311 million gallons of biodiesel were produced in the United States. Therefore, adequate volumes are likely to be produced to meet the consumption mandates of 15 billion gallons of conventional biofuel and at least 1 billion gallons of biodiesel1 by 2022. In contrast, whether and how the mandate for cellulosic biofuels will be met is uncertain. Although several studies suggested that the United States can produce adequate biomass feedstock for conversion to 16 billion gallons of ethanol-equivalent cellulosic biofuels to meet the consumption mandate, no commercially viable biorefineries exist for converting lignocellulosic biomass to fuels as of the writing of this report. Another report, Liquid Transportation Fuels from Coal and Biomass: Technological Status, Costs, and Environmental Impacts, estimated that aggressive deployment, in which the capacity build rate doubles the historic capacity build rate of corn-grain ethanol, is needed if 16 billion gallons of ethanol-equivalent cellulosic biofuels are to be produced by 2022. That estimate was based on the assumption that robust commercial-scale technology would be ready for deployment by 2015. Although the government guarantees a market for cellulosic biofuels regardless of price up to the level of the consumption mandate,2 policy uncertainty and high cost of production might deter investors from aggressive deployment. Therefore, the capacity for producing cellulosic biofuels to meet the RFS2 consumption mandate will not be available unless innovative technologies are developed that unexpectedly improve the cellulosic biofuel production process, and technologies are scaled up and undergo several commercial-scale demonstrations in the next few years to optimize capital and operating costs.

FINDING: Only in an economic environment characterized by high oil prices, technological breakthroughs, and a high implicit or actual carbon price would biofuels be cost-competitive with petroleum-based fuels.

The committee used the Biofuel Breakeven Model to evaluate the costs and feasibility of a local or regional cellulosic biomass market for a variety of potential feedstocks. The model was used to estimate the minimum price that biomass producers would be willing to accept (WTA) for a dry ton of biomass delivered to the biorefinery gate and the maximum price that biorefineries would be willing to pay (WTP) to at least break even.

The price of crude oil, which is the chief competitor with biofuels, is a key determinant in the competitiveness of cellulosic biofuel and other advanced biofuels in the marketplace. Because crude oil prices are highly volatile, the difference between the WTP and WTA was calculated for three oil prices: $52, $111, and $191 per barrel, which are the low, reference, and high price projections for 2022 from the Department of Energy’s Annual Energy Outlook in 2008$. Table S-1 shows that the price gap is positive for all potential cellulosic feedstocks if the oil price is $111 per barrel and policy incentives for biofuels do not exist. In this scenario, no cellulosic feedstock market is feasible without policy incentives.

A cellulosic feedstock market would be feasible under other circumstances, such as if the price of oil reaches $191 per barrel, if a carbon price makes the price of cellulosic biofuels more competitive, if government subsidy payments are high enough, or if government mandates are enforced at given levels of biofuel blending. Oil price affects both the processor’s WTP through fuel revenues and the supplier’s WTA through production, handling, and transport costs. The price gap is eliminated for several feedstocks when oil prices are


1 The actual consumption mandate for biomass-based diesel is 1.0 billion gallons per year in 2012. Thereafter, the volume, no less than 1.0 billion gallons of biodiesel equivalent per year, is to be determined by EPA in a future rule making.

2 RFS2 mandates that the production capacity of cellulosic biofuels be used to the extent that companies build it.

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