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The Future of Ethanol, Biofuels, and Energy Policy in the Americas

February 22, 2007

Introduction

Soaring global energy demand, growing environmental concerns, and declining fossil fuel supplies combine to make renewable fuel a priority for the international community. To more thoroughly examine the current and likely future scenarios for renewable energy, the Americas Society and Council of the Americas brought together leading experts for a roundtable discussion. Featured presenters, representing the diversity of interests in the field, included: Marcos Jank, President, Brazilian Institute for International Trade Negotiations (ICONE); John Sheehan, Senior Strategic Analyst, National Renewable Energy Laboratory (U.S. Department of Energy); Rick Zalesky, Vice President Biofuels and Hydrogen, Chevron Corporation; and Otaviano Canuto, Executive Director, The World Bank. This summary highlights the main points of the discussion.

Background

By the year 2025, projections indicate that global energy consumption will have grown by 40 percent. Relying solely on fossil fuels to satisfy energy needs will place a heavy burden on likely capacity and technology. To help diversify the energy market, renewed world attention is again focusing on biofuel—namely ethanol and biodiesel—development as a natural complement to fossil fuels. At present, ethanol production, together with biodiesel, contributes just 0.9 percent of total world energy. 

Summary

Ethanol is widely seen as the cure-all for global energy concerns. Brazil and the U.S.,

the industry leaders, are devoting increasing amounts of human and financial capital to enhancing ethanol capacity, but technology falls short from satisfying global and even domestic demand. Success depends not just on technology but also infrastructure and large, concentrated supplies of feedstock. Biofuels hold great promises for a greener world, but known and unforeseen barriers to development are bound to arise in the next several years.  

Supply and Demand of Renewable fuels

High global demand for energy drives the renewable fuels industry. According to Rick Zalesky, the world consumes 40,000 gallons of fuel per second. Consumption is not projected to fall in the next few years either, with oil demand projected to increase 1.4 percent per year.  But the energy industry is now responding to consumer expectations for cleaner, less expensive and higher performing energy products.  One fossil fuel alternative, ethanol, will see its availability contingent upon a number of market forces, including trade-offs between corn use for ethanol versus food.  Emphasizing this point, Sheehan pointed to recent increases in corn prices and the corresponding effect on Mexican tortilla prices.

Brazil and the U.S. account for 72 percent of global renewable energy production. Marcos Jank highlighted Brazil’s 33-year history in ethanol production and the requirement dating back to 1975 that mandates use of gasoline and ethanol blends. Today, Brazilian gas contains 20-25 percent ethanol, and across the country, more than 33,000 gas stations have at least one pump dedicated to ethanol. He added that 48 percent of sugarcane crops are diverted to ethanol production—the U.S. devotes 20 percent of its corn to renewable energies.  Brazil possesses enough arable land to grow the necessary feedstock, but its main challenge lies with logistics.  

The U.S. supply of ethanol is substantial and steadily growing. In fact, according to Sheehan, U.S. ethanol production surpassed that of Brazil in 2006, totaling nearly five billion gallons. According to the National Corn Growers Association, current technology will result in corn-based ethanol production topping out at 13-18 billion gallons per year. 

Resources and Technology

Sugarcane, the most efficient ethanol feedstock, is largely concentrated in Brazil, the Caribbean, South Asia, and East Asia. Because of limited production, today sugarcane-based ethanol competes with oil in terms of price. Jank projected that Brazil, with the help of foreign investors, could expand the available types of sugarcane plants by nearly 50 percent (to 16 plants) in the next five years. The end effect would be production of 20 million more tons—38 million in total—of sugarcane per year.

Maximizing biofuel energy production depends on improvements in technology, especially in cellulosic conversion. Cellulosic conversion is the decomposition of plants into sugar molecules that are then fermented in gravity pressure vessels to produce ethanol. Ethanol created through this process emits lower levels of carbon dioxide and is more efficient. In the U.S. corn-based ethanol market, advancements in cellulosic conversion would reduce the substantial amounts of ethanol-generated carbon dioxide. Still, Sheenan emphasized that development of this technology may require another five years before it can be used commercially.

Looking Ahead

Protecting the global biofuel market from shortages and price hikes requires industry diversification and evolution. According to Otaviano Canuto, ethanol prices could be protected from price shocks with the use of multiple feedstocks in the production process. Agreeing with this point, Zalesky added that processing technology would influence renewable energy availability.

In the future, consumers and producers alike will have to balance environmental concerns with supply demands. Sheehan pointed out that the trade-off between crop use for fuel versus food must be thoroughly examined to prevent international food crises. Water availability could also be somewhat problematic for the industry. Each gallon of biofuel produced requires the use of 5-7 gallons of water, not including water for irrigation.

Speakers agreed on the need for international cooperation and partnership in the development of biofuels.  By 2012, Jank noted that announced targets and capacity indicate the U.S. and Brazil are on target to produce nearly 24 of the 30 billion gallons of ethanol per year. Canuto sees a range of benefits with greater biofuel production, including increased agricultural employment, enhanced economic activity and diversification, and greater ecosystem rehabilitation.  Nevertheless—for the short-term, at least—the biofuels industry should not be expected to cure global energy needs.