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1—
Overview

Materials that contain carbon play an integral role in the U.S. and world economies. Included here are the primary fuels in commerce, virtually all food and fiber products, and the major share of commodity chemicals, pharmaceuticals, and nondurable manufactured goods. These products are derived from carbon-rich raw materials. The raw materials, in turn, originate through the process of photosynthesis in which plants and some bacteria use solar energy to convert atmospheric carbon dioxide into organic substances, such as sugars, polysaccharides, amino acids, proteins, and fats. Some carbon-rich raw materials come from fossil sources such as petroleum, coal, and natural gas. Fossil sources are the result of photosynthesis in ancient times and comprise a large, but limited, reserve that cannot be renewed. The present-day photosynthesis of plants provides a different living source of carbon. Unlike fossil sources, these biological carbon sources are a potentially renewable asset that is replenished daily by photosynthetic activity.

Renewable agricultural and forestry resources have been used since ancient times as the raw materials for numerous products. For example, Egyptians extracted oil from the castor bean to use as lamp fuel. A shift to fossil sources occurred in the early 1800s, when coal came to dominate U.S. fuel and gas markets and technologies were developed to manufacture chemicals from coal tar. By 1920 chemical producers began using petroleum, and gradually most industries switched from biological raw materials to fossil fuel resources. By the 1970s, organic chemicals derived from petroleum had largely replaced those derived from plant matter,



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Page 15 1— Overview Materials that contain carbon play an integral role in the U.S. and world economies. Included here are the primary fuels in commerce, virtually all food and fiber products, and the major share of commodity chemicals, pharmaceuticals, and nondurable manufactured goods. These products are derived from carbon-rich raw materials. The raw materials, in turn, originate through the process of photosynthesis in which plants and some bacteria use solar energy to convert atmospheric carbon dioxide into organic substances, such as sugars, polysaccharides, amino acids, proteins, and fats. Some carbon-rich raw materials come from fossil sources such as petroleum, coal, and natural gas. Fossil sources are the result of photosynthesis in ancient times and comprise a large, but limited, reserve that cannot be renewed. The present-day photosynthesis of plants provides a different living source of carbon. Unlike fossil sources, these biological carbon sources are a potentially renewable asset that is replenished daily by photosynthetic activity. Renewable agricultural and forestry resources have been used since ancient times as the raw materials for numerous products. For example, Egyptians extracted oil from the castor bean to use as lamp fuel. A shift to fossil sources occurred in the early 1800s, when coal came to dominate U.S. fuel and gas markets and technologies were developed to manufacture chemicals from coal tar. By 1920 chemical producers began using petroleum, and gradually most industries switched from biological raw materials to fossil fuel resources. By the 1970s, organic chemicals derived from petroleum had largely replaced those derived from plant matter,

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Page 16 Figure 1-1 Biobased products manufactured today. Source: Morris and Ahmed (1992). Reprinted with permission. capturing more than 95 percent of the markets previously held by products made from biological resources, and petroleum accounted for more than 70 percent of our fuels (Morris and Ahmed, 1992). While petroleum does dominate today's industry, there has always been a strong interest in converting underutilized biological materials into useful products (Figure 1-1). The conversion of agricultural and forest biological raw materials into value-added industrial products continues to be a promising area of research. In the 1970s an embargo organized by the Organization of Petroleum Exporting Countries (OPEC) ignited a period of uncertainty for the United States and generated renewed interest in biobased raw materials. Consequently, U.S. policymakers directed some research funding for development of alternative energy sources that could substitute for fossil fuels. At the same time, public concern for the environment grew and biobased technologies were considered potential replacements for more polluting industrial processes. Today, widespread commercial-

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Page 17 ization of these products has been somewhat limited due to their high cost and lack of viable markets. The remarkable discoveries taking place in the life sciences raise prospects that economically competitive production of more biobased industrial products will be achievable in the future. In 1995 the National Research Council convened a committee under the Board on Biology to identify priorities for research and commercialization of biobased industrial products derived from agricultural and forestry resources. Committee members were selected for expertise in several key areas, including biomaterials, bioprocessing, economics, enzymology, forest products, lipid and carbohydrate chemistry, microbial and plant genetics, plant biochemistry and pathology, microbiology, and technology transfer. The committee examined the opportunities offered in three areas: (1) recent advances in biotechnology and chemical and material sciences, (2) increases in U.S. agricultural and forest production capacity, and (3) the advantages to the U.S. economy of enhancing industrial growth in rural areas through biobased products. Food and feed products were not considered by the committee, nor were pharmaceuticals. Most biobased raw materials are produced in agriculture, silviculture, and microbial systems. Silviculture crops are an important source of material for the pulp, paper, construction, and chemical industries. Agricultural crops are chemical feedstocks that can be converted to fuels, chemicals, and biobased materials. Waste biomass should be considered as another major currently unused source of raw materials for U.S. biobased industries. Some biobased industrial products result from direct physical or chemical processing of biomass materials—cellulose, starch, oils, protein, lignin, and terpenes. Others are indirectly produced from carbohydrates by biotechnologies such as microbial and enzymatic processing (Szmant, 1987). Great opportunities now exist to change the raw material focus of our carbon-dependent industries—including energy production and nondurable manufacturing as well as some durable manufacturing. The relative importance of fossil versus biological carbon sources varies among commercial sectors, as does the potential for expanded reliance on biological carbon sources. Fuels make up about 70 percent of the carbon consumed annually in the United States (1.6 billion to 1.8 billion tons). Biobased fuels, such as ethanol and biodiesel, account for less than 1 percent of total liquid fuel consumption because they are currently more expensive than fossil fuels. Development of low-cost biological carbon sources (e.g., wastes or cellulose biomass) and low-cost high-yield processes will be essential for biobased liquid fuels to become price competitive without subsidization and expand beyond niche markets. One hundred million metric tons of fine, specialty, intermediate, and commodity chemicals are produced annually in the United States. Only

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Page 18 10 percent of these chemicals are biobased. At present, markets exist for only a few chemicals produced from biological resources such as citric acid, amino acids, sorbitol, and fatty acids. Improved processing technologies and sufficiently low-cost biological carbon feedstocks must be achieved to make production of numerous other chemicals economically competitive. About 90 percent of the carbon-containing materials (other than chemicals or fuels) in commerce (e.g., lumber and paper, natural polymers and fibers, and composites) are biobased. Lumber and paper products account for well over half of this category; natural polymers or fibers (e.g., cotton), other cellulosics (e.g., rayon, lyocell, and acetate), and certain proteins also are significant. These products are directly extracted from existing crops and trees but in the longer term could be produced from plants or microbes genetically engineered to manufacture specific substances. Research already is under way to biodesign plants to produce biodegradable polyester. Potential Benefits of Biobased Industrial Products Significant benefits could accrue to the United States by switching some production currently dependent on fossil resources to biological sources. This committee identified some potential benefits of biobased industrial products that it believes are real. However, these benefits, which are listed below, have not in most cases undergone a rigorous analysis to demonstrate their validity: • use of currently unexploited productivity in agriculture and forestry; • reliance on products that are more biodegradable and processes that create less pollution and generally have fewer harmful environmental impacts; • development of less expensive and better-performing products; • development of novel materials not available from petroleum sources; • exploitation of U.S. capacities in the field of molecular biology to selectively modify raw materials and reduce costs of raw materials production and processing; • revitalization of rural economies by production and processing of renewable resources in smaller communities; • reduction of the potential for disruption of the U.S. economy due to dependence on imported fuel; • countering of oligopoly pricing on world petroleum markets; and

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Page 19 • mitigation of projected global climate change through reduction of buildup of atmospheric carbon dioxide. Federal Agricultural Improvement and Reform Act The Federal Agricultural Improvement and Reform Act of 1996 marks a significant change in U.S. agricultural policy (ERS, 1996c). The new law (Public Law 104-127) removes the link between income support payments and farm prices and moves agriculture away from government control toward a market orientation. The legislation authorizes reductions in federal outlays to the farm sector over the years 1996 to 2002. Farmers will have much more flexibility in making planting decisions because of the elimination of annual acreage idling programs and options to plant any crop on contract acres. As a result, producers will rely more heavily on the market as a guide for production decisions (ERS, 1996c). International Markets Trends in U.S. policy toward liberalized trade may increase opportunities for exports of biobased products. The 1994 Uruguay Round and the new World Trade Organization reversed long-held policies of protectionism and government control (Roberts, 1998). These agreements are stimulating reform in global trading systems by increasing access to international markets and establishing new rules for freer trade. Trade agreements allow U.S. farmers to better realize competitive gains from their comparative advantage in many agricultural products while reinforcing the advantages of freedom to respond to market signals (USDA, 1997b). Nations that are technological innovators generally capture the greatest market share, lead in intellectual property and know-how, and create the essential technology platform for further development and innovation. To the extent that biobased fuels can slow global warming, the United States could develop processes for making biomass fuels and market these technologies internationally. Environmental Quality Use of fossil carbon sources poses a number of potential hazards to the environment and public health. Chemicals that pollute the air, water, and soil can be released during combustion, processing, or extraction of fossil fuels. The concentration of oil refineries along coasts and rivers creates opportunities for oil spills and their attendant impacts on the environment and wildlife. Use of fossil fuels also releases carbon that was sequestered long ago by photosynthesis and thereby contributes to

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Page 20 the worldwide increase in atmospheric carbon dioxide and potentially to global warming. On the other hand, biobased fuels and chemicals are derived from plant materials and can reduce loading of atmospheric carbon dioxide. While this report identifies some biobased products or processes with documented environmental benefits, the environmental benefits (or costs) of most biobased products compared to fossil-based sources are not well known. On a global scale, there is little doubt that human activities associated with fossil fuels have altered the composition of atmospheric gases (NRC, 1992). Greenhouse gases such as carbon dioxide have increased one-third over preindustrial levels. While considerable debate and research continue on the magnitude and distribution of greenhouse gases and their consequences on humans and the environment, many scientists believe that greenhouse gas emissions will lead to increased global temperatures and associated climate changes (Dixon et al., 1994; USDOE, 1998). Under the United Nations Framework Convention on Climate Change (FCCC), over 150 signatory nations pledged to ''adopt policies that limit greenhouse gas emissions and to protect and enhance greenhouse gas sinks and reservoirs." On December 10, 1997, international parties adopted the Kyoto Protocol to the United Nations FCCC to reduce greenhouse gas emission. U.S. administration officials pledged to reduce key greenhouse gases 7 percent below 1990 levels by the period 2008 to 2012. The U.S. Senate has not ratified the agreement (http://www.cop3.de). Biobased fuels could have a significant role in meeting these commitments. Because biobased fuels, such as alcohol, are derived from renewable (plant) sources (see Box 1-1), they do not add to the carbon dioxide content of the atmosphere, unlike fuels derived from fossil sources (oil, natural gas, coal). When plants are harvested and converted to a biobased fuel, which then is burned, the carbon of the fuel will go into the atmosphere as carbon dioxide. But new plants will now grow and through photosynthesis remove essentially the same amount of carbon dioxide from the atmosphere. This cycle of growth and harvesting can then be repeated indefinitely, with the net production of biobased fuel but no net addition of carbon dioxide to the atmosphere. Plants can also act as a sink for carbon dioxide. Trees as they grow store increasing amounts of carbon. If they are harvested, however, and converted to fuel, their carbon is once again returned to the atmosphere. Therefore, the effectiveness as a carbon sink of fast-growing and quickly harvested trees is quite limited. With rapidly increasing energy demands in the Third World countries, fossil fuels could make potential global warming eventually very disruptive, unless nonfossil sources can be substituted. The evaluations of biomass energy system effects on atmospheric

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Page 21 BOX 1-1 Converting Biomass to Ethanol Plant cell walls are the most abundant form of biomass on the earth and thus an immense potential carbon source for biobased products. Recent advances in biotechnology may now make it possible to exploit this raw material for the production of valuable commodities such as ethanol. Plant cell walls are composed of crystalline bundles of cellulose embedded in a covalently linked matrix of hemicellulose and lignin. This complex polymeric structure poses a formidable challenge for solubilization and bioconversion. Dilute acid can hydrolyze (break down) hemicellulose at 140°C to yield pentose (5-carbon) and hexose (6-carbon) sugars. These simple sugars (predominantly xylose and arabinose with some glucose) are common substrates for bacterial metabolism. However, no naturally occurring organisms yet cultured can rapidly and efficiently convert both pentoses and hexoses into a single product of value. Advances in genetic engineering have made it feasible to redirect the metabolism of simple sugars in certain bacteria so that they form no unwanted byproducts and efficiently channel key metabolites only into a desired end product. This approach was initially taken by Lonnie Ingram and colleagues at the University of Florida to create a strain of common bacterium, Escherichia coli, having an altered metabolism that diverts carbon flow to ethanol. The scientists inserted genes cloned from Zymononas mobilis into the chromosome of E. coli. These genes code for enzymes pyruvate decarboxylases (which converts the intermediate pyruvate into ethanol) and alcohol dehydrogenase (which makes the conversion more efficient). Pyruvate decarboxylase binds pyruvate more tightly than the enzyme lactate dehydrogenase which, in unaltered E. coli, converts pyruvate to lactate Although seemingly straightforward, this experiment in metabolic engineering was based on a great deal of genetic, biological, and biochemical information resulting from years of effort by many researchers. Previous work had shown that the E. coli chosen for the "production" strain could metabolize all of the major sugar constituents of plant biomass. More important, tools for the genetic and biochemical manipulation of E. coli were available only because the bacterium had been subject to intense study, making it perhaps the best characterized of all bacteria. Ingram and his colleagues have now gone beyond their initial work with E. colit o engineer the cloned Z. mobilis genes into other bacteria such as Klebsiella oxytocia and Erwinia species. Unlike E. coli, these bacteria require less preliminary treatment of the cell walls because they contain additional enzymes that allow direct uptake of complex sugars (such as cellobiose and cellotriose) from plant cell walls. Erwinia strains also contain enzymes called endoglucanases that aid in the solubilization of lignocellulose. The scientists' success in engineering bacteria to produce a valuable commodity like ethanol is the first step. Further work is now needed to make these processes economically competitive with production of ethanol from petroleum-based materials. SOURCE: Beall et al. (1991); Beall et al. (1992); Ingram and Conway (1988); Ingram et al. (1987); Wood and Ingram (1992); Mohagheghi et al. (1998).

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Page 22 carbon dioxide are complex, and this topic continues to be an active area of research (see, for example, Marland and Schlamadinger, 1995). The production of feedstocks for biobased industries could pose some problems to the environment, and these potential problems should be evaluated and minimized. There is the potential to use marginal land to grow crops that pose low risk of soil erosion or loss of wildlife. Impacts will depend on a number of factors, such as previous use of land, the planted crop, and crop management practices (OTA, 1993). Indiscriminate production of grain or removal of crop residues on vulnerable land could enhance erosion, degrade soil quality, increase flow of sediments and nutrients into surface waters, encourage herbicide use, and damage various ecosystems. Production of perennial grasses or woody crops and minimization of agrochemical inputs could limit such impacts. The use of perennial grasses and woody crops, moreover, could have environmental benefits by reducing erosion and improving soil structure and organic content as well as water quality (Hohenstein and Wright, 1994). Widespread impacts of harvesting residues on soil quality are not well understood, but some some research indicates that an estimated 80 million metric tons1 of crop residues might be removed without impacting soil conservation measures (OTA, 1980). However, excessive amounts of crop residue should not be removed from farmland so that the residue can continue to build soil organic-matter levels. Conversely, harvesting residues for production of biobased chemicals may reduce air pollution from the open burning of residues and the frequency of plant pest and disease outbreaks, thereby reducing fungicide and insecticide use. At the same time research is done that will lead to more economic conversion of agricultural wastes, analyses should be done to examine the consequences of large-scale diversion of agricultural wastes for use as feedstocks for biobased industrial products. Life-cycle assessment has emerged as a valuable decision support tool for both policymakers and industry in assessing the cradle-to-grave impacts of a product or process. The International Organization of Standardization is developing standards based on life-cycle analysis methodology for wood-based and other products. The significance of life-cycle analysis is underlined by the 1993 executive order by President Clinton requiring life-cycle analysis for federal procurement of environmentally preferred products. Such analyses should be holistic and include environmental and energy audits of the entire product life cycle, rather than a single manufacturing step or environmental emission. While the envi- 1The term ton as used in this report refers to metric tons

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Page 23 ronmental consequences of biobased production are expected to be largely positive to neutral, assessment of environmental impacts from biobased products should be continued. Rural Employment Farmers and rural communities could benefit from the employment and business opportunities that would result from production of biobased industrial products, by either growing new raw materials or providing locations for processing plants. Biobased industries will probably be sited near where feedstocks are grown in order to reduce transportation costs. Thus, industrial opportunities for biobased products would tend to appear throughout agriculturally productive areas of the country. While there may be some potential for biobased industries to increase job opportunities, there are insufficient data to make accurate predictions of the impacts of biobased industries on future employment trends. Currently the entire chemicals industry (not the fuels industry) employs roughly 1 million people with annual sales of about $250 billion dollars. A ratio of labor employed to annual sales will yield a multiplier of about $250,000 in annual sales per job. An Economic Research Service study on the crambe industry (ERS, 1997b) showed $10 million in total sales giving 42 new jobs, which is almost the same ratio, $250,000 in annual sales per job. Considering the multiplier effect, for every primary job in manufacturing, approximately four new jobs are created in service and supplier industries. Ultimately, there would be a lot of processing plants, and this committee can envision around a million jobs based on processing agricultural and forest raw materials to chemicals only, without taking such fuels as ethanol into account. However, new employment opportunities provided by the biobased industry would to some extent be offset by decreases in employment in the petrochemical industries. This is a topic that warrants further research. Diversification of Petroleum Feedstocks Current and potential oil reserves are substantial, and exploration continues to open new petroleum supplies for the world market (eg., Caspian Sea). There does, however, remain an open question as to the size of petroleum reserves and the future cost of petroleum products. Experts estimate that two-thirds of the world's proven reserves are located in a single geographic region, the Persian Gulf, and this area will continue to serve as a dominant source for oil exports (USDOE, 1998). However, some geologists report that oil reserves could be depleted in only 20 years (Kerr, 1998). According to the American Petroleum Insti-

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Page 24 tute, there were approximately 43 years' worth of reserves remaining as of 1997, an increase from the 34 years prevailing before the first OPEC crisis of 1973. As a substitute for oil, biomass could help diversify feedstock sources that support the nation's industrial base. Policymakers should consider the potential economic impacts from large-scale biobased fuel production on world energy prices. In the near term, biomass feedstocks could help minimize price and supply disruptions in international petroleum markets. However, introduction of massive quantities of energy substitutes on the world market could lead to falling oil prices, creating a larger gap between the prices for biobased and petroleum-based industrial feedstocks. While this committee cannot predict with any accuracy the availability and cost of future supplies of petroleum, the committee believes that the United States can lead the transition to greater use of renewable materials as oil and other fossil fuels are gradually depleted. Setting a Course for the Future Many recent technical and economic assessments show that the United States has the potential to return to a carbon economy based on renewable biological resources (ERS, 1990; ERS, 1993; Harsch, 1992). Growing public concerns about pollution and the environment have intensified interest in new uses for agricultural and forestry resources. Biobased industries may provide farmers with new markets beyond the traditional food, feed, and fiber products. Recent advances in the biological and materials sciences are leading to the development of new and less costly technologies for growing and processing plant matter and for manufacturing biobased products. Many opportunities are on the horizon for biobased industrial products, and both public and private interest have been sparked. New chemicals and materials isolated or manufactured from renewable resources promise industrial products with superior performance characteristics (Kaplan et al., 1992). The future of a biobased industry depends on products that outperform petroleum-based products at a competitive cost. Much more work is needed to realize the full promise of biobased products. Both federal and private research funding in this area has been sporadic over the past decade. The development of new or improved processing technologies will largely determine which biobased products become available. While certain processing technologies are well established, others show promise but will require additional refinement or research before they come into practical use. The committee believes that the potential benefits derived from biobased industrial products could justify public policies that encourage a transition to renewable resources.

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Page 25 Report Coverage This chapter has examined the significance of carbon in the economy and identified potential consequences of relying on fossil versus biological sources of carbon. An increased emphasis on biobased industrial products could enhance access to diverse markets, provide environmental advantages, and diversify sources of strategic feedstocks. Whether such a shift occurs will depend on public policy decisions and developments in several key areas addressed in the remainder of this report. Chapter 2 examines existing and potential renewable raw materials that could be used as a source for biobased industrial products. The chapter provides an overview of current production of plant materials and describes the potential for increasing the variety and amounts of plant material available for industrial uses. It also addresses applications of technologies to develop new resources such as genetically modified plants and microorganisms. Chapter 3 considers some of the most significant current examples of biobased industrial fuels, chemicals, and materials. An outline of the scope, magnitude, and developmental dynamics of such products is presented to provide a framework for analyzing future prospects. In Chapter 4 the committee discusses biomass processing, covering thermal, mechanical, chemical, and biological processes. The chapter focuses in particular on the development of biorefineries as an essential step for biobased industrial products to replace most fossil-based products. Chapter 5 presents the committee's major conclusions and recommendations derived from analyses in the preceding chapters. Here, the committee describes opportunities to integrate science and engineering to reduce the cost of processing abundant raw materials into value-added biobased products. The chapter identifies specific priorities for investment in research, development, and commercialization and summarizes the public- and private-sector activities that could accelerate the growth of a biobased industry in the United States.