Analysis of federal and state policies and environmental issues for

POLICY ANALYSIS pubs.acs.org/est

Analysis of Federal and State Policies and Environmental Issues for Bioethanol Production Facilities Chandra McGee and Amy B. Chan Hilton* Department of Civil and Environmental Engineering, FAMU-FSU College of Engineering, Florida State University, 2525 Pottsdamer Street, Tallahassee, Florida 32310, United States

bS Supporting Information ABSTRACT: The purpose of this work was to investigate incentives and barriers to fuel ethanol production from biomass in the U.S. during the past decade (2000-2010). In particular, we examine the results of policies and economic conditions during this period by way of cellulosic ethanol activity in four selected states with the potential to produce different types of feedstocks (i.e., sugar, starch, and cellulosic crops) for ethanol production (Florida, California, Hawaii, and Iowa). Two of the four states, Iowa and California, currently have commercial ethanol production facilities in operation using corn feedstocks. While several companies have proposed commercial scale facilities in Florida and Hawaii, none are operating to date. Federal and state policies and incentives, potential for feedstock production and conversion to ethanol and associated potential environmental impacts, and environmental regulatory conditions among the states were investigated. Additionally, an analysis of proposed and operational ethanol production facilities provided evidence that a combination of these policies and incentives along with the ability to address environmental issues and regulatory environment and positive economic conditions all impact ethanol production. The 2000-2010 decade saw the rise of the promise of cellulosic ethanol. Federal and state policies were enacted to increase ethanol production. Since the initial push for development, expansion of cellulosic ethanol production has not happened as quickly as predicted. Government and private funding supported the development of ethanol production facilities, which peaked and then declined by the end of the decade. Although there are technical issues that remain to be solved to more efficiently convert cellulosic material to ethanol while reducing environmental impacts, the largest barriers to increasing ethanol production appear to be related to government policies, economics, and logistical issues. The numerous federal and state policies do not effectively give investors confidence to commit to the construction and long-term operation of facilities under current economic conditions. Additional changes in policy and breakthroughs in technology and logistics will be required to address these hurdles to increases in ethanol production in the U.S. in the next decade.

1. INTRODUCTION During the past decade there has been a resurgence of interest and research in sources of renewable fuels and energy. Two major reasons for the increased interest are concerns about lowering carbon dioxide emissions from the burning of fossil fuels and oil supply insecurity.1 Biofuels produced from biomass, such as “bio”ethanol and “bio”diesel, could provide alternative fuels for transportation.2 Biofuels are considered renewable because the biomass resources from which they are produced, such as crops or other vegetation, can be regenerated within a relatively short time period. Ethanol can be made from a variety of sources including plant biomass, waste, and algae and has a long history of use as fuel for vehicles.2 This work focuses on ethanol production from first- and second-generation feedstocks. Sugar and starch based feedstocks, such as sugar cane and corn, are considered first generation raw materials, and the processes for converting these types of feedstocks to ethanol are well established. Second generation feedstocks consist of cellulosic biomass, such as short rotation woody crops and perennial grasses. There remains progress to be made on reducing the recalcitrance of cellulosic biomass for conversion to ethanol for these feedstocks to become economically viable.3-5 r 2011 American Chemical Society

This work focuses on the 2000-2010 decade during which significant changes in policies aimed at increasing biofuel production as well as advances in technologies to convert an increasing variety of feedstocks into ethanol fuel have been made. The Renewable Fuel Standard (RFS) portion of the 2007 Energy Independence and Security Act (EISA) mandated expansion of the production of ethanol from secondgeneration feedstocks. However, while the United States remains the world leader in ethanol production from corn, a first-generation feedstock, projected increases in production of ethanol from second-generation feedstocks have not yet been realized, even with considerable policy and economic incentives.

2. OBJECTIVES AND METHODOLOGY The purpose of this work is to investigate the incentives for and barriers to increased ethanol production in the U.S., with a focus on four states (Florida, California, Hawaii, and Iowa). In Received: May 1, 2010 Accepted: December 13, 2010 Revised: November 24, 2010 Published: January 12, 2011 1780

dx.doi.org/10.1021/es1014696 | Environ. Sci. Technol. 2011, 45, 1780–1791

Environmental Science & Technology particular, the objectives are to (1) analyze the biofuel policies and economic conditions during the 2000-2010 decade, the environmental impacts of feedstock production and conversion processes, and related federal and state environmental regulations, and (2) examine the results of these policies, requirements, and conditions during this period by way of cellulosic ethanol activity in the selected states. The four states were chosen because they have potential for or currently have operational bioethanol facilities and also represent varying degrees of environmental regulatory processes and economic conditions. Florida and Hawaii were selected because they represent states where both sucrose containing and cellulosic crops can be produced. California was chosen because of its ability to produce a variety of feedstocks, which include both starchy crops, such as corn, as well as cellulosic crops. California also is unique in having one of the largest state economies in the U.S. and is the leading consumer of ethanol in the U.S. (Supporting Information Table S1). In addition, California has a reputation for a difficult environmental regulatory process compared to other states. Finally, Iowa was selected as the fourth state because it is the leader in corn and ethanol production for the U.S. First an overview of federal policies and economic conditions during 2000-2010 is presented. Next the environmental impacts of the biofuel production stages, including feedstock production, ethanol conversion, and biorefinery wastewater, are reviewed. Then findings from state-level analysis of policies and incentives, environmental regulations, and ethanol production activities for the four states are presented.

3. POLICIES AND ECONOMIC CONDITIONS Federal policies were enacted during the past decade to increase ethanol production. At the same time, the 2000-2010 period saw both favorable and challenging economic conditions, which have impacted ethanol production. Since the initial push for development, cellulosic ethanol production has not increased as quickly as predicted. 3.1. Federal Policies and Incentives. The U.S. and Brazil have been world leaders in ethanol production since the 1970s. However, while Brazil has a long history of ethanol production for use in transportation, until recently, there was little push to increase significantly the use of ethanol for transportation in the U.S. Midway through the decade, in 2005, U.S. ethanol use in gasoline blends accounted for only 2.8% of total fuel use, but by 2008 increased to almost 7%.1,6 Early government support for corn ethanol included a partial exemption from the federal gasoline excise tax for fuel containing at least 10% biomass derived ethanol, a fuel blender's tax credit, and a small ethanol producer tax credit.1 In 2004, the Volumetric Ethanol Excise Tax Credit (VEETC) changed to a volume based system. The Energy Policy Act of 2005 included the Renewable Fuel Standard (RFS) and set the first production goals for cellulosic ethanol production.1 Other major sections of the Energy Policy Act included revising the Biomass Research and Development Act and developing the systems biology and the bioenergy program.7 The bioenergy program authorizes the U.S. Department of Energy (USDOE) to partner with industrial and academic institutions to advance development of biofuels.7 The 2007 EISA mandated larger increases in production of renewable fuels (EISA, P.L. 110-140, H.R. 6). The revised RFS requires higher minimum annual levels of renewable fuel in U.S. transportation fuel. Under the new standard, the minimum

POLICY ANALYSIS

Figure 1. Trends in sugar and corn prices in the U.S. during 2000-2009.15,99

annual level of renewable fuel started at 9.0 billion gallons in 2008 and rises to 36 billion gallons in 2022. Beginning in 2016 all of the increase in the RFS target must come from advanced biofuels, which are defined as cellulosic ethanol and other biofuels derived from feedstock other than corn starch.8 However, current cellulosic biofuel production levels do not meet the mandated levels. In February 2010 the U.S. Environmental Protection Agency (EPA) reduced the nation's 2010 cellulosic-ethanol mandate by 94%, from 100 million to 6.5 million gallons.9 The 2008 Food, Conservation, and Energy Act of 2008 (FCEA, or the 2008 “Farm Bill”) included a number of provisions that support the development of biofuels. Relevant sections include Title III, Trade; Title VII, Research and Related Matter; Title IX, Energy; and Title XV, Trade and Tax Provisions.10 Examples of support include funding for the production and research of specialty crops for energy uses and funding and guaranteeing loans for cellulosic biorefinery construction. The 2008 Farm Bill also amends several tax and trade provisions for cellulosic ethanol and other biofuels, which include the cellulosic biofuel production tax credit, the alcohol credit and volume calculation, and ethanol tariffs and duty drawback limits on exports. 3.2. Economic Conditions. Changes in economic conditions during the past decade, at the local, regional, national, and/or global levels, have affected trends in biofuel production activities. The latter part of the past decade is considered by many to be the worst in the U.S. economy in modern times, sparked by a major financial crisis and culminating with a severe recession.11 The financial crisis was not restricted to the U.S., and global biofuel production leveled off as a result, due to financial difficulties faced by producers.12 Biofuel investments fell during 2008 and 2009 due to decreases in oil prices and biofuel prices being too low to offset rising feedstock and operating costs.12 The decrease in biofuel investments is in spite of the passing of federal (e.g., 2008 EISA and the 2008 Farm Bill) and state legislation to promote and support the development of biofuels. The prices of sugar and corn have affected the potential viability of ethanol production. U.S. sugar prices are relatively stable since federal policies set loan rates and prices for sugar production (see ref 13 for descriptions of sugar policies for the past decade). The ratio between the maximum and minimum average annual prices during 2000-2007 for sugar produced in Florida and Hawaii were 1.14 and 1.28, respectively (Figure 1). Corn is the most widely produced feed grain in the U.S. Corn prices fell in the early part of the decade, but then peaked between 2006 and 2008 (Figure 1). While corn prices fell in 2009, they are expected to rebound as the national economy improves and ethanol demand increases.14 Corn prices in California and Iowa during 2000-2009 1781

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Environmental Science & Technology

Figure 2. Corn crop production and the percentage used for fuel ethanol production during 2000-2009.15

Figure 3. Production and consumption of ethanol in the U.S. during 1998-2008.100

have experienced greater fluctuations compared to sugar prices, with the average annual price maximum to minimum ratio of 1.95 and 2.45, respectively, during 2000-2009 (Figure 1). Additionally, the proportion of the total corn crop that was used for ethanol production increased significantly during 2004-2009, from 11% to 32% (Figure 2). Around the same period, consumption of ethanol in the U.S. had increased by a factor of 2.70 between 2004 and 2008, with imported ethanol used to meet demands that exceeded domestic supplies (Figure 3). Related is the price of ethanol, as gallon gasoline equivalent (GGE), which has followed the same trend as gasoline at a slightly higher price. The peak prices for both ethanol and gasoline occurred in 2008, which also is when the difference between ethanol and gasoline prices in 2000-2009 was the greatest and corn prices were the highest (Figure 4).

4. REVIEW OF ENVIRONMENTAL IMPACTS OF FEEDSTOCK PRODUCTION AND ETHANOL CONVERSION Although commercial scale ethanol production facilities currently operating in the U.S. use almost soley corn, three categories of feedstocks could potentially be used for ethanol production: sucrose containing crops like sugar cane, starchy crops like corn and wheat, and cellulosic plant material. With the exception of proposals for Iowa, a variety of feedstocks other than corn have been proposed for facilities in Florida, California, and Hawaii. These include sugar feedstocks such as sugar cane, sweet sorghum and sugar beet juice as well as cellulosic feedstocks such as citrus waste, corn stover, bagasse, energycane, switchgrass, and woody biomass. 4.1. Feedstocks and Conversion Efficiency. Techniques for the conversion of sucrose and starch containing materials to ethanol have been well developed. Brazil and the United States both have been converting sugar cane and corn, respectively, to

POLICY ANALYSIS

Figure 4. Price of gasoline ($/gallon) and E85 gasoline/ethanol blend ($/gallon gasoline equivalent or GGE) in the U.S. during 2000-2009. 100

ethanol for decades. Of the four states included in this study, Iowa has the largest proportion of land area allocated to farming. Over 85% of the land area in Iowa is in farmland compared to between 25 and 27% each for Florida, Hawaii, and California (Table 1). Iowa is also the leading producer of corn in the U.S.; in 2009, Iowa harvested 2189 million bushels of corn from 2 096 262 ha of land.15 California, which has five operating corn ethanol production facilities, harvested 28 million bushels from 26 203 planted hectares. Sugar cane has been used for the production of bioethanol for over 30 years in Brazil,16,17 and the technology for producing ethanol from sugar cane juice is widely available. The conversion of sugar cane juice producing facilities to also produce ethanol is relatively straightforward, and many facilities in Brazil make both products.18 Only four states in the U.S. produce sugar cane: Florida, Louisiana, Hawaii, and Texas. Florida is the leading producer, and Hawaii ranks third. In 2009, sugar cane was grown on approximately 8782 ha in Hawaii and 157 827 ha in Florida, with production of 1459 and 14 082 thousand tons, respectively.15 Sugar cane has been assessed as a feedstock for ethanol production in both Florida and Hawaii.19-22 Currently, no commercial scale facilities for the conversion of sugar cane to ethanol are in operation in the U.S. although such facilities have been proposed or studied in the four sugar cane-producing states. For example, there is a 1.4 million gallons per year (MGY) demonstration scale cellulosic ethanol facility using sugar cane bagasse currently operated by BP Biofuels North America (formerly owned by Verenium Corporation) in Jennings, LA.23 Although sugar cane has potential as a feedstock for ethanol potential, there are several reasons why it has not been successful in the U.S. so far. One is limited potential for growth; the climate of the U.S. is not as conducive to sugar cane production, and the U.S. only produces 3.7 million tons a year compared to Brazil, which produces over 500 million tons annually.24 Additionally, the cost to produce ethanol from sugar and the capital investments required to build sugar cane to ethanol facilities in the U.S. are both higher than for corn.25 It is estimated that the cost of producing ethanol from raw sugar cane is more than double than that for corn. Finally, sugar continues to have more value as a food product than as fuel.25 Other cellulosic ethanol crops with potential in both Florida and Hawaii include grasses and short rotation woody crops. Keffer et al. 2009 found banagrass (Pennisetum purpureum) and the woody crops Eucalyptus grandis, Eucalyptus saligna, and giant Leucaena (Leucaena leucocephala) the most promising feedstocks for Hawaii.19 Large field trials found yields of banagrass from 1782



POLICY ANALYSIS

Table 1. Summary of Water Resource Availability and Demands by State90,91 Florida

California

Hawaii

Iowa

average annual precipitation (inches)

54.39

21.44

70.3

33.11

surface water area (mi2)

11 761

7734

36

401

land area (mi2)

53 926.82

155 959.34

6422.62

55 869.36

land in farms mi2 (% of total)

14 375 (27%)

39 687.5 (25%)

1718.8 (27%)

47 968.8 (86%)

total water withdrawals (MGD)

water use by category (MGD)

ground water

fresh

4,200

10,700

357

683

saline

3.26

255

1,450

0

surface water

fresh

2620

22 200

90

2680

domestic

saline fresh

11 500 190

12 600 486

0 12.2

0 34.6

irrigation

fresh

3070

24 400

97.8

33.3

industrial

fresh

243

72.2

29.2

190

saline

1.19

23.4

1.73

0

Table 2. Comparison of Efficiencies for Sucrose (Sugar), Starch, And Cellulosic Feedstocks33 feedstock

feedstock yield (ton/Ha)

EtOH yield (L/ton)

annual EtOH yield (L/Ha)

output/input energy ratio

co-products

sucrose

70-122.9

70-100

5,345-9,381

1.9-8

starch

1.5-20

86-460.6

1,020-9,030

1.34-1.53

DDGS

lignocellulosic

1.96-34.4

140-330

6

lignin

40 to 49 Mg ha-1 year-1 and Eucalypstus as a short rotation woody crop at 24.7 Mg ha-1 year-1. Perennial grasses with potential for cellulosic ethanol production in Florida include switchgrass, elephantgrass (Pennisetum purpureum), miscanthus (M. giganticus), and erianthus and have similar yields to the Hawaiian crops, ranging about 29-44 Mg ha-1 year-1.26-28 Short rotation woody crops with potential for cellulosic ethanol production in Florida include Eucalyptus species and selected Populus deltoides clones, but the yields on small research plots are lower than the grasses, approximately 16 Mg ha-1 year-1.29,30 A significant amount of research on production of biomass crops was conducted in Florida in the 1980s and 1990s.29-32 The ideal biofuel feedstock depends on local conditions. Feedstocks vary in both yield per area (ton per ha), conversion efficiency to ethanol (L per ton), and water use efficiency. Table 2 compares the efficiencies of corn, sugar cane, and lignocellulosic feedstocks in terms of these characteristics. For instance, although the ethanol yield from corn is higher than from sugar cane, the lower annual yield of corn per cultivated hectare makes it necessary to use more land for crops to achieve the same goals.33 Production of biofuel crops may increase evapotranspiration and use of limited water resources, especially if the feedstocks use more water than the previous natural or agricultural land use 34-37. For instance, first generation crops, such as corn, have the notoriety for their high water consumption and negative downstream impacts on water quality 37-39. However, crop water use is highly dependent on local conditions. For example, Iowa is the leading producer of corn in the U.S. but irrigates only 1% of the total corn crop.34 California, conversely, irrigates 100% of its corn crop and uses over 500 times more water for overall irrigation purposes annually than Iowa34 (Table 1). Cellulosic crops, grown under ideal conditions, use considerably less irrigation water.40,41 However, evapotranspiration of established perennial or short rotation woody crops may deplete groundwater.36 Cellulosic crops are promising because they are available in both tropical and temperate climates, have high ethanol yields, and do not compete with food.18 Ideally, they also would require

sillage

little water. However, technological barriers to cost-effective conversion and issues related to environmental resources remain significant challenges to extending cellulosic feedstocks to commercial scale ethanol production.2 The potential for biofuels to reduce greenhouse gas emission is dependent on where and how they are produced.42 Through analyses of the biofuel lifecycle, it has been found that the efficiency of biofuels to displace fossil fuels is highly dependent on the prior land use and agricultural methods used in crop production.43-46 4.2. Feedstock Conversion and Ethanol Production. Compared to feedstock production, the water requirements for the conversion of feedstock to fuel are relatively small. Corn ethanol facilities use approximately 3-4 gallons water per gallon ethanol produced, and it is estimated that biochemical cellulosic facilities will use about 6 gallons water per gallon ethanol produced.47 The processes for production of ethanol from sugar and starch based feedstocks are similar with minor differences in the method of extraction of the sugar solution. For instance, sugar cane is milled and clarified to produce cane juice and corn hydrolysate solution is produced after hydrolysis and filtration.48 The resulting sugar solution has a similar monosaccharide purity that can then be fermented and distilled to ethanol.48 The process of converting cellulosic feedstocks to ethanol requires additional steps compared to sugar and starch feedstocks. Pretreatment of cellulosic biomass is necessary to alter the structure of the plant cell wall so that cellulose (and hemicellulose) can be converted into fermentable sugars.49,50 Conversion technologies for cellulosic biomass include both biochemical and thermochemical processes,4,5 but only biochemical processes are considered here. The choice of pretreatment affects all subsequent operations, such as enzyme selection, final ethanol concentration, and waste production, and plays a central role in economic viability of cellulosic biomass use as a biofuel.50-52 However, an economic analysis of current conceptual pretreatment technologies found little difference in capital or operating cost or predicted sugar yields when compared for a single feedstock (e.g., corn stover).53 The ideal pretreatment preserves 1783



POLICY ANALYSIS

Table 3. Characteristics of Wastewater from Bioethanol, Pulp and Paper, And Domestic Wastewater Facilities55,57,59,65-68,70,71,92-98 feedstock or facility

BOD (g/L)

COD (g/L)

Ntotal (mg/L)

Ptotal (mg/L)

pH

sugar based

23-61

106-124

1871-2975

239

3.98-5.5

starch based lignocellulosic

21.5-35 12.8-19.8

38.4-70 26.5-50

525-6,200 210

139-400

3.8-4.2 4.5-5.0

2500-2700

chemical plant distillery

50-60

110-190

5000-7000

pulp/paper mill

0.3-2.21

0.442-1.9

1.5-9.7

domestic wastewater

0.1-0.3

0.2-0.5

20-85

hemicellulose for fermentation, has limited formation of degradation products (which inhibit hydrolysis and fermentation), minimizes energy demands, includes a low cost or recyclable catalyst, generates high value lignin coproducts, and does not adversely impact other downstream processing steps.49 Existing pretreatment technologies can be categorized as physical or chemical, with some methods incorporating both.49 Physical pretreatments include mechanical size reduction and hot water extraction.54-56 Chemical pretreatments use dilute or concentrated acid catalysts, combinations of acids and solvents as catalysts, or alkaline catalysts such as ammonia, lime, or sodium hydroxide.49,50 4.3. Wastewater from Ethanol Production Facilities. The wastewater byproduct from facilities producing ethanol is also known as stillage, thin stillage, distillery wastewater, distillery slop, dunder, spentwash, and vinasse. Approximately 8-20 L of stillage is generated per L ethanol of produced.57-59 Stillage characteristics vary by feedstock and processing methods used but in general have high biological oxygen demand (BOD), high chemical oxygen demand (COD), and low pH60-62 (Table 3). While ethanol processing techniques and stillage characteristics for sugar and starch feedstocks have been relatively well studied, less is known about variations in stillage from different cellulosic feedstocks and production processes,58 in particular for commercial scale operations. Recent technological advances in processes for the breakdown of cellulosic materials and initiatives to increase production of ethanol for fuel likely mean a significant increase in production of ethanol from cellulosic material in the near future.63 Stillage byproduct from facilities using sugar and starch feedstocks appear to have similar values. Recent values from the literature for BOD and COD from sugar cane fertigation and sugar cane molasses stillage were 10.8-50 g/L and 23.7-124 g/ L, respectively, with pH values between 3.8 and 5.5.57,64-66 Stillage characteristics reported for starch based feedstocks have similar values for, with BOD between 21.5 and 35 g/L and pH in the range of 3.8-4.2, and slightly higher maximum COD, which ranged from 38.4 to 170 g/L.55,67-69 For comparison, BOD in domestic wastewater effluent typically is 0.1 to 0.3 g/L (Table 3). Nutrient values, when reported, are highly variable in wastewater from facilities using sugar and starch based feedstocks. Literature that includes characteristics of stillage from the conversion of cellulosic feedstocks is scarce. Reported values for BOD and COD of cellulosic feedstocks, which are 12.8-19.8 g/ L and 26.5-50 g/L, respectively, are at the lower range of the values reported for starch and sugar based feedstocks, but pH is similar, between 4.5 and 5.0 (Table 3).70,71 For example, the permit application for a proposed 36 MGY cellulosic ethanol production facility in Highlands County, FL, indicates expected thin stillage BOD and COD of 28 and 22.4 g/L, respectively, and pH of 6.5 and feedstock wash water BOD and COD of 80 and

3.0-4.5 7.14-9.56

6-20

6.5-9

64 g/L, respectively, and pH of 7.72 The treatment of such wastewater to acceptable levels has economic and logistical implications that facilities must consider.

5. STATE LEVEL FINDINGS The results of the analysis of issues affecting ethanol production activity in the four states (Florida, California, Hawaii, and Iowa) are presented here. The analysis includes documenting state policies and incentives aimed at promoting ethanol production and then comparing state environmental regulations related to ethanol production. Additionally, a chronicle of ethanol production activities in the four states, both proposed projects and operational facilities, is assembled. The timelines of proposed and operating ethanol production facilities in the four states then are used as evidence of the impacts of these policies, regulations, and economic conditions during 2000-2010. Finally a case study and comparison of two ethanol projects in Hawaii and Iowa is used to further examine the issues related to commercial scale ethanol production. 5.1. Policies and Incentives for Biofuels. State and federal incentives and laws have been established to increase domestic development of facilities to produce ethanol and other biofuels from various feedstocks. Although the U.S. is a world leader in production of ethanol from corn, EISA calls for significant increases in ethanol production from cellulosic materials and other advanced biofuels. Economic and tax incentives and laws are aimed at various stages in the feedstock to fuel production chain from research and development to fuel distribution and vehicle use (Table 4). The biofuel production chain includes research and development, biomass production, biomass transport/feedstock logistics, biofuel production, fuel distribution, and vehicle fuel use/ blending. Each of the federal and state laws and/or incentives addresses at least one of the stages in the production chain with the exception of biomass transport and feedstock logistics, for which there are no laws or incentives (Table 4). Federal and state laws in all four states investigated in this work have been established to promote biofuel research and development. All states except Hawaii also have incentive programs to support research and development, such as California's alternative fuel and vehicle research and development initiative (Assembly bill 118) and Florida's renewable energy grants (FL statutes 377.804, 570.957). Federal programs, such as those supported through EISA and the 2008 Farm Bill, also support research and development for biofuel expansion as well as other production chain stages. None of the four states, nor the federal government, provide incentives for the production of biomass or, as mentioned above, laws or incentives for biomass transportation and feedstock logistics (Table 4). However, all states except Iowa have laws promoting production of feedstocks for biofuels. For 1784



POLICY ANALYSIS

Table 4. Number of State and Federal Incentives and Laws by Category stage research and

Florida California Hawaii Iowa Federal incentive

3

2

0

1

2

law

1

1

1

1

3

incentive

0

0

0

0

0

law

1

1

2

0

2

0

0

0

0

0

law

0

0

0

0

0

incentive

2

1

1

3

1

law

2

0

0

1

2

incentive

1

2

0

2

0

law

2

1

2

2

1

incentive

0

2

0

0

0

law

1

3

3

3

1

13

13

9

13

12

development

production of biomass

biomass transport/ incentive feedstock logistics

conversion/ biofuel production

fuel distribution

vehicle fuel use/ blending

total

instance, Hawaii has an energy feedstock program (HA revised statutes 141-9) and California has a state biofuels development plan (Executive order S-06-06, 2006). All four states also have at least one incentive for biofuel production, but only Florida and Iowa have laws in place. Florida's laws relate to renewable fuels investments and ethanol production credits, while Iowa's law is for regional promotion of biofuels. All four states have laws and incentives for fuel distribution and laws for vehicle and/or fuel use and blending, with the exception of Hawaii, which does not provide incentives for fuel distribution. Additionally, only California has an incentive for vehicle fuel use and blending. See Supporting Information Table S2 for a more detailed description of currently existing state and federal laws and incentives. However, there is concern over whether or not the U.S. government will continue to fund tax credits and subsidies for renewable fuels. Most federal tax credits and subsidies for ethanol are up for renewal in 2010 (such as the federal ethanol blending tax credit), and Congress has already allowed one tax credit for biodiesel to lapse.73 Investors will likely be hesitant to support the ethanol industry without the guarantee of continued tax credits. 5.2. Environmental Regulations. In order to build and operate an ethanol production facility, projects must meet numerous permitting requirements. The challenges of environmental permitting are related to a variety of factors. Multiple state and federal agencies, each with multiple regulatory programs, have a hand in the process. The federal regulations are administered by agencies such as the U.S. Environmental Protection Agency (USEPA), the U.S. Army Corps of Engineers (USACE), and the U.S. Department of Transportation (USDOT).74 The number of permits required will depend on the scope and nature of the proposed project. Table 5

lists the main federal regulations with which ethanol production facilities may need to comply. Many states have authority to implement one or more of the federal regulations. All four states in this study administer the federal National Pollutant Discharge Elimination System (NPDES) program regulating wastewater discharge, among others, into receiving waters. In addition to the federal regulations, with which all states must comply, there are many state and county specific requirements. These could relate to various aspects of construction and operation including land use, land development, and building, zoning, water use, stormwater management, connection to public utilities, and occupational health and safety. The permitting process can vary significantly across state lines, as state and local regulations are administered differently. For instance, while all states in this study administer the federal NPDES program, each state has a different classification system for their own state waters. Within different classifications, the states identify designated uses. Depending on each state's classification system of waters and designated uses, water quality objectives are set to protect those uses. Water quality objectives may be numerical or narrative standards, are mandated by the Clean Water Act, and must be approved by the USEPA. While all states have numeric criteria for toxic pollutants in surface waters, Hawaii is the only state of the four discussed here to have numeric water quality criteria for nutrients. Florida is in the process of developing numeric nutrient criteria, and it is likely that eventually all states will be required by the USEPA to develop or accept EPApromulgated criteria. Ethanol facilities that plan to discharge wastewater or stormwater into a water body must satisfying these water quality requirements during the planning, permitting, and operation stages. Other state regulatory differences relate to other state specific environmental conditions. For example, California has some of the most stringent environmental regulations in the nation that are largely the result of the state's air quality, which tends to be near the worst in the nation in certain metropolitan areas. Hawaii's regulatory process is also known for being arduous, and Hawaii's Department of Business, Economic Development and Tourism (DBEDT) found that the present permitting regime in Hawaii is seen by investors as the main hindrance to investment in Hawaii.74 The Hawaii DBEDT estimated the number of permits required for a biofuel facility could reach as many as 109 and was the most significant barrier to biofuels projects in the state.74 5.3. Analysis of Ethanol Production Facilities. As interest in biofuels grew in the early to mid-2000s and government policies pushed for expanding biofuel production in the late 2000s, increasing numbers of biofuel production facilities, or biorefineries, were proposed (see Figure 5 for a summary and Supporting Information Table S3 for details). In addition to the many corn ethanol facilities proposed and operating in the major corn producing states, proposals increased in other states for cellulosic and sucrose based facilities. Of the four states included in this study, Iowa has had the longest history of ethanol production, with its first corn biorefineries established in the 1980s. Currently, of the four states, only Iowa and California have operational commercial-scale ethanol producing facilities using corn as feedstock (see Supporting Information Tables S4 and S5). The 35 operational biorefineries in Iowa generally have greater capacities, ranging between 30 and 115 MGY per facility, compared to the five facilities in California, with capacities of 31.5-60 MGY each (Supporting Information Tables S4 and S5). 1785



POLICY ANALYSIS

Table 5. Federal Regulations That Could Apply to Biofuels Projects 74 regulation Energy Independence and Security Act of 2007 (EISA)

description Provides that the volume of biofuels added to gasoline is required to increase to 36 billion gallons by 2022, up from 4.7 billion gallons in 2007.

National Environmental Policy Act (NEPA)

For projects that use federal money, requires preparation of Environmental Assessments and Environmental Impact Statements for review by various regulatory agencies, neighborhood boards, concerned citizens and others from the public at large.

Renewable Fuel Standard (RFS) Program

Applies to facilities that produce 10 000 gallons or more of renewable fuel per year (producers with less than 10 000 gallons may also choose to comply as well) and requires complying with the Fuel and Fuel Additive Registration System (FFARS) program, generation, transfer and recording of Renewable Identification Numbers (RINs), and to abide by blending requirements.

Clear Air Act (CAA)

Defines air quality standards for certain pollutants called “criteria” pollutants, such as particulate matter, carbon monoxide, sulfur dioxide, nitrogen oxides, lead and ozone and requires that certain permits be obtained to minimize impacts

Clean Water Act (CWA)

from air emissions for the construction and the operational phases of a facility. Regulates emissions and impact mitigation during construction and operation of a facility. Permits are required for activities such as discharges into waters of the U.S., stormwater to control and minimize environmental impacts during construction or operation, wastewater collection or treatment, injection of fluids underground, and discharge of wastewater. Direct discharge of wastewater to receiving waters is regulated by the National Pollutant Discharge Elimination System (NPDES).

Pollution Prevention Act

Regulates the practice of eliminating or reducing waste at its source with a focus on

Safe Drinking Water Act (SDWA)

preventing waste. Best practices are becoming important for the attainment of the objectives. Regulates certain uses of water supply and underground discharges. For instance, Public Water System permits are required for water supply systems to facilities with capacities over threshold rate (e.g., more than 25 people for more than 60 days per year) and underground injection permits are required for disposal of stormwater, cooling water, industrial or other fluids into the ground via an injection well or if the facility operates an onsite waste disposal system that receives sanitary or other discharges.

Resource Conservation and

Regulates solid and hazardous waste. Each facility is responsible for determining

Recovery Act (RCRA) Emergency Planning and Community

if each waste stream is hazardous and managing it appropriately if it is hazardous. Requires facilities with regulated chemicals above threshold planning quantities to

Right-to-Know Act

prepare comprehensive emergency response plans.

While no commercial-scale cellulosic ethanol facilities currently are operating in the U.S., several pilot and demonstration scale facilities exist and many other proposed facilities are in the planning stage.76,77 A pilot plant is a small-scale facility built to provide data on design of a full-scale commercial facility. At the pilot size, modifications and tests on processes can be made at relatively low cost. A demonstration facility is larger than a pilot, but still smaller than a commercial facility with limited production capacity. The demonstration scale facility is built to test the commercial feasibility of the process. Both federal and state funding has been provided to support the transition of ethanol production from pilot and demonstration scale to commercial scale (Table 4). For example, in 2007 the USDOE announced the award of $385 million in grants to support six cellulosic ethanol commercial facilities.73 In 2009 the USDOE, through the American Recovery and Reinvestment Act (ARRA), announced plans to fund 19 pilot, demonstration, and commercial scale biofuel projects across fifteen states. These funds support a portion of the scale up costs, with the remaining from private and nonfederal cost share funds. Figure 5 shows the number of newly proposed and operating ethanol production facilities during 2005-2009 for the four

states. Some of the proposed facilities that existed in one year may be carried over to the next year or may be discontinued because of economic conditions, a proposed facility's ability to secure sustained investments over the duration of the project, and/or difficulties in environmental permitting processes (Figure 5). The increase in the number of proposed projects in 2007 and 2008, with totals of 25 and 30 newly proposed and carried over projects in the four states, respectively, coincides with the implementation of federal and state incentives and laws promoting biofuels development (Table 4). The trend in number of proposed facilities also coincides with economic conditions and prices of feedstock and transportation fuels during the same period (Figures 1 and 4). The number of proposed ethanol biorefineries peaked in 2008, while all four states saw the discontinuation of previously proposed facilities in 2009 (Figure 5), coinciding with the decrease of gasoline prices (Figure 4) and economic recession. The number of newly proposed and carried over facilities decreased to 17 in 2009, corresponding to difficulty in securing investments in ethanol projects. All four states have had proposed projects put on hold due to the inability to obtain financing (Supporting Information Table S3). 1786



Figure 5. Number of ethanol production faciilities that were newly proposed, proposed and carried over to the next year, in operation and producing ethanol, and discontinued proposals.

In addition to the economic downturn that started in late 2007, other factors have impacted the continuation of proposed ethanol production facilities. Siting concerns, such as air quality and traffic issues, expressed by local residents and environmental activists have halted or delayed the continuation in projects in Florida, Hawaii, and Iowa (Supporting Information Table S3). At some locations (e.g., American Ethanol LLC in California and Kauai Ethanol in Hawaii) the permitting process was delayed. On the other hand other projects, such as BlueFire Ethanol LLC in California, successfully received the necessary permits but have been put on hold while additional financing is secured. In Florida, permit applications for a cellulosic facility in Highlands County are currently under review. This Vercipia facility plans to produce ethanol using energycane and forage sorghum grown on adjacent agricultural land.72 The property for the facility and the agricultural property are owned by the same company, Lykes Brothers. The process for converting the cellulosic feedstocks into ethanol, using biochemical single stage dilute acid hydrolysis conversion, was developed based on research at the University of Florida and Verenium holds the exclusive license. The facility will have an operating capacity of 36 MGY. Process wastewaters will receive secondary treatment, and the reuse water will be used to irrigate the feedstock crops on a portion of the adjacent farmland.72 Additional barriers to the continuation of commercial scale ethanol production facilities stem from other economic, policy, and technology factors. One is the “blending wall” phenomenon. Current blended gasoline contains 10% ethanol, and with current gasoline usage, the demand for ethanol is limited to approximately 14 billion gallons annually.73 Existing corn ethanol facilities in the U.S. currently produce 12.1 billion gallons of ethanol each year, with the capacity to increase to 15 billion gallons.73 Thus the need for increasing ethanol production from cellulosic feedstocks does not currently exist from a supply and demand perspective and under current policies. Moreover, the supply chain for cellulosic ethanol currently is not effective for a broad scale-up to commercial facilities that would produce at levels required by the RFS in EISA. The costs and logistics of transportation of feedstock to the ethanol conversion facilities as well as the produced ethanol to markets may not be economically feasible as the location from which feedstock is acquired and the receiving ethanol markets are further from the facilities.75

POLICY ANALYSIS

5.4. Case Study: Hawaii Vs Iowa. Hawaii and Iowa were chosen for more detailed review because they represent a progressive state with sustainability needs versus a state with an established ethanol production history. Hawaii has the unique incentive to become more energy dependent because of its geographic isolation. Hawaii also is one of only a few states in the U.S. with a climate conducive to producing sugar cane, which has proved a successful feedstock for ethanol in other countries. As such, the state has adopted progressive legislation intended to further development of local biofuels. In contrast, Iowa has a long history of cooperation between corn farmers and ethanol producers and is the leader in the U.S. in ethanol production from corn. There currently are 23 companies that operate ethanol facilities in Iowa, and three companies have more than one facility (see Supporting Information Table S4). All of the companies in Iowa use corn as feedstock, with one facility (POET's Project Liberty) also producing cellulosic ethanol using corn stover as feedstock at a pilot plant and is scheduled to scale up to commercial scale in 2012. As mentioned earlier, Iowa produces more corn than any other state in the U.S. and is the leading state in ethanol production. In the U.S., more than 85 million acres of farmland was dedicated to corn production in 2008, in contrast to approximately 1 million acres for sugar cane.78 While at least four companies have proposed building ethanol production facilities in Hawaii, none have progressed past the permitting stage in the process. The main feedstock for proposed facilities in Hawaii is sugar cane, although at least one proposal also has included cellulosic crops such as switchgrass (see Supporting Information Table S3). The technologies for conversion of both corn and sugar to ethanol are well established, and sugar cane is the primary feedstock for ethanol production in Brazil.17 In the 1980s Cargill and the Archer Daniels Midland companies built the first ethanol plants in Iowa.79 Farmers were primarily responsible for the ethanol boom in Iowa as they built ethanol plants to secure a market for local grain.79 For instance, the company Big River Resources Company was started by a group of local farmers who were looking for a market for their corn when prices were low.80 The group of farmers organized a coop and elected a board of directors who each contributed money to begin plans for their new company. In the past decade, the success of Iowa's ethanol industry has aroused outside interest and now over half of the ethanol plants are controlled primarily by out of state or foreign investors.79 While the push for ethanol plants in Iowa came from farmers, in Hawaii the state government attempted to encourage in-state ethanol production by requiring gasoline to contain at least 10% ethanol by volume (SB 3170) as of January 1, 2006, thus guaranteeing a market. To further help the new industry, Hawaii also established multiple tax incentives. Lawmakers were hoping to reduce the state's dependency on outside oil and, using sugar cane as the primary feedstock, also help the sugar industry.81 Several companies proposed facilities that would be associated with existing sugar cane producers. Maui Ethanol LLC planned to use molasses from sugar production as feedstock and proposed construction of a 12 MGY facility that would meet the demand for ethanol on Maui.82 However, the proposed biorefinery experienced engineering and financing issues and thus has not been built.83 To date there are no ethanol producing facilities in Hawaii, and the state has had to import ethanol to meet its fuel blend mandate. There are environmental issues with the agricultural production of corn and sugar cane as well as with the process of conversion to 1787


Environmental Science & Technology ethanol by facilities. Use of fertilizers for crops such as corn can lead to nutrient leaching, soil erosion and contamination of surface waters and groundwater. For instance, in Brazil, herbicide and fertilizer use and erosion during sugar cane production has led to contamination of soil and water.17 Additionally, cultivation of sugar cane can degrade soil quality by reducing nutrients, organic carbon, and the pH of soil.17 It has been noted that increased production of crops for conversion to biofuels could further stress water and land resources. In addition to issues associated with crops, facilities that convert corn to ethanol in Iowa have a history of violating environmental regulations. For instance, the Des Moines Register reported that between 2001 and 2007 there were nearly 400 environmental violations by biofuel (both ethanol and diesel) facilities in Iowa.84 Conversely, a difficult permitting process has made efforts to bring the ethanol industry to Hawaii even more challenging.74 The permitting process in Hawaii has been identified as a major obstacle to capital investment and successful implementation of projects. The process is especially difficult because ethanol and other renewable energy projects often involve new agricultural, processing, and conversion technologies that are unfamiliar to permitting agencies.74

6. DISCUSSION The potential of cellulosic ethanol to reduce dependence on fossil fuels has yet to be realized in the U.S. The 2000-2010 decade saw the rise of the promise of cellulosic ethanol. Federal policies such as EISA and the 2008 Farm Bill, as well as state laws and incentives, were enacted to increase ethanol production. Sharp increases in research activities in laboratories and fields to investigate the conversion of a variety of cellulosic feedstocks into ethanol resulted. Both government and private funding supported the research and development as well as the establishment of ethanol production facilities at pilot, demonstration, and commercial scales. However, ethanol activity, especially in the development of production facilities, has decreased significantly at the end of this decade in part due to the economic downturn. While the potential for cellulosic ethanol still exists, multiple barriers need to be overcome. Although there are technical issues that remain to be solved to more efficiently convert cellulosic material to ethanol at lower costs, the largest barriers appear to be related to government policies, economics, and logistical issues. The numerous federal and state policies do not effectively give investors confidence to commit to the construction and longterm operation of facilities under current economic conditions. Perhaps under less dire economic circumstances, investors would be less wary. Unfortunately, the condition of the U.S. economy in the past four years has not been conducive to investment in a new technology. Not only is the success of cellulosic ethanol highly uncertain from an investor's viewpoint, there are the complicating factors in the supply chain (e.g. long-term commitments for production of feedstocks from farmers) as well as potential lack of demand for the product because of the current high production of first-generation ethanol from corn and revised lower target levels for second-generation ethanol production. Moreover, environmental impacts of ethanol production and societal concerns can affect the siting and permitting of ethanol facilities. Water consumption and wastewater production create a locally focused impact that may result in proposals for facilities meeting with community resistance. Large volumes of wastewater from ethanol production facilities require treatment to minimize

POLICY ANALYSIS

environmental impacts and comply with state and federal regulations. Ideal facility sites also are limited by the need to be near a feedstock source. However, the RFS mandate for increased production of cellulosic ethanol remains and will need to be met. The next decade will require additional changes in policy and breakthroughs in technology and logistics to address these hurdles to increases in ethanol production in the U.S.

’ ASSOCIATED CONTENT

bS

Supporting Information. Summaries of state demographics, descriptions of federal and state policies and incentives, details and chronologies of proposed ethanol producing facilities by state, and descriptions of currently operating ethanol producing facilities in Iowa and California. This material is available free of charge via the Internet at http://pubs.acs.org.

’ AUTHOR INFORMATION Corresponding Author

*Phone: 1.850.410.6121; fax: 1.850.410.6142; e-mail: abchan@ eng.fsu.edu.

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