An Unfair Fine: Spur to Development?

Cellulosic Ethanol Fermentation. Source: NYTimes

In 2011, refiners paid a $ 6.5MM fine to the government for not blending ethanol made from agricultural wastes( instead of ethanol made from corn) into gasoline. And guess what?  There was no such ethanol available, because so-called cellulosic ethanol is not yet made commercially, though it will soon be available. Was this a government mandate gone mad?
In the waning days of the Bush administration, Congress passed a bill establishing mandates for blending steadily increasing amounts of cellulosic ethanol into our  gasoline supply. Bio-based ethanol had for some time been made in large quanitites from corn, with a substantial government subsidy to blenders, but there was a strong push from environmental and other groups to develop and commercialize the production of ethanol from non-food materials, such as switchgrass, corn stalks and wood. The ethanol mandate, accompanied by a subsidy and loan guarantees, was intended to get private companies to build cellulosic ethanol plants. The mandated quantities were quite large even though at the time no cellulosic ethanol was being produced, though a considerable amount of research was getting under way, both by the government and by private companies worldwide. The mandated annual amounts were later reduced very substantially (originally 100 MM gallons were unrealistically mandated for 2008), but, as noted, there was not a drop commercially available even as late as last year.
Well, it has obviously taken quite a lot longer than originally anticipated to produce cellulosic ethanol in commercial quantities.. Agricultural wastes are more difficult to ferment than the sugar derived from corn and several different processes are being developed, some using gasification. An energy company, Poet, which produces ethanol from corn expects to make cellulosic ethanol in a 25 million gallons per year plant by 2013. A number of startup firms (Coskata, Codexis, Enerkem), most backed by venture capital, are also commercializing cellulosic ethanol manufacture, some with government loan guarantees. Two relatively large plants for making cellulosic ethanol are underway in Italy and Brazil. These are being built by Chemtex, a subsidiary of Mossi and Ghidolfi Group, one of the world’s largest PET (bottle resins polymer) producers.
So, we can be reasonably sure that within a reasonably short time, alcohol from feedstocks less highly valued than corn will be available for refiners to blend into gasoline. The 2011 fine referred to above may be a bit punitive, but the size of the fine is small and one can argue that the Bush/Obama administrations’ carrot and stick approach (R&D, loan guarantees, subsidy and, on the other hand, fine) may have worked pretty well, even though a fine for not buying something that doesn’t exist is a true oxymoron.
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