Biofuels and Bioeconomy: How
We Got Where We Are, and What
are the Implications of Current
Market Conditions for the Future?
Wallace E. Tyner
Purdue University
March 13, 2015
Global production of liquid biofuels
35
Ethanol: From 12BG to 31BG
Biodiesel: From 1BG to 8BG
30
Billion gallons
25
20
15
10
5
0
2005
2006
2007
2008
2009
Ethanol
2010
2011
2012
2013
2014
Biodiesel
2
Global production of ethanol
16
USA and Brazil are the leading ethanol producers
14
14
13
Billion gallons
12
10
8
7
7
8
8
6
4
4 4
4
2
0
2005
2006
2007
2008
2009
US
Brazil
2010
2011
2012
2013
2014
Others
3
Global production of biodiesel
4
EU and USA are the leading biodiesel producers
3.5
3.5
2.9
Billion gallons
3
2.7
2.7
2.5
2
1.4
1.5
1
1.3
0.8
0.5
0.1
0
0.1
2005
2006
2007
2008
US
2009
EU
2010
2011
2012
2013
2014
Others
4
Biofuels History
• Early leader was Brazil with sugarcane
ethanol
• US began corn ethanol production in
the early 1980s
• Early biofuels production in the US,
Brazil, and EU was subsidized
• Subsequently, all three have moved
from subsidies to mandates.
US Biofuels Objectives
• Three major objectives in launching
biofuels programs
– Reduce oil imports and foreign
dependence
– Increase farm and rural incomes
– Reduce environmental pollutants from
fossil fuels and reduce GHG emissions
Evolution of US Biofuels Industry
• The ethanol and biodiesel sectors in the US and in
other countries are essentially creations of
governments.
– National Energy Conservation Policy Act of 1978
– Energy Policy Act of 2005
– Energy Independence and Security Act of 2007
• Since 2009 ethanol has become an integral part of
the US gasoline type fuel system.
• Biodiesel has grown to well over a billion gallons.
RFS Definition
• The Renewable Fuel Standard (RFS) provides for 36
billion gallons (ethanol equivalent) by 2022.
• There are four categories
– Biodiesel
– cellulosic advanced
– other advanced
– conventional.
• It is a nested structure, so only corn ethanol counts for
conventional, but biodiesel, other advanced, or
cellulosic can fill the conventional as well.
Nested RFS Structure
Biodiesel – 1 BG+
Sugarcane
Ethanol
Other advanced – 4 BG
Conventional -15 BG
Corn
Ethanol
Cellulosic – 16 BG
RFS Enforcement - RINs
• The RFS is enforced by creating obligations
for each type of biofuel.
– Obligated parties generally are refiners (only
the product for the domestic market) and
importers.
– For example, if you are a refiner, and you have
10% of the total domestic market (domestic
plus imported) for gasoline, for 2013 with a 13.8
BG total obligation for corn ethanol, you would
incur obligations for 1.38 BG.
– The traded fraction is 15-25% of total RINs.
Mar. 9 RIN prices:
D6 ethanol 0.70
D4 biodiesel 0.83
D5 advanced 0.81
The Blend Wall
• The blend wall refers to a physical limit on blending
of ethanol.
– It is derived from the U.S. practice of blending gasoline at
10%. 2014 U.S. consumption of gasoline type fuel was
about 135 BG.
– With ethanol being blended at 10%, the max ethanol that
can be blended is 13.5 BG.
– There are small amounts of ethanol blended as E85 and
as E15, but they are really too small to matter for this
purpose.
– The blend wall is one of the major reasons EPA gave for
setting the RFS at 13 BG in 2014.
Greater Market Penetration for E85
• Bruce Babcock and I have argued that there is
significant potential for expanding E85
consumption.
• We have 17 million flex fuel vehicles. Current E85
sales represent about 2% of the capacity of those
vehicles.
• Ethanol was about $1/gal. less expensive than
gasoline, but now it is $0.10 - $0.50 less. Price
difference plus RIN value could provide incentive
for more E85 sales, but less so with crude plunge.
Impact of Oil Prices
• Most advanced
biofuels require crude
oil at $140 to be
competitive without
mandate or subsidy
• Before the plunge, oil
was close, but near
term now half that level
Aviation Biofuels
• Real potential for advancement in this
area.
– The Navy and the Air Force are keenly
interested in making use of biofuels.
– The International Civil Aviation Organization
(ICAO) is very interested in biofuels, as are
individual airlines.
– On the ground there are other options
(PHEVs, CNG, ethanol), but in the air, biofuels
is the only fuel option to be greener.
Techno-Economic
Analysis
Jet Fuel Costs via Pyrolysis
Total Breakeven Cost
$3.33/gal.
Uncertainty
Parameter
Mean
Capital Cost
($/MT)
82.83
Feedstock Cost
446.83
($/MT)
Hydrogen Cost
3.25
(%/Kg)
Final Yield
(%Biomass)
22.97
Techno-Economic
Analysis
Sensitivity Analysis
Bid Price at 25% Probability of Loss with
Reverse Auction Case
Steady Stochastic Fuel Price
Length of
Contract
Mean
Standard
Deviation
bid price
Probability of
Loss
5
10
15
$125,009,046
$100,413,192
$84,241,107
$180,494,175
$144,923,926
$121,718,449
5.21
4.16
3.85
25.0%
25.0%
25.0%
Increasing Stochastic Fuel Price
Length of
Contract
Mean
Standard
Deviation
bid price
Probability of
Loss
5
10
15
$133,611,460
$108,806,306
$90,414,961
$193,509,692
$155,469,318
$130,158,226
4.31
3.62
3.41
25.0%
25.0%
25.0%
For the steady price and capital subsidy case, the bid prices
are 5.44, 4.44, and 4.15.
Conclusions
• The RFS is important to the biofuels sector.
• Because of the blend wall and other issues, the
RFS has now come under increased attack.
• Eliminating the RFS would kill renewable fuel
growth, but ethanol could hold its ground in the
short run even with lower oil prices.
• Perhaps the greatest potential for future biofuels
growth is in aviation.
• The key to stimulating biofuels growth will be
policies and funding mechanisms that reduce risk
for potential private sector investors.
Thanks
Questions and comments