Biofuels: Think outside the Barrel

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Biofuels Think outside the Barrel
Vinod KhoslaDec. 2005
Ver3.1short
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Assertions for Alternative Fuels

• We dont need oil for cars light trucks
• We definitely dont need hydrogen!
• We dont need new car/engine designs
• We dont need new distribution systems
• Rapid (3-5 yrs) changeover of automobiles is
  possible!
• Shift has little cost to consumers, automakers,
  government

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Not so Magic Answer Ethanol
Cheaper Today in Brazil!
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Why Ethanol

• Todays cars todays fuel distribution
• Todays liquid fuel infrastructure
• Leverages current trends
• Flex-fuel vehicles proven in millions!
• Hybrid drivetrain compatible
• Leverages Lightweighting improved efficiency of
  cars
• Already part of fuel market through blending
• Just add E85 fuel category (third pump!)
• Existing ethanol market in the billions
  growing!
• Incremental introduction possible UNDERWAY!
• Ethanol is cheaper than gasoline at current prices

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Why Ethanol

• Multiple Issues, One Answer
• Cheaper fuel for consumers (20b per NRDC)
• More energy security diversified sources
• Significant (80-95) carbon emission reduction
  (with cellulosic ethanol)
• Higher farm incomes rural employment
• Faster GDP growth, Smaller Import Bill, Lower
  worldwide energy prices

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Why Now

• Brazil has proven model of ethanol
• Low risk auto conversion model to FFV
• Initial fuel markets thru blending- reduced
  production risk
• Excess supply for kick start available from
  Brazil
• High oil prices accommodate startup costs of
  ethanol
• Breakeven at scale likely to be 35/barrel
• Carbon considerations will further improve
  economics
• 20 /yr increase of US ethanol production
  already in process
• Significant increase in farm profits feasible -
  better use for farm subsidies
• 4m US FFV vehicles, 4b gals ethanol supply,
  blending in place,.
• Many US car models available at same price (FFV
  or gasoline)

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Interest Groups

• US Automakers less investment than hydrogen
  compatible with hybrids
• Agricultural Interests more income, less
  pressure on subsidies new opportunity for
  Cargill, ADM, farmers co-operatives,
• Environmental Groups faster lower risk to
  renewable future aligned with instead of against
  other interests
• Oil Majors equipped to build/own ethanol
  factories distribution lower geopolitical
  risk, financial wherewithal to own ethanol
  infrastruct. diversification
• Distribution (old New) no significant
  infrastructure change potential new distribution
  sources (e.g. Walmart)

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Interest Groups Action Items

• US Automakers 100 flex-fuel new car
  requirement in exchange for some regulatory
  relief
• Agricultural Interests 100 flex-fuel new cars
  but no tax on imported ethanol transfer
  subsidies from row crops to energy crops
  (equivalent /acre)
• Environmental Groups tax-credit for cellulosic
  ethanol debt guarantees for new cellulosic
  ethanol technologies
• Oil Majors new business opportunity?
• Distribution (old New) assist ethanol third
  pump strategy promote ethanol distribution at
  destination sites (e.g. Walmart) fleets

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Prioritized Action Items

• Require all cars to be Flex Fuel Vehicles (FFVs)
• Allow fleets to import ethanol without tax burden
• Require E85 ethanol distribution at 30 of gas
  stations
• Require automakers to promote ethanol usage to
  get CAFÉ credit
• Assist debt financibility of first 5 plants with
  any new technology
• Switch subsidies (same /acre) from existing to
  energy crops
• Fully fund current legislation reduce earmarks!
• Allow carbon credits for cellulosic ethanol
• Fund future demand with improved efficiency
  requirements!
• Establish early demand by creating strategic
  ethanol reserve

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RISK Oil vs. Hydrogen vs. Ethanol
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Objections

• Land Use
• Traditional numbers cited are for corn ethanol
• NRDC 2050 estimate 114m acres required for our
  needs
• Ceres Corp Estimate 100m acres of export crop
  CRP lands available
• DOE Study estimates availability of 1.3 billion
  tons of biomass
• Conversion of 73m acres to soybeans proves
  ability to switch land use
• Woolsey/Shultz estimate of 60m acres (Rocky
  Mountain Institute estimate)
• Energy Balance (Energy OUT vs. IN)
• Corn ethanol numbers 1.2-1.8X
• .but reality from non-corn ethanol is
• Sugarcane ethanol (Brazil) 8X
• Cellulosic ethanol 4-8X
• Petroleum energy balance at 0.75
• Environmental pollution
• E85 better in most respects
• E10- gasoline has acceptable emissions
  performance in newer vehicles FFVs
• E10- gasoline better than MTBEGasoline today

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Land Use Reality

• NRDC 114m acres can meet our transportation fuel
  needs in 2050
• Assumes only 2X switch grass yield improvement
  (10 tons/acre)
• Assumes ethanol production _at_100 gals/dry ton of
  feedstock
• Jim Woolsey/ George Shultz (Rocky Mountain
  Institute) estimate 60m acres
• Currently 73m acres under soybean for animal
  proteins can be used for co-production of
  ethanol animal protein
• Lee Lynd Re-imagine agriculture to accommodate
  energy production
• Replace export lands with import replacement
  lands
• 30 tons/acre x 100gals/ton x 50m acres 150b
  gals/yr!
• Miscanthus (www.bical.net or www.aces.uiuc.edu/DSI
  /MASGC.pdf)
• New Energy crops (www.ceres.net )
• Agricultural waste products animal waste
• Lee lynd Using Currently Managed Lands for
  Energy Production
• 39m acres of CRP Lands
• Thermochemical Ethanol from municipal sewage/
  coal/ animal waste

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Potential for Billion Tons of Biomass

• In the context of the time required to scale
  up to a large-scale biorefinery industry, an
  annual biomass supply of more than 1.3 billion
  dry tons can be accomplished with relatively
  modest changes in land use and agricultural and
  forestry practices

Technical Feasibility of a Billion-Ton Annual
Supply US Department of Energy Report , April
2005. http//www.eere.energy.gov/biomass/pdfs/fina
l_billionton_vision_report2.pdf
. Or a 100billion gallons per year!
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Farmers Are Driven By Economics
Per acre economics of dedicated biomass crops vs.
traditional row crops
Source Ceres Company Presentation
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Energy BalanceFossil Fuel Use Reductions
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Fossil Fuel Use
Legend EtoH Ethanol
Allo. Allocation
Disp. Displacement
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(No Transcript)
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Environmental Issues
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Environmental issues

• Carbon emission reduction of 80 for light
  transportation
• Zero sulphur, low carbon monoxide, particulate
  toxic emissions
• Co-production of animal protein cellulosic
  biomass
• Allows existing cropland to produce our energy
  needs
• Reduces cost of animal feed energy
• Switchgrass Carbon enrichment of soil
  (immediate)
• 2-8X lower nitrogen run-off
• 75-120X lower topsoil erosion (compared to corn)
• 2-5X more bird species
• Resistant to infestation disease lower
  pesticide use
• Potential for coal ethanol as supplementary
  source (Clean coal)

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(No Transcript)
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Emission Levels of Two 2005 FFVs(grams per mile
_at_ 50,000 miles)
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Emissions from Ethanol Fuels

• E6 (low ethanol blends)
• Low Nox in modern vehicles with oxygen sensors
  (higher in older vehicles)
• Increased RVP and increased VOCs (and hence
  ozone formation)
• Increased permeation emissions in older vehicles
• Reduced CO emissions (not enough to offset
  increased ozone via VOCs)
• but
• Reduced permeation emissions ( thicker hoses
  plastics) in newer vehicles
• California Low Emissions Vehicle II program
  reduces permeation and evaporative emissions
  (part of 2007 Federal Law)
• E85
• Low Evaporative emissions (Lower RVP)
• Expected Low Permeation emissions in FFVs
• Low Nox in modern vehicles with oxygen sensors

reasons to not like ethanol are disappearing!
Source Personal Communications
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Technology Improvements

• Bioengineering
• Enzymes
• Plant engineering
• Energy crops
• Switch grass
• Poplar
• Willow
• Miscanthus
• Co-production of animal protein
  cellulose/hemi-cellulose
• Process Process Yields
• Process Cost
• Pre-treatment
• Co-production of industrial chemicals to reduce
  net fuel costs
• Process Yield gals/dry ton
• Consolidated bioprocessing

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Flex Fuel Vehicles (FFV)

• Almost no incremental cost to produce low risk
• Confidence on fuel availability to consumers
• Easy switchover for automobile manufacturers
• 4 million FFV cars in the US today (to earn CAFE
  credits)
• Consumer choice use EITHER ethanol or gasoline
  (no risk)
• Fully compatible with Hybrid cars
• Brazil Proof new car sales from 4 FFV to
  70 in 3 years!
• Growth in ethanol use driven by low prices of
  ethanol
• Brazil 50b on oil imports savings

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Strategy Tactics

• Choice Oil imports or ethanol imports?
• GDP beyond food to food energy rural
  economy
• Add 5-50B to rural GDP
• Avoid international pressure to remove subsidies
  through energy crops
• Rely on entrepreneurs to increase capacity
• Rely on biotechnology process technology to
  increase yields .
• Increased ethanol use mandates already in place
• 20 /yr production capacity increase plans
  already in process!
• Ethanol fuel cells possibly after ethanol
  distribution is place (if needed)

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Brazil A Role Model
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Brazil FFV Market Share of Light Vehicle Sales
Can Rapid Adoption of FFV Happen?
50 in May05
.from 4 in early 2003 to 70 in Dec. 2005!!!
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Ethanol Learning Curve of Production Cost
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Market Conditions
Ethanol
(producers BR)
1980
1986
1996
( Oct. 2002) US / GJ
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2002
1990
1993
1999
Gasoline
(Rotterdam)
1
0
50000
100000
150000
200000
250000
Accumulated Ethanol Production ( 1000 m3)
(J Goldemberg, 2003)
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Brazil sugar-cane/ethanol learning curve Liters
of ethanol produced per hectare since between
1975 to 2004
??
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Consumer Price Ratio
São Paulo (SP)
Source Honorable Roberto Rodrigues, Minister of
Agriculture, Brazil (Assessing Biofuels Conf.,
June 2005)
SOURCE MAPA
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Brazil Ethanol Facts

• Employment Gasoline/Ethanol is 221
  (Brazil-ANFAVEA)
• Ethanol 40 of total consumption of spark
  ignition cars (non-diesel)
• VW planning on a phase out of all gasoline cars
  in 2006?
• Canavialis (www.canavialis.com.br) plant
  genetics company developing an "energy cane"
  (more cellulose, less sucrose)

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Status United States
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Ethanol Capacity Expansion is Underway
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Ethanol FFVs Are Here! Californias Motor
Vehicle Population
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Costs U.S. Ethanol Production Facilities
Source Encyclopedia of Energy (Ethanol Fuels ,
Charlie Wyman)
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Unfair Expectations?

• Level of cleanliness too high for biofuels
  better than petroleum or 100 Pure
• Level of domestic supply expectations why a
  100 domestic supply initially when petruleum is
  imported?
• Agricultural standards too high far more
  rigorous debate on new crops than on traditional
  crops?
• Debate on subsidy on ethanol but not on the tax
  on cheapest worldwide ethanol supply (Brazilian)?

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Non-Transportation Impacts of Ethanol

• Coal Clean Coal
• Biofuels impact on oil prices
• Fuel Cells Stationary Power

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References

• NRDC Report Growing Energy (Dec 2004)
• http//soilcarboncenter.k-state.edu/conference/car
  bon2/Fiedler1_Baltimore_05.pdf
• George Schultz Jim Woolsey white paper Oil
  Security
• Rocky Mountain Institute Winning the Oil
  Endgame
• http//www.unfoundation.org/features/biofuels.asp
• http//www.transportation.anl.gov/pdfs/TA/354.pdf
• The Future of the Hydrogen Economy (
  http//www.oilcrash.com/articles/h2_eco.htm8.2 )
• Fuel Ethanol Background Public Policy Issues
  (CRS Report for Congress, Dec. 2004)

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Comments?
Vinod Khosla vkhosla_at_kpcb.com