President Bush stated it succinctly in his 2006 State of the Union Address: “America is addicted to oil.” In 2004, the United States (U.S.) used almost 21 billion barrels of crude oil per day; approximately 58 percent of this total was supplied by imports. The transportation sector, which receives nearly all of its energy from petroleum products, accounts for two-thirds of U.S. petroleum use. Gasoline is the dominate transportation fuel in the U.S, with a 2004 usage of approximately 140 billion gallons. The Energy Information Administration (EIA) projects that expected increases in total miles traveled will outweigh all vehicle efficiency improvements and lead to a one-third increase in imports of crude oil such that imports will account for 62.5% of total domestic oil use by 2030.

Biomass is the only domestic, sustainable and renewable primary energy resource that can provide liquid transportation fuels. A long-standing question has been “what is the production potential of ethanol, both from starch and cellulosic feedstocks and can it have a significant impact on imported oil displacement and long-term energy security”. In response to this question an in-depth study, “Biomass as Feedstock for a Bioenergy and Bioproduct Industry: The Technical Feasibility of a Billion-Ton Annual Supply” (Perlack, R. D., et al., ORNL, DOE/GO-102005-2135, April, 2005) was performed. This study estimated that the U.S. has the potential to produce up to 1.3 billion tons of biomass annually on a sustainable basis without impacting food, feed and fiber uses. To put the ethanol production potential from this amount of biomass plus grain based ethanol in perspective, almost 60% of 2004 motor gasoline demands on a BTU adjusted basis could be met with ethanol from grain and biomass.

Although ethanol both from corn and cellulosic feedstocks shows considerable promise to help lessen our demand on imported oil and increase energy security, a question that needs to be addressed is “What is an appropriate goal for ethanol?” Then given this goal, what needs to be accomplished in what timeframe to achieve this goal. After much discussion and analysis a goal of supplying 30% of the 2004 motor gasoline demand with ethanol by the year 2030 was chosen. This roughly translates to a 60 Billion gallon per year on a BTU adjusted basis target by 2030, herein after referred to as the 30 X 30 goal. This goal was chosen because it represents an aggressive target that translates into a significant positive national impact but well within the maximum potential for ethanol. Also the timeframe of 24 years from the present was considered aggressive but not too short to be overly disruptive to market change dynamics.

2 30 X 30 Goal

This paper presents a scenario for achieving the 30 X 30 goal with ethanol produced from both starch and cellulosic feedstocks. This scenario follows a logical progression to the 30 X 30 goal by determining the market volume potential of grain ethanol and then analyzing the feedstock and technology needs to build upon this grain ethanol with cellulosic ethanol to achieve the 30 X 30 goal. A detailed market assessment is also performed to determine the necessary policy drivers to enable this scenario, as well as an assessment of the distribution and vehicle needs for this level of ethanol production and use.

The goal of this study is to outline a scenario to achieve the 30 X 30 goal that is realistically achievable with a sustained integrated government, academia and private sector effort. The 30 X 30 goal is in essence a market goal and hence this study follows a market driven approach towards achieving the 30 X 30 goal. A fundamental assumption of this scenario is that consumers will behave in a rational manner and choose the fuel that provides the best value on a fuel cost per mile traveled basis. Given this assumption, ethanol fuels must be equal to or less cost than gasoline at the pump on a fuel cost/mile traveled basis in order for consumers to prefer ethanol. Another fundamental assumption is that ethanol fuels must deliver equal or better performance.

Essentially there are two sets of tools that can be used to realize this; technology goals as they relate to production cost targets and, policy and market incentives to make ethanol more competitive in the marketplace. This scenario will analyze the best mix of these tools for achieving the 30 X 30 goal.

2.1 Technology Targets

2.1.1 $1.07 Target in 2012

The first technology target for cellulosic ethanol in the 30 X 30 scenario is cost competitive with corn-ethanol by 2012. This has been defined as $1.07 per gal production cost. This value was chosen because it would allow entry into the starch ethanol market. The value can be put in context with the historic ethanol price data as shown in Figure 1. The $1.07 per gallon value represents the low side of the historical fuel ethanol prices and hence given historical price data, cellulosic ethanol would be commercially viable at this cost of production.

Aden et al. (NREL/TP-510-32438, June, 2002) outlines the technology basis for the $1.07 market target case and this paper outlines the research pathway towards achieving this target for both biochemical and thermochemical conversion routes. However the goal of $1.07/gallon in 2012 is not sufficient in of itself to achieve the 30 X 30 goal given DOE's Energy Information Administration (EIA, 2006) crude oil price projections out to 2030. Indeed, preliminary market analysis suggests that, if the goal of a production price of $1.07/gallon is the ultimate endpoint for the technology, the 30 X 30 goal is not achieved. Hence a second technology target is used in this scenario, an advanced state of technology target of $0.60/gallon in 2030.

Figure 1. U.S. List Prices for Ethanol

2.1.2 $0.60 Target in 2030

The target of $1.07 per gallon in 2012 may be sufficient to gain entry in the fuel market, but further technology improvement is needed to achieve the market penetration implicit in the 30 x 30 goal. To meet the 2030 market goal, the 2030 technology target for cellulosic biomass is to demonstrate advanced conversion technologies capable of producing ethanol at $0.60/gal.

Specifically, the 2030 goal is to generate sufficient data from the integrated pilot scale process that when extrapolated to a complete a process design and cost estimate of an “nth” plant (an assumption of “nth plant performance means that all of the potential cost growth and performance penalties of the first-of-a-kind (pioneer) technology have been overcome) shows that an investor will sell the product ethanol for $0.60/gal and receive an appropriate return on his investment. The target ethanol selling price includes feedstock production, feedstock logistics and conversion cost components. Imbedded in both the 2012 and the 2030 price targets are the following assumptions:

• “Nth plant” cost and performance based on pilot plant scale (2 to 5 tons per day of biomass) data
• A minimum selling price based on a 10% rate of return on investment (ROI)
• A minimum selling price that is not based on availability of tax incentive
• A biomass feedstock cost of $35 per dry ton.
• A minimum selling price at the plant gate (exclusive of fuel distribution costs, marketing costs and taxes).

However, as the market assessment analysis shows, the proposed targets for ethanol technology improvement are not, by themselves, sufficient to push the ethanol industry to 60 billion gallons/year of capacity—even with higher oil prices. This is because investor attitudes toward new technology risk raise the hurdle of building the first full-scale commercial plant to a higher level. Investors wait until market value for fuel rises enough to overcome their risk-aversion. Hence in addition to technology cost targets, market and policy incentives will be required to achieve the 30 X30 goal.

2.2 Market Incentives

Meeting the 30 x 30 goal calls for strategies that reduce biomass feedstock cost, technology risk, and ethanol price during the early years of industry adoption of lignocellulosic biomass technology after corn ethanol production has reached its peak. Two specific market incentives were evaluated, extending the existing ethanol subsidy by 10 years to 2020 and providing payments ($15/ton) to lignocellulosic biomass suppliers for residues and energy crops used for fuel production also to 2020. Adding these two market incentives on top of the technology targets was sufficient to achieve the 30 X 30 goal. Additionally the market analysis shows that extending the ethanol subsidy beyond 2020 has no added benefit if progress in R&D continues and is successful in reducing the production price of ethanol to $0.60/gallon. The same holds true for the biomass feedstock payments. Hence, achieving the $0.60/gallon target by 2030 is critical in allowing these market incentives to sunset. However if research does not progress towards achieving the $0.60/gallon by 2030 target, extending the ethanol subsidy until 2030 or whenever the $0.60/gallon target is achieved provides an additional avenue towards achieving the 30 x 30 goal.