With the EPA’s announcement that light fleet automobiles produced after 2006 are safe to use ethanol blends up to 15% (E15) without engine modification, the industry achieved a significant goal with the increase of the “blend wall.” 

Assuming that in late November 2010, the EPA also approves automobiles from 2001-2006 to use E15 blends, approximately 60% of the light fleet passenger models will be considered safe for E15.  This change would expand ethanol’s addressable blend market from approximately 13.7 billion gallons to 17.8 billion gallons. 

Given the logistical hassle and consumer confusion that would likely occur if gas stations have to label certain gasoline as “E10” and others as “E15,” it does not seem likely that E15 will roll out in large volumes in the near term.  Although the short-term implications of the blend wall increase are probably minimal, changes in ethanol policy are wonderful opportunities to holistically and honestly examine our national energy policies (or lack thereof). 

Our modern Agricultural Industrial Complex has enabled corn ethanol to almost become synonymous with “biofuel” in the United States.  The disinformation campaigns of the Renewable Fuel Association and Growth Energy have been persistent in presenting ethanol as an unequivocal economic, food justice, national security, and environmental American success story.

Yet, when one looks beyond the surface of the official propaganda of the lobbyists, corn ethanol’s record is not so clear (see The True Cost of Corn Ethanol).  More than $40B worth of subsidies have been provided to prop up the industry with questionable -- at best -- environmental and economic benefits.  The amount of energy (and CO2e) involved with growing, harvesting and transporting corn to a mill where it is grounded, slurried, fermented, and distilled is intensive. The resulting ethanol then needs to be transported either by truck, rail, or barge to a fuel station given that most petroleum pipelines cannot transport ethanol due to its miscibility with water.  

This energy calculation does not even account for “direct” or “indirect land use” changes that occur as carbon-rich peat forests are cleared in countries like Indonesia, Malaysia, and Brazil to grow corn for human consumption that would otherwise be grown in the United States but is diverted for ethanol.

Economically, it is unclear whether the industry can survive without billions of dollars in corporate welfare in the form of generous production quotas, tax credits, and import tariffs that largely insulate the corn ethanol industry from Brazilian competition. 

And while corn ethanol’s displacement of 6.1% of U.S. gasoline consumption is significant, coming at the expense of one-third of the world’s largest corn crop at a time when one billion people are chronically hungry seems like corn ethanol will only prove more controversial if it consumed at the scale that Big Agriculture would like to see.

If corn ethanol is not the answer to petroleum, what are better options?

The recent IPO from advanced biofuel company Amyris is the tip of the iceberg of companies achieving commercialization-scale with technological platforms that create “drop-in” biofuels from non-food based sources.   There are literally hundreds of companies worldwide developing bio-chemical or thermo-chemical biofuels that mimic the chemical characteristics of petroleum gasoline, diesel, and jet fuel, yet are often made from feedstocks that do not need cropland or freshwater. 

With drop-in fuels, one does not need to modify engines or use separate pipelines or biofuel-specific fuel pumps.  Such third- and fourth-generation biofuels (see Third and Fourth Generation Biofuels: Technology, Markets and Economics Through 2015) include those made from algae, metabolic manipulation of bio-organisms, pyrolysis, gasification, hydroprocessing, and a bunch of other nerdy-sounding processes.  The key takeaway is that these technologies -- at scale -- could displace all the petroleum that we as a society consume for transportation at a fraction of the carbon footprint of corn ethanol or oil. 

Solving the oil problem is not a technological issue, as algae pioneer Solazyme’s recent delivery of 20,000 gallons of renewable jet fuel to the U.S. Navy demonstrates. 

What is stopping advanced biofuels from scaling, you ask? 

Two things.

First, any alternative to petroleum is tasked with Herculean challenge of competing with the various direct and indirect subsidies of fossil fuels. 

Even though society bears extra costs of petroleum in the form of air and water pollution, increased health care premiums, climate change, and Middle Eastern wars to protect U.S. oil interests, the price that we pay at the pump does not reflect these costs.  Economists refer to this as a market “externality” or “market failure” that needs to be corrected either via a direct tax or the subsidization of an alternative.  

Second, although the government has subsidized biofuels, the overwhelming majority of these subsidies has gone to a biofuel (ethanol) that -- at scale -- can never meaningfully compete with petroleum for the simple fact that it is a gasoline additive/substitute that cannot be used in diesel or jet fuel applications. 

Advanced biofuels have to contend with politicians choosing a biofuels platform not in the name of furthering economic, environmental, or national security goals, but rather the one that writes the biggest check. Given the role Iowa plays in presidential politics and the clout that Big Agriculture and Big Ethanol have over both Republican and Democratic Midwestern politicians, we should not be surprised.

At the end of 2010, $7.5B worth of annual subsidies will expire for the corn ethanol industry.  In a remarkable turn of events, Congress is balking at continuing to write the industry a blank check.  Growth Energy seems to be grasping the significance of the shift in zeitgeist and is changing tactics.  In lieu of the continuation of the blender’s credit, the lobbyist group is advocating for Congress to invest in the mass rollout of E85 infrastructure to support the widespread deployment of ethanol. 

So, instead of one-third of our corn crop beyond devoted to ethanol, maybe we could use 100% of it! 

And when 100% of our corn crop only displaces less than 20% of our gasoline consumption, maybe we can replant all of our wheat, soybeans, and all the other cropland in the United States to grow corn for ethanol!

Even that would still not be enough ethanol to replace our gasoline habit -- not to mention diesel or jet fuel --  I am sure companies like Archer Daniels Midland, Valero and their shareholders would be happy.

Although it takes a good deal of chutzpah to advocate that shifting federal subsidies from production credits to mass ethanol infrastructure would create  a “level playing field," "an open market for automotive fuel," and a "genuinely free market,” as Growth Energy claims in its Orwellian-sounding “Fueling Freedom” plan.

Let’s take them up on their public stand and eliminate all subsidies and mandates for corn ethanol and any other specific biofuel.  Instead, let’s create a feedstock and process-agnostic national biofuel policy that harnesses market forces to incentivize companies to produce drop-in fuels from non-food based sources with verifiable emissions reductions.

Let’s put a petroleum-specific carbon tax of say $.02 per gallon of gasoline, diesel, or jet fuel.  If the U.S. liquid fuel market is 250 billion gallons, then this would generate $5B in annual income that could partially finance lab-scale projects and provide loan guarantees for advanced biofuel projects traversing the valley of death.   

Some of the money could be diverted to a large-scale prize.  For example, the government could award $100M to the first company that delivers 10 million gallons of drop-in jet, diesel, or gasoline with a verified levelized cost under $3.00/gal that reduces life-cycle GHGs by at least 60% compared to petroleum. The prize should be technology neutral but the winning biofuel should not be derived from food-based feedstocks, cropland, or freshwater.

Such a prize would encourage collaboration within the industry as teams with similar processes might be incentivized to work together and share best practices while also fostering healthy competition.  Moreover, it would get Congress out of the game of picking and choosing winners based on the constituents who line their pockets.  And it would keep farmers doing what they do best: growing food to eat.