Is Ethanol a Cost Effective Solution to Climate Change?
- Jul 7, 2018 12:44 am GMT
Ethanol has been strongly supported as a solution to U.S. energy security, and recently, reducing carbon emissions. Historic Government subsidies and blending mandates made ethanol one of the most successful renewable energy sources in the U.S. Although the Government subsidies expired a year ago, increased ethanol is now being advocated possibly as a part of the EPA’s developing climate policy. Is increased corn ethanol a reasonably economical solution to reducing future U.S. carbon emissions?
Brief History of U.S. Ethanol Blending – Ethanol has been used as motor fuel-component since the dawn of the automobile. Until the 1990’s ethanol use was limited due to relatively poor economics compared to petroleum fuels. Besides having a lower vehicle fuel efficiency than petroleum (lower unit volume energy content), ethanol is corrosive and requires special handling. These factors further increase ethanol’s production-consumption costs. The Clean Air Act was amended to require reformulated gasoline ‘oxygenate’ blending during the early 1990’s. Although the oxygenate mandate was initially met by blending methyl tertiary butyl ether (MTBE), increasing ground water contamination issues totally replaced MTBE with ethanol by the early 2000’s.
The oxygenate blending requirement was effectively replaced by the first ‘renewable fuel standard’ (RFS1) created in 2005. The RFS1 mandated blending up to 7.5 billion gallon per year ethanol by 2012. The required blending level was further increased in 2007 when the new ‘RFS2’ was established. Refer to the following bar chart:
Data: RFS2 is from EISA (P.L. 110-140), Section 202. EtOH – ethanol, BioDsl – biodiesel
Conventional corn ethanol mandated blending has effectively tripled since 2005 and is scheduled to increase up to 15 billion gallons/yr. in 2015. Cellulosic (advanced) ethanol biofuel was mandated at increasing volumes beginning 2010 under the RFS2. The Ethanol Industrial, however, struggles to produce cellulosic ethanol at levels approaching the original RFS2 targets due to ongoing technology and developmental gaps.
Ethanol ‘Lifecycle’ Energy Balance – Conventional corn ethanol initially consumed more fossil fuel energy during cultivation-production than yielded in the finished biofuel, 10-20 years ago. Over the years significant improvements were made in the efficiency of corn and ethanol production, and its overall ‘lifecycle’ energy balance. To illustrate, refer to the following ‘well-to-wheel’ (WTW) diagrams:
Total fossil fuels energy consumption based on the GREET model. Petroleum gasoline WTW fossil fuels consumption has been corrected (1.13 vs. 1.23 million Btu) using improved data.
The energy balances show that 0.78 million Btu (MBtu) and 1.13 MBtu of fossil fuels are consumed in the overall WTW lifecycles of corn ethanol and petroleum gasoline respectively (for every 1.0 MBtu of finished motor fuel produced-delivered). The petroleum gasoline fossil fuels energy consumption has been corrected to represent more accurate data developed by my detailed analysis of the GREET energy balance. Details covered in the following ‘GREET Model Peer Review’ section.
The two WTW energy balances are formulated somewhat differently since corn ethanol is a renewable biofuel and petroleum gasoline is a fossil fuel. Refer to the following table:
Lifecycle energy balance details based on GREET and Peer Review adjusted data. WTT – well-to-tank, TTW – tank-to-wheel, DDGS – dried distiller’s grains and solubles, and NEV – net energy value
The corn ethanol lifecycle balance basically only includes the ‘well-to-tank’ energy consumption steps. As shown, total energy consumption (fossil fuel + non-fossil fuel power) is actually 6% greater than the heating value of the finished ethanol fuel (1.06 MBtu total energy consumed vs. 1.00 MBtu in the finished EtOH product). However, the net energy consumption of ethanol is normally adjusted by an ‘energy credit’ for the co-products yielded during corn-ethanol conversion. This energy credit is subtracted from the total energy consumption since the (DDGS) co-product displaces the energy required to produce an equivalent amount of (DDGS) animal feed elsewhere in the country. Since ethanol is a renewable fuel, no final energy consumption and associated CO2 emissions (TTW) are included in the overall WTW lifecycle balance. In other words, all of the CO2 emissions from consuming the finished ethanol biofuel are assumed to be ‘zero’ and fully offset by the CO2 captured from the atmosphere during the growth of the corn feedstock.
The petroleum gasoline lifecycle balance is formulated differently since it is not a renewable biofuel. All of the energy, including the WTT + TTW, is included in the overall lifecycle WTW balance. Technically excluding the final TTW energy consumption, petroleum gasoline has an actual NEV of 0.86 MBtu/MBtu; over 7-times corn ethanol’s NEV. This factor is a major reason why ethanol generally costs more than petroleum gasoline. But since petroleum gasoline is a fossil fuel, the overall balance includes the TTW energy consumption for determing the total lifecycle CO2 emissions.
GREET Model Peer Review – Federal Agencies (DOE, EPA, etc.) use the Argonne National Laboratory energy lifecycle GREET model for renewable-fossil fuels studies. The ‘original’ GREET model output shows the petroleum gasoline WTW fossil fuels consumption is 1.23 MBtu/MBtu.
In 2010 I evaluated some corn ethanol production business investment opportunities. During this evaluation I reviewed the latest version of the GREET model and published lifecycles. Based on my 30+ year’s petroleum-refining experience, a couple unusual data points caught my attention; the EERE published gasoline lifecycle balance illustrated using ‘residual oil’ downstream of petroleum refining and the 0.23 MBtu WTT energy consumption level. Residual oil use is not significant within the U.S. (commonly used internationally due to lower environmental standards) and the WTT energy consumption value was double my experience with Upstream crude oil production and Downstream refineries.
To evaluate the GREET model petroleum lifecycle energy balances I performed a detailed (Peer Review) analysis based on my experience with U.S. Refining performance surveys, Upstream & Downstream crude-petroleum oil supply chains, and available (non-proprietary) EIA data. Based on this analysis the following detailed petroleum gasoline WTW fossil fuel energy balance was developed:
Industrial (proprietary) data based on Oil Company performance and energy-yield surveys conducted by Solomon Associates
Using more accurate Industrial/EIA data found that overall WTW fossil fuels consumption was 1.125 MBtu/MBtu. As originally suspected, much of the available documentation on GREET data found it to be based significantly on international refining and transportation data. U.S. refineries are generally more efficient than international refineries and ‘crude/gasoline transportation’ (primarily via pipelines) is also more efficient. Note: I attempted to contact the Argonne National Lab in order to reconcile the ‘unaccounted (energy) consumption’ in their published petroleum gasoline WTW balances. No response was received.
My evaluation of the GREET corn ethanol WTW energy balance in 2010 found the published 0.78 MBtu/MBtu fossil fuel consumption to be reasonably accurate.
Renewable Fuel Standard Carbon Reduction – The total WTW fossil fuels consumption of corn ethanol vs. petroleum gasoline is 0.78 MBtu vs. (uncorrected) 1.23 MBtu & (corrected) 1.13 MBtu respectively. Based on average U.S. Power sector fossil fuels-renewables mix and the natural gas + petroleum consumed in the overall corn ethanol and petroleum gasoline WTW balances, the total carbon emissions for producing and blending 15 billion gallons per year ethanol was compared to petroleum gasoline. Refer to the following table:
Table based on 2008 EPA RFS2 analysis (slide 4), ‘original’ GREET model and the Author’s Peer Review ‘corrected’ data. MMT – million metric tons
Based on EPA ‘original’ estimates, replacing 10.4 billion gasoline (Btu equivalent) gallons with 15 billion gallons of corn ethanol would reduce U.S. carbon equivalent (CO2-e) emissions by 30 MMT/yr. The ‘corrected’ petroleum gasoline WTW balance reduces the overall ethanol CO2-e emissions reduction to 20 MMT/yr.
While the lower level of carbon emissions reduction makes the RFS2 program a less effective solution towards climate change, it also identifies a potential regulatory compliance issue. The RFS2 requires (slide 3) all new corn ethanol bio-refineries “must show 20% GHG (CO2-e) reduction compared to gasoline”. The ‘original’ EPA determined 24% GHG reduction becomes 18% after the petroleum gasoline WTW balance is ‘corrected’. This Peer Review analysis indicates that RFS2 GHG maximum target compliance could be problematic for some new corn ethanol plants built since 2007.
Other Corn Ethanol Impacts – Consumption of corn for ethanol production has been a growing controversy due to impacts on animal feed and general food market prices, and water usage. In 2012 ethanol reportedly consumed 40% of the total U.S. corn crop. This reported 40% figure is a little misleading. Almost 1/3rd of the total mass of the corn ethanol feedstock is converted to the DDGS co-product. After correcting for the DDGS co-product yield off-set, ethanol did directly accounted for about 28% of the total 2012 crop.
The CBO has estimated that corn ethanol has only contributed to 10-15% of total food cost increases during the latter 2000’s. However, since 2005 actual corn prices have more than tripled. The escalated corn prices not only affect animal feed and ‘human’ food markets, but also impact the less efficient corn ethanol bio-refinery economics; as witnessed by a number of recent plant shutdowns. How much of the recent corn market price escalation is due to increased demand and how much is attributed to the 2012 drought is difficult to ascertain.
Corn Ethanol Carbon Credit Value – After correcting the petroleum gasoline WTW balance, 15 billion gallons of corn ethanol production-blending more accurately reduces U.S. total carbon emissions by 20 MMT/yr. On average ethanol costs about $1.00/gallon more than petroleum gasoline (Re. page 3, Table 2, gasoline equivalent gallons). Base on these data the value or cost of carbon credits generated by corn ethanol would be $750/MT. This carbon credit value is huge compared to alternative carbon reduction strategies. Carbon reduction strategies such as replacing coal power with nuclear/natural gas/wind, efficiency upgrades and replacing petroleum gasoline with EV’s should generate carbon credits at about $100/MT.
Ethanol Advocate Claims – Various Advocacies have very successful supported corn ethanol by obtaining many $10’s Billions in Government subsidies and tax credits over the past couple decades. Although the subsidies ended January 1, 2012, the Federal RFS2 blending requirement is still in place. Advocates appear to be regrouping and focusing on carbon credits as a possible strategy to restore some ethanol financial support. The Renewable Fuel Association (RFA) has apparently embarked on a new campaign to support ethanol. Their strategy appears to address the EPA’s climate policy and possible future U.S. carbon trading. The RFA recently petitioned the EPA to revise their corn ethanol RFS2 lifecycle energy and carbon balances. This action would apparently reduce the level of carbon emissions generated in the overall WTW corn ethanol lifecycle as previously determined by the EPA. If successful, the level of carbon credits generated for the production of corn ethanol would increase.
Review of the RFA report indicates their proposed ethanol lifecycle adjustments could help compensate for the reduced carbon emissions of a ‘corrected’ petroleum gasoline (Peer Reviewed) WTW lifecycle fossil fuel consumption balance. The RFA proposal could eliminate the possible current RFS2 compliance risk of some recently built corn ethanol plants by directionally increasing current reduced GHG emissions performance estimates up to the minimum 20% RFS2 requirement.
Ethanol vs. Natural Gas Motor Fuels – Another viable alternative to petroleum gasoline and reduced carbon emissions is natural gas. Domestic natural gas production is increasing fairly rapidly, has become relatively inexpensive and generates significantly less carbon emissions then petroleum gasoline. These factors make natural gas an attractive alternative motor fuel. The overall WTW lifecycle fossil fuels consumption for natural gas is also much lower than petroleum gasoline. Comparing the natural gas WTW lifecycle to corn ethanol finds that natural gas has a WTT NEV 8-times greater than ethanol, and generates about 25% less WTW carbon emissions than conventional ethanol. In addition, the average natural gas cost is less than half of ethanol (Re. page 3, Table 2; gasoline equivalent gallons). These factors make natural gas possibly a much more superior alternative to displacing petroleum gasoline than corn ethanol.
In Conclusion – The majority of the energy available in conventional corn ethanol comes from fossil fuels consumed during the overall cultivation-production of this biofuel. Even if the RFA successfully persuades the EPA to adjust corn ethanol’s WTW lifecycle carbon emission balances, the generated carbon credits would still have a relatively high cost of about $500/MT. This carbon credit value is extremely expensive compared to natural gas, further efficiency upgrades, or other more cost effective Power and Transportation sectors carbon reduction strategies.
The primary incentive to continue producing and blending large volumes of conventional corn ethanol is the Federal RFS2 ‘renewable fuel standard’ mandate. Without the RFS2 requirement the probability of ethanol competing in a free market based on economically displacing equivalent fossil fuels or generating reasonably priced carbon credits appears to be relatively small.
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