To win the war on terror, we must first stop funding terrorists with our oil money. Let's instead use our money to fund a war on oil.
There is a lot of conventional wisdom that says we will have to stay dependent on oil. I ask all the experts and gurus to look at the facts, look at the latest developments in our labs and imagine the future instead of extrapolating the old energy "Saudi" world using conventional wisdom. Those are the guys who get to lose a trillion dollars every time the price of oil drops by $4 per barrel.
Wrong assumptions and poor comparisons abound. Corn ethanol has served us well and has paved the way for our future energy security. It has shown America that we do have alternatives to oil. We would give our eyes and teeth to get a 20% improvement in vehicle efficiency (1 mpg is estimated to cost hundreds of dollars per vehicle) to reduce carbon emission but wont take an easy 20% improvements from corn ethanol (Argonne National Labs data). Why? As to subsidies, while ethanol subsidies are at $0.51 per gallon the total dollar amount is probably negative. The decrease in corn subsidies is far more than total ethanol subsidies in 2006. While total ethanol subsidies were about $2.5b (mostly collected by the oil companies) in 2006, farm subsidies in 2006 declined by an estimated $6b in 2006 because of higher biofuels use - a net reduction in subsidies from the US government or a negative subsidy for ethanol!
Subsidy payments to corn farmers for 2006 will likely be the lowest we've seen since the mid-1990s because of the demand-driven nature of the current market and strong corn prices. And why don't we ever talk about oil subsidies? The absolutely lowest estimate I have seen is about $0.25 per gallon subsidy for gasoline using only the direct subsidies to oil producers. The conservative estimate of subsidy per gallon of gasoline including indirect costs is a few dollars per gallon ($4.00 per gallon was been mentioned) while aggressive estimates are more than twice that. How is a new fuel to compete?
Mr. President please reduce the oil subsidies and level the playing field. Having said that there is no question that corn ethanol can not meet a material part of our gasoline needs (10% or less is a reasonable estimate). It is very likely that solar and wind, as currently use without electricity storage, cannot supply more than 10% of our electric power either but more on that another time - there are exciting new things to talk about in that domain too). We like 10% substitution from solar and wind but not from corn ethanol. Why? Do we like the Mideast more than our farmers or is it because of the massive PR campaigns of the American Petroleum Institute and their funding of pseudo science studies, much like the tobacco firms did in the previous decades? We should measure all renewables with the same yardstick.
We need cellulosic biofuels to win the war on oil. What the best R&D will achieve is a matter o f judgment. Conventional wisdom always assumes that things will stay as they are. I could be wrong ofcourse but hopefully I am unbiased because if I am biased I will lose money. My research has convinced me that the possibility of $1.25 per gallon or cheaper cellulosic fuels are less than three years away (though the question of putting plants in place and getting Wall Street to finance debt for such facilities still looms large) that I have invested in a number of companies in this area with Mascoma, Kergy, Celunol, Amyris, Gevo, LS9, Coskata among them.
I so believe these goals are just a matter of time that I am investing in other companies producing ethanol and other transportation fuels. In fact, if any expert or guru wants to put their money where their mouth is (as I have done) I will take on any bettors on a bet that the costs above will be achieved by atleast one company within three years if a 100mgpy plant is built. Many of them are using very different technology approaches from biochemical to thermo chemical conversions and everything in between. We have even seen proposals to make ethanol from waste carbon monoxide from steel mills . Over 50 billion gallons can be produced from the worlds steel mills alone, improving their economics and reducing green house gas emissions.
There is no question in my mind we can reach these cost targets but it is not clear which technology will be the cheapest or which fuel will win for which application. Gasoline, diesel, jet fuel, home heating oil all have different requirements. It is easy for theoreticians and policy gurus to pontificate about extrapolating historical trends but have they funded the latest breakthroughs or delved deep into all the technology secrets that private companies will not appropriately divulge? Some of the optimists in the startup world will surely be wrong but will a dozen companies all fail? Unlikely. It is rumored that just in the latest round of DOE requests for proposals there were atleast eight qualified proposals where investors from very different backgrounds were willing to commit over $60m of their money to match the DOE grants. Could so many different investors , each with a different source of technology all be wrong?
Please encourage research on biomass feedstocks, tomorrows "energy crops". As to the competitiveness of switch grass or miscanthus grass, they are economic for farmers at the yields we can get today.( There is no question in my mind that we should use grass cocktails and not a monoculture and fortunately Prof Tillman's research shows this actually produces more yield and we need to increase research in this area.) I hope President Bush calls for significantly more research in agronomy around energy crops. But Miscanthus is already yielding 15 tons per acre now in a wide variety of regions, including the UK (see here ). The University of Illinois achieved over 15 tons per acre in Illinois test plantings across a variety of sites. And who said we cannot get cost effective fuel (when gasoline is $3 per gallon) at even 5 tons per acre? Most estimates indicate that at $40per ton on biomass (today one can buy biomass at many sites at a fraction of this price but if biomass use goes up its prices will rise) costs we could produce ethanol at about $1.25 per gallon. With yesterday's technology those costs would be below $1.75 per gallon in the US in a 100mgpy facility if one was built today. A detailed discussion of how much biomass and cellulosic ethanol we could produce (and consume) and the acres required can be found in the Appendix in "Imagining the Future," (here ). $40 per ton biomass is very feasible even at single digit yields in acr es per ton of miscanthus or switchgrass (or hopefully diverse grass cocktails) without any significant irrigation or fertilizer. And corn farmers will make more money using these grasses if they can get about $200 per acre of revenue. And so far little genetic engineering has been applied to these crops because there hasn't been much reason to do it. In fact, I have seen private companies with experimental yields north of 20 dry tons per acre using only traditional plant breeding techniques. I personally don't have a problem with genetic engineering but we don't need it to achieve these yields. I suspect 6-8 tons per care will make cellulosic ethanol very competitive even if oil prices decline because of the much lower level of farm inputs required compared to corn/soy.
Should we imagine the future or use historical extrapolation? We have seen the same kind of "historical extrapolation" thinking in personal computers, in biotechnology, in telecommunications, in media and the Internet before. The experts all claimed about ten years ago that the Internet would never replace traditional telecommunications. Today wireless and Internet telephony are pervasive, long distance calls are virtually free (unthinkable in 1995) and most of what is left of AT&T is a brand (again, unthinkable ten years ago). Ten years from now, our scientists and technologists powered by the entrepreneurial energy of the Silicon Valley mindset will have transformed the energy world. It will look as different as today's telecom world is different from 1995. We have found scientists working on energy breakthroughs in Dartmouth (Mascoma), in pipe fitting shops in Denver (Kergy), using platforms developed for malaria drugs in Berkley (Amyris), in other university labs (Gevo and LS9), in India (Praj), in New Zealand, in Brazil, and just about every other corner of the world. The environment is ripe for innovation if we unleash our human talent on the right problem. The conventional wisdom says that we will have to stay dependent on oil. I ask all the experts and gurus who pontificate about this to look at the facts, look at the latest developments in our labs and imagine the future instead of extrapolating the old energy world using conventional wisdom.
Interested parties spread plenty of myths. And no discussion of ethanol is complete without addressing the question of energy balance. This is not even a relevant question! (see "Is Ethanol Controversial?"). Electricity has 30% of the fossil energy efficiency of corn ethanol so WHY do we still use it? Because energy balance is not a relevant issue. Why doesn't the American petroleum Institute talk about electricity? The likely reason for this misperception is that American Petroleum Institute(API) is on a massive campaign against real alternatives to oil while the oil interest say nice things about renewable energy and go on with business as usual making profits, funding Mideast terrorists, funding mis-information, and spending lots of nice money around hollow PR campaigns around "going green". Why else would the API be interested in food prices? Do they care that much about the worlds poor and hungry? I could be wrong but I would guess the last Exxon CEO got more of a termination package than all the money they have ever spent helping the poor. Why do they worry about the poor countries when the poor countries are trying to eliminate US farm subsidies and raise prices so their farmers can compete? That is a big reason why the Doha round of trade talks is not working.
President Bush please set a very aggressive target for biofuels use with an enhanced Renewable Fuel Standard (RFS). My analysis shows 39 billion gallons of biofuels production is possible in the United States at reasonable cost by 2017 on 19 million acres, and 139 billion gallons by 2030 on 49 million acres. Soon we will be replacing all 150 billion gallons of gasoline that we use on a very small fraction of our agricultural lands while improving the environmental quality of our agriculture (through corn/soy and biomass crop rotation schemes) and improving our rural economy. Consumers can be protected by the RFS if prices get too high by including a price "relief valve" that will also protect livestock producers (who depend on reasonable corn prices). Such an ambitious goal will ensure an attractive market for any company that meets its cost target for biofuels. If all the entrepreneurs fail, the relief valve will protect consumers and related agricultural markets. More importantly, all Americans, both Democrats and Republicans, care about energy security. Many of the Presidential candidates for 2008 will also support such policies. A political consensus here is possible. Mr. President you will have a legacy that the world will remember fondly. Your 2006 State of the Union was pivotal in turning attention to cellulosic ethanol. Your 2007 State of the Union can be the pivot on which the world's oil economy turns rapidly to a renewable, sustainable and cheaper transportation fuel future. Consumers will pay less, farmers will be better off, the world will be less dangerously dependent on the Mideast and we will take a giant step in green house gas reductions. Any improvements on efficiency will make the war easier. Maybe the Mideast, being less critical to the world economy will be less geopolitical and can return to normal life. We will have more energy security and enhanced energy independence. The evangelicals will support you for leaving a better world for our children. We need to venture very little to gain a huge upside.
To win the war on terror, we must first stop funding terrorists with our oil money. Let's instead use our money to fund the war on oil. In this war, we are barely using rifles today but are well on the way to developing more advanced weaponry. With the right signals from you Mr. President we will increase research and development towards really sophisticated weaponry for this war. President Bush, please declare a war on oil!