Executive Summary

The Office of Fuels Development (OFD), a component of the U.S. Department of Energy' s (DOE) Office of Transportation Technologies, manages the federal government's effort to make biomass-based ethanol (bioethanol) and biodiesel a practical and affordable alternative to gasoline. Through the National Biomass Ethanol Program, the OFD is overseeing key research and development (R&D) and industry-government partnerships for the establishment of a cellulosic biomass ethanol industry. Cellulosic biomass resources being investigated include agronomic and forest crop residues, woody crops, perennial grasses, and municipal wastes. Starch-based sources, such as cereal grains (e.g., corn grain), are not included in this program. The objective of the program is to promote the commercialization of enzyme-based technologies to produce cost-competitive bioethanol for use as transportation fuel.

The OFD requested that the National Research Council estimate the contribution and evaluate the role of biofuels (biomass-derived ethanol and biodiesel) as transportation fuels in the domestic and international economies, evaluate OFD's biofuels strategy, and recommend changes in this strategy and the R&D goals and portfolio of the OFD in the near-term to midterm time frame (about 20 years). During this period, a number of complex, interacting factors, including advances in the technologies used to produce biofuels at a competitive cost, the elimination of tax incentives, advances in vehicle and engine technologies, growing concerns about solid waste disposal and air pollution, and global measures to reduce emissions of greenhouse gases to the atmosphere, will affect the position of biofuels in transportation fuel markets.

STRATEGIC PROGRAM OBJECTIVES

The OFD has established strategic program objectives to promote the steady development of bioethanol technologies. Currently, bioethanol cannot compete with gasoline, and markets are scheduled to be subsidized by tax credits at least until 2007. Bioethanol is used today as a blending agent in some gasolines and as a neat fuel in internal combustion engines in a few vehicles. In the future, bioethanol may also be used in fuel-cell vehicles. In all cases, the comparative cost of bioethanol will be the controlling factor, although the competitiveness of bioethanol could improve if stringent regulations on the emission of greenhouse gases are adopted.

The current OFD program is based on the immediate exploitation of low-cost feedstocks, such as residues from agricultural and forest products and municipal solid waste. In the long term, other sources of cellulosic biomass, such as dedicated energy crops, may become available at competitive cost. The following program objectives are outlined in the OFD National Biomass Ethanol Program Plan for Fiscal Years 1999-2005:

  • Near-term objectives (2000-2003). Demonstrate the commercial-scale production of cellulosic ethanol by using one or more low-value waste feedstocks, such as agricultural or forest residues.

  • Midterm objectives (2005-2010). Demonstrate commercial-scale ethanol production for one or more ethanol plants using agricultural/forest residues together with components of dedicated biomass supply systems, such as the energy crop switchgrass or residues from woody crops, that have been used for fiber.

  • Long-term objectives (2015-2020). Demonstrate that ethanol manufactured from dedicated energy crops, such as switchgrass and specific woody crops, is cost competitive with gasoline. Beyond 2010, OFD will seek cost reductions through genetic improvements in feedstocks to increase process efficiencies and enhance the value of coproducts.

To achieve these objectives, the OFD believes that it will have to (1) meet the technology cost-reduction targets demanded by the marketplace, (2) leverage the corn-ethanol industry's business and technical resources to expand the



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Review of the Research Strategy for Biomass-Derived Transportation Fuels Executive Summary The Office of Fuels Development (OFD), a component of the U.S. Department of Energy' s (DOE) Office of Transportation Technologies, manages the federal government's effort to make biomass-based ethanol (bioethanol) and biodiesel a practical and affordable alternative to gasoline. Through the National Biomass Ethanol Program, the OFD is overseeing key research and development (R&D) and industry-government partnerships for the establishment of a cellulosic biomass ethanol industry. Cellulosic biomass resources being investigated include agronomic and forest crop residues, woody crops, perennial grasses, and municipal wastes. Starch-based sources, such as cereal grains (e.g., corn grain), are not included in this program. The objective of the program is to promote the commercialization of enzyme-based technologies to produce cost-competitive bioethanol for use as transportation fuel. The OFD requested that the National Research Council estimate the contribution and evaluate the role of biofuels (biomass-derived ethanol and biodiesel) as transportation fuels in the domestic and international economies, evaluate OFD's biofuels strategy, and recommend changes in this strategy and the R&D goals and portfolio of the OFD in the near-term to midterm time frame (about 20 years). During this period, a number of complex, interacting factors, including advances in the technologies used to produce biofuels at a competitive cost, the elimination of tax incentives, advances in vehicle and engine technologies, growing concerns about solid waste disposal and air pollution, and global measures to reduce emissions of greenhouse gases to the atmosphere, will affect the position of biofuels in transportation fuel markets. STRATEGIC PROGRAM OBJECTIVES The OFD has established strategic program objectives to promote the steady development of bioethanol technologies. Currently, bioethanol cannot compete with gasoline, and markets are scheduled to be subsidized by tax credits at least until 2007. Bioethanol is used today as a blending agent in some gasolines and as a neat fuel in internal combustion engines in a few vehicles. In the future, bioethanol may also be used in fuel-cell vehicles. In all cases, the comparative cost of bioethanol will be the controlling factor, although the competitiveness of bioethanol could improve if stringent regulations on the emission of greenhouse gases are adopted. The current OFD program is based on the immediate exploitation of low-cost feedstocks, such as residues from agricultural and forest products and municipal solid waste. In the long term, other sources of cellulosic biomass, such as dedicated energy crops, may become available at competitive cost. The following program objectives are outlined in the OFD National Biomass Ethanol Program Plan for Fiscal Years 1999-2005: Near-term objectives (2000-2003). Demonstrate the commercial-scale production of cellulosic ethanol by using one or more low-value waste feedstocks, such as agricultural or forest residues. Midterm objectives (2005-2010). Demonstrate commercial-scale ethanol production for one or more ethanol plants using agricultural/forest residues together with components of dedicated biomass supply systems, such as the energy crop switchgrass or residues from woody crops, that have been used for fiber. Long-term objectives (2015-2020). Demonstrate that ethanol manufactured from dedicated energy crops, such as switchgrass and specific woody crops, is cost competitive with gasoline. Beyond 2010, OFD will seek cost reductions through genetic improvements in feedstocks to increase process efficiencies and enhance the value of coproducts. To achieve these objectives, the OFD believes that it will have to (1) meet the technology cost-reduction targets demanded by the marketplace, (2) leverage the corn-ethanol industry's business and technical resources to expand the

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Review of the Research Strategy for Biomass-Derived Transportation Fuels ethanol market base, and (3) engage in cost-shared demonstration projects with industrial partners to encourage the acceptance of new technology and reduce market barriers. The projected cost of ethanol production from cellulose declined significantly in the 1980s as the technology was improved. However, since about 1991, there has been little if any drop in the projected cost of about $1.28 per gallon (1995 dollars) based on the technology that OFD has been pursuing. OFD maintains that this result arises from different bases used for the 1991 cost estimate and more recent cost estimates. Nevertheless, even taking into account different bases, the committee believes that a leveling off has occurred and is concerned that this may reflect the inherent limits of the process technology being pursued in the OFD program. Required cost reductions will require major, not incremental, improvements in the current processes and/or breakthroughs (i.e., the replacement of current process steps by much less expensive, much more efficient alternatives). In the committee's view, widespread market acceptance of biobased ethanol is not achievable with DOE's current technology base. OFD's most recent cost analysis indicates that potentially lower cost technologies are being developed outside of the government program. Therefore, the OFD's milestones should be used not only to track its progress toward the production of bioethanol but also to compare OFD's costs with industry costs. OFD should consider working with more scientists and engineers outside of OFD to improve biomass conversion technologies. OFD provides some support for several large-scale bioethanol plants that use both currently available, well demonstrated technology and some new technology, notably recombinant organisms to ferment both five-carbon and sixcarbon sugars to ethanol. The knowledge and experience from these large-scale demonstrations should help identify the risks and reduce the costs of bioethanol production. However, scale-up is a much more expensive proposition than fundamental investigation. Once the program supporting commercialization has been completed, OFD should reestablish its leadership role by focusing on providing a technical basis for the next generation of commercial ventures. Recommendation. To reduce the cost of bioethanol and increase competitiveness with other energy sources in the near term (2000-2010) and midterm (2010-2020), the Office of Fuels Development should redirect the focus of its research and development programs from demonstrations to technology fundamentals for both feedstock development and ethanol conversion. Continued technical support should be provided to the demonstration plants now in place to test and evaluate the results of this fundamental research and development. As industrial firms commercialize these lower cost technologies, the role of the Office of Fuels Development in biofuels research should be refocused on overcoming the remaining technical barriers. MARKET POTENTIAL FOR BIOMASS-DERIVED FUELS The motivation for developing bioethanol as a transportation fuel is based on concerns about energy security, environmental quality, and trade deficits. Current research is focused on the potential for bioethanol to reduce net emissions of greenhouse gases to the atmosphere from dedicated energy crops (e.g., woody crops, herbaceous perennials). The impact of the entire fuel cycle, which includes growing, harvesting, processing, and consuming bioethanol, is expected to add very little net carbon dioxide to the atmosphere. However, the magnitude of net reductions of greenhouse gases produced by biomass is still the subject of heated debate, and the entire life cycle of the fuel, including feedstock production, combustion, and transportation, has been the subject of research on greenhouse gas emissions from bioethanol manufactured from corn starch, woody crops, and herbaceous crops. Although the benefits from the production of bioethanol from corn or other residues have not been determined, the benefits from dedicated energy crops are expected to reduce net emissions of carbon dioxide to the atmosphere. One concern about the introduction of biofuels is that the diversion of land to energy production could reduce the acreage devoted to food production. In the case of biofuels, however, the coproduction of biobased ethanol, biobased chemicals, and human food and animal feed products in ''biorefineries" could actually reduce conflicts between the production of food and the production of fuels. A possible disadvantage is that the large-scale harvesting of crop residues could increase soil and wind erosion. With proper soil management techniques, however, biofuels based on crop residues may not degrade topsoil. In some cases, production of perennial bioenergy crops could provide local benefits to biofiltration (removal of unwanted nutrients from soil or groundwater via plant root uptake and metabolism), erosion control, and the creation of wildlife habitat. Thus, the economics and environmental effects of cellulosic biomass production will vary with the characteristics of the site. Market factors will determine the effectiveness of OFD's launch of a new biofuels industry based on cellulosic biomass conversion. The current low price of oil, for example, would limit the success of a "technology push" program. The current subsidized market for ethanol as a blend stock in gasoline to satisfy octane and oxygenate requirements is subsidized by federal and some state tax incentives that should be considered temporary. In the long run, all aspects of the cellulosic biomass-based fuel industry will have to be competitive with petroleum-based fuels. Meeting this difficult challenge will require that OFD's program achieve significant technical breakthroughs that lead to sharp reductions in manufacturing costs. Although the displacement of gasoline by neat ethanol is a long-term proposition, the subsidized use of ethanol as a blend agent has created near-term opportunities. The OFD

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Review of the Research Strategy for Biomass-Derived Transportation Fuels has taken advantage of this market to encourage the commercialization of cellulosic biomass-conversion technology by at least three companies that plan to use waste biomass, which is available at low cost. The establishment of commercial cellulosic biomass conversion can reinforce the credibility of the concept and provide valuable information for future commercialization. However, the long-term commercial viability of cellulosic biomass ethanol as a blending agent, as well as a neat fuel, will require that the product be competitive without government subsidies. Unlike bioethanol, biodiesel is not likely to become an economically viable fuel in the near future because the costs of raw material for biodiesel are very high. In Europe, biodiesel is produced from rapeseed oil, but without the European Union's subsidy for farmers, rapeseed-based biodiesel would not be competitive in the marketplace. U.S. biodiesel manufacturing processes rely on soybean oil as a source of biomass. One gallon of biodiesel requires approximately seven pounds of soybean oil; therefore, without the addition of methanol and before processing, the cost of biodiesel would be more than $1.50 per gallon. The high cost of oilseed compared to starchy cereals and the high value of soybean oil for food and feed products makes it an unattractive raw material for a low-cost commodity, such as biodiesel. Although some niche markets have been established by legislation in response to environmental concerns, soybean-based biodiesel will remain too expensive to become an economically viable fuel. Recommendation. Because of a lack of foreseeable opportunities for reducing the production cost of biodiesel, the Office of Fuels Development should consider eliminating its biodiesel program and redirecting those funds into the bioethanol programs. REDUCING THE COST OF BIOETHANOL Now that OFD has helped launch several new plants, the committee strongly believes that the focus of OFD's program should be shifted to fundamental scientific and engineering studies in search of breakthroughs that would reduce the cost of producing bioethanol. Breakthroughs will require a thorough understanding of the basic science and technical characteristics of materials and processing steps. This fundamental understanding will also provide a firm basis for scaling up from small experimental-sized units to commercial plants. To benefit from advances in genetic engineering, a strong research program in the production of cellulosic feedstocks and the manufacture of ethanol will require time to mature. The engineering expertise of OFD is located at the National Renewable Energy Laboratory. The committee is concerned that some of the processing technologies currently in the National Renewable Energy Laboratory program have reached their inherent limitations and that even though incremental improvements may be achievable, much less expensive and more effective alternatives will replace these technologies. For example, pretreatment in the OFD program has been largely overlooked for the last two decades because a particular configuration was decided upon, and R&D has focused on downstream processing, even though pretreatment is a significant contributor to the overall cost of ethanol. In addition to OFD' s program, a broad range of innovative research is being done outside of OFD that could improve the manufacture of bioethanol. The committee agrees with scientific assessments that advances in pretreatment and biological processing of biomass feedstocks will make a major impact on total cost of bioethanol and recommends that OFD support research and development on pretreatment of feedstocks, increasing pentose sugar yields, improving enzyme activity, consolidated bioprocessing, feedstock engineering to improve processing, and fundamental studies of coproducts. A better fundamental understanding of underlying phenomena in all of these areas will be crucial to breakthroughs and the development of innovative approaches for reducing costs. Because diverse approaches can make a positive impact on biomass processing, the committee cannot provide a complete list of fruitful areas for research or accurately predict where breakthroughs might occur. Another area for useful research is feedstock development. Currently, feedstock development is being pursued at Oak Ridge National Laboratory and at regional feedstock development centers to increase yields and other desirable traits of willow, switchgrass, and poplar; establish sustainable crop management systems; and evaluate potential environmental and economic impacts of the production of cellulosic biomass feedstocks. Because of the many scientific opportunities for genetic improvement in the midterm, OFD should consider expanding its genetic engineering and genomics programs, building on its established programs in breeding and biotechnology. Compared to the conversion and processing programs, however, the feedstock development program is modestly funded. The committee believes that the current program configurations may have to be reevaluated to determine if additional funding for feedstock development is warranted. Recommendation. The Office of Fuels Development should focus on fundamental research in the following areas for reducing the costs of manufacturing bioethanol: (1) advanced pretreatments; (2) consolidated bioprocessing; (3) digestive enzyme activity; (4) the development of diversified products and coproducts during biomass processing or via plant metabolism; (5) reductions in the cost of raw materials via improved yield or the development of pest-resistant and stress-resistant plants; and (6) changes in feedstocks to make processing and conversion more efficient by modifying plant biochemistry. Recommendation. Because of the many opportunities for genetic improvement in the midterm, the Office of Fuels

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Review of the Research Strategy for Biomass-Derived Transportation Fuels Development should seriously consider expanding its applied biotechnology and genomics programs to improve feedstock yields, pest resistance, quality, and cropping systems. Although the Office of Fuels Development is well suited to take the lead in these programs, the agency should work in coordination with other government agencies and grant programs (e.g., the U.S. Department of Agriculture and the National Science Foundation), international partners, and the forest, agricultural, and biotechnology industries. Bioethanol production costs include both feedstock development (production, collection, and handling) and conversion processes (pretreatment, fermentation, distillation, pentose conversion, and cellulase production). Because the process of obtaining a liquid fuel from biomass entails several steps, a change in one part of the system can affect other components. For example, as the limits on cellulase enzymespecific activity at the molecular level are better understood, genetic engineering may lead to the development of plant matter more amenable to enzymatic hydrolysis, thus increasing the efficiency of bioethanol manufacturing. An integrated analysis is a useful technique for determining relationships between feedstock development and conversion processes and impacts on total costs for bioethanol. Agricultural and forest residues as well as dedicated energy crops are potential sources of biomass for conversion to ethanol. Because feedstocks can contribute as much as 40 percent to total bioethanol costs, OFD should thoroughly evaluate the logistics and costs of producing, harvesting, collecting, and transporting feedstocks and impacts on processing economics. Furthermore, OFD researchers could use systems modeling to uncover opportunities for small-scale bioethanol processors and exporters of bioethanol conversion technologies. To determine the best opportunities for major new technology options and cost reductions, OFD should undertake an integrated review of both the feedstock and processing components of its programs. Recommendation. The Office of Fuels Development should consider developing an integrated systems model that encompasses feedstock development, collection, storage, transport, and biomass processing. This model could reveal opportunities for reducing costs, optimizing synergies among technologies, and prioritizing projects to achieve program goals in light of changing market opportunities. PROGRAM MANAGEMENT A strong R&D program will require careful monitoring of its performance. Peer review can be used to evaluate proposed R&D projects and measure performance of ongoing projects. In the case of OFD, peer review can increase the likelihood of the program developing cost-effective technologies for the production of bioethanol. Researchers and program managers should be held accountable for ensuring that their research is directed toward meeting specific performance goals. The committee encourages OFD to continue using outside reviews to evaluate its biofuels programs. To make significant technological progress, OFD should reach out even more than it has in the past for ideas from institutions outside of government laboratories. Recommendation. The Office of Fuels Development should establish clear criteria for evaluating project performance levels and should include reviewers from academia, industry, and other government programs in its evaluations.