate/gasoline additive to a true gasoline complement/replacement. Today, most ethanol consumed in the US is blended into E10, a fuel blend of 10% ethanol and 90% gasoline. However, automakers are accelerating the introduction of “flex fuel vehicles” (FFVs) capable of using E85, a fuel blend of 85% ethanol and 15% gasoline. Widespread adoption of FFV’s, accompanied by the deployment of dispensing infrastructure for E85 fuel, could significantly increase ethanol demand and reduce America’s dependence on petroleum imports.
Historically, fuel ethanol has been produced by fermenting sugars derived from corn starch. However, while the corn-to-ethanol conversion process is technologically mature, it has become controversial in a time of soaring grain prices. Recent studies suggest that the conversion of the entire US corn crop to ethanol would meet less than 20% of the nation’s total gasoline demand. Even at current ethanol production levels, some are voicing concern about ethanol’s impacts on food and animal feed prices. Deployment of technologies to produce ethanol from non-food cellulosic biomass feedstocks, Verenium believes, can enable us to sidestep and resolve this “food vs. fuel” debate, enabling production of more food and more fuel.
Energy Independence and Security Act of 2007 (EISA)
Enacted on December 19, 2007, this comprehensive energy legislation amends the Renewable Fuels Standard, or RFS, which was first signed into law in 2005. The amended RFS mandates the annual use of 9 billion gallons of renewable fuel in 2008, growing to 36 billion gallons by 2022, including 16 billion gallons of cellulosic biofuels. With recent ethanol prices above $2.50 per gallon, the cellulosic ethanol mandate translates into an addressable market of over $40 billion annually within the US alone.
Food, Conservation and Energy Act of 2008 (FCEA)
Enacted on June 18, 2008, this landmark revision of the nation’s food program puts in place a $1.01-per-gallon production tax credit for cellulosic ethanol, new forms of assistance for biorefinery development, transition into energy crop production, and research into techniques for processing cellulosic biomass feedstocks for biofuels production.
The US market for ethanol, or ethyl alcohol, for use as a motor fuel is both large and well-established.
As of January 1, 2008, there were 139 ethanol plants in the United States with a combined production capacity of over 7.8 billion gallons of ethanol per year (BGY). An additional 61 plants and seven expansions under construction were expected to add more than 5.5BGY of new capacity. While the nation produced less than one billion gallons of ethanol annually before 1991, by 2007 production had reached 6.5BGY –representing an increase of more than 32% from 2006 and more than 300% since 2000.
Experts are generally agreed that corn-based ethanol production cannot exceed 15BGY without major impacts on food markets, and Congress set a ceiling of 15BGY on corn ethanol production in the recently-expanded RFS. However, US demand for ethanol is expected to grow beyond this level for reasons that include the following:
Strong legislative and government policy support - As stated above, EISA mandates minimum annual use of 36BGY of renewable fuel by 2022.
Expansion of gasoline supply - By blending ethanol into gasoline, refiners can expand the volume of fuel available for sale especially when refinery capacity and octane sources are limited. Between 1985 and 2005, USDOE reports, petroleum refining capacity in the United States increased only 9.7% while domestic petroleum product demand increased by 32%. We believe that increased pressure on domestic fuel refining capacity will result in greater demand for ethanol.
Favorable Tax treatment – The Volumetric Ethanol Excise Tax Credit (VEETC), a federal credit available to blenders/retailers, is currently set at $0.46 per gallon and is scheduled to expire on December 31, 2010.
Environmental benefits - Ethanol, as an oxygenate, results in more complete combustion of gasoline and reduces tailpipe emissions of carbon monoxide and nitrogen oxide. Prior federal programs that mandated the use of oxygenated gasoline in areas with high levels of air pollution spurred widespread use of ethanol in the United States.
Geopolitical Concerns - The United States currently imports approximately 60% of its oil needs, a dependency that is expected to continue. Political unrest and attacks on oil infrastructure in the major oil-producing nations, particularly in the Middle East, have periodically disrupted the flow of oil, which has added a “risk premium” to world oil prices. While global supplies are limited, developing nations such as China and India have substantially increased their demand for oil. As a result, world oil prices have risen rapidly, rising above $140 per barrel for the first time in June 2008. As a renewable source of energy based on domestically abundant feedstocks, cellulosic ethanol can help to reduce American dependence on foreign oil.
Ethanol as a gasoline substitute - Ethanol’s role in the United States is gradually shifting from that of an oxygenate/gasoline additive to a true gasoline complement/replacement. Today, most ethanol consumed in the US is blended into E10, a fuel blend of 10% ethanol and 90% gasoline. However, automakers are accelerating the introduction of “flex fuel vehicles” (FFVs) capable of using E85, a fuel blend of 85% ethanol and 15% gasoline. Widespread adoption of FFV’s, accompanied by the deployment of dispensing infrastructure for E85 fuel, could significantly increase ethanol demand and reduce America’s dependence on petroleum imports.
Historically, fuel ethanol has been produced by fermenting sugars derived from corn starch. However, while the corn-to-ethanol conversion process is technologically mature, it has become controversial in a time of soaring grain prices. Recent studies suggest that the conversion of the entire US corn crop to ethanol would meet less than 20% of the nation’s total gasoline demand. Even at current ethanol production levels, some are voicing concern about ethanol’s impacts on food and animal feed prices. Deployment of technologies to produce ethanol from non-food cellulosic biomass feedstocks, Verenium believes, can enable us to sidestep and resolve this “food vs. fuel” debate, enabling production of more food and more fuel.