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With Ethanol Getting Clipped, What's Next?

July 11, 2011
As the battle over ethanol heats up, the next generation of biofuels waits for its moment in the spotlight.

The battle over biofuels has finally been joined in Congress. After nearly 30 years of focusing on corn ethanol as the primary alternative fuel (and creating government support with that in mind), the Senate voted in June to do away with the Volumetric Ethanol Excise Tax Credit (VEETC), which provided a 45-cent-per-gallon tax credit for every gallon of 190-proof or better ethanol that blenders mixed with gasoline.

While the potential removal of the tax credit is being hailed in some quarters as historic, those in the biofuels industry are a little more cautious. After all, they've been waiting for their place in the spotlight for more than 30 years while ethanol took all the glory, and there are still governmental incentives that allow ethanol to reign supreme -- at least for now.

quasar energy group has opened several biomass anaerobic digesters around Ohio and has aggressive plans to expand further as its technology becomes more widely adopted. The company also is incorporating fuel stations into its digesters so natural gas vehicles can fill up at quasar natural gas pumps.
Photo: quasar energy group

Signs that ethanol's grip on the biofuels market is loosening are on the horizon. Algae and biomass producers say their innovative technology and production methods are bringing down costs for their processes. They also say they produce fewer carbon emissions and are less destructive to the environment -- something that's key to keeping environmental activists at bay.

In the end, the success or failure of the next generation of biofuels will depend largely on what happens in Washington, but there are a host of companies ready to take the reins from ethanol should the opportunity arise.

The Ethanol Question

Sasha Lyutse, policy analyst for the Natural Resources Defense Council, says the vote by the Senate on June 16 to remove the VEETC was a watershed start to breaking the hold ethanol has on the biofuels market.

"Corn ethanol was originally meant to be a stepping stone to the future biofuel that replaced traditional oil," Lyutse says. "Instead, it grew into a powerful, entrenched energy industry. The vote in the Senate was a good start, but there's still a long way to go."

Even if the government removes VEETC completely, there are still two other tax breaks that gasoline blenders receive that will keep ethanol as the leading biofuel -- unless those other two tax breaks are eliminated, Lyutse says.

"We are still focused on trying to end all subsidies to corn ethanol so that other biofuels can compete on a level playing field," Lyutse says. "Until that happens, the other biofuels are still going to have problems getting their day in the sun."

On the other hand, Sean O'Hanlon, executive director of the American Biofuels Council, says the battle over ethanol is overblown. He supports the stacking of technologies -- ethanol, algae and other biofuels -- to create a web of alternatives to what is popularly known as Big Oil. He downplays the common argument against ethanol, however, which is that it drives up food prices around the world.

"Ethanol is currently taking a beating, an unfair beating, in the popular imagination," O'Hanlon says. "It's not a matter of choosing between food or biofuels. It's a choice of food and biofuels. If you make the choice between the two, it will be a poor choice, and it will drive up the prices of the other alternatives.

"It would be a huge mistake for Congress to pull the rug out from under biofuels at this point, and that's what they're doing right now," he added. "It would be much wiser to pull back the subsidies gradually."

Hope On The Horizon

Jeff Bargiel, business development specialist for Phycal, a Cleveland-based algae energy company, is excited about the future of biofuels, and he believes algal biofuels will be a major contributor to the way future transportation is fueled.

He explains that there are three ways to grow algae:

• Sunlight with carbon dioxide (the way nature grows algae in your swimming pool or in the ocean);

• Feeding algae fixed carbon (e.g. sugar); or

• A combination of both.

Phycal grows its algae the third way, which has two advantages, Bargiel says. First, the initial growth of the algae comes from the sun and carbon dioxide, making it cheaper to produce. Then they move the algae into dark tanks where they feed them sugar.

"What you get in that case is really fat' algae because it's full of oil," Bargiel says, laughing. "This makes them very productive and easier to extract."

Bargiel says the company already is building one algae pilot farm in Hawaii and will have hard evidence of the effectiveness of their approach within three to four years. Once it proves its viability, the company is poised to expand rapidly.

"Another major advantage of using algal biofuel is that you don't have to build a new infrastructure," Bargiel says. "You can plug it into the current infrastructure and use it just the way you'd use regular petroleum fuels."

Biomass Transformation

Caroline Henry, vice president of marketing for Cleveland-based quasar energy group, says the company designs, builds, owns and operates anaerobic digestion systems, which digest biomass waste products and generate biogas that is approximately 60% methane and 40% CO2.

Resulting biogas is compressed and run through a separation process to remove the CO2, and then is introduced into the natural gas pipeline. Henry says quasar's biomethane is virtually indistinguishable from natural gas. Then quasar takes the fuel to qng (quasar natural gas) stations where it is further compressed and used to fuel fleets of natural gas vehicles and consumer vehicles that have been adapted to run on natural gas.

quasar is incorporating public fueling stations into all of its digester facilities. quasar will be marketing the alternative fuel as qng. The first of these fueling stations will be located at the operating Columbus digester facility and is scheduled to come online this month.

"Compressed natural gas from biomass is 70% cleaner than regular gasoline," Henry says. "It also takes waste out of the system -- waste that would normally be going into landfills -- so it's doing double-duty in protecting the environment."

To get to a future replete with the best biofuel options, say some experts, subsidies should allow all biofuels to compete based on performance.

"All biofuel producers want is a level playing field," Phycal's Bargiel says. "Right now, the government is picking winners, and we believe the markets can do this better than the government."

NRDC's Lyutse says the environmental community aims to achieve a similar goal through the use of tax credits.

"We want a tax credit that ties the financial incentives to the actual performance of the fuels," Lyutse says. "We think that's the only way we're going to get to the next generation of liquid fuels that can be used in vehicles, and that's ultimately where we need to go."

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