In the Midwest, corn is king. That?s particularly the case with
ethanol, where corn is the main ingredient in about 95 percent of
all domestic ethanol. But high gas prices and favorable government
policies are encouraging a slew of new ethanol entrants hoping to
share the wealth, while pushing a slow evolution in the industry.
Other crop commodities see ethanol production as a hedge against
existing and future commodity surpluses and want to replicate the
value-added income that ethanol has brought to corn farmers. Hawaii,
for example, recently passed $50 million in tax credits for investments
made in ethanol facilities to support the local sugar industry,
which has struggled under crop surpluses and low prices. A 75-million
gallon wheat and barley plant has been in the development stage
in Great Falls, Mont., for a number of years but has yet to break
Ethanol can be made from many different inputsas long as
each can be broken down into basic sugarsincluding a wide
variety of food and commodity byproducts. A Kraft General Foods
plant in Melrose, Minn., makes ethanol from cheese whey; plants
in Washington and Colorado use beer waste to produce ethanol; a
Wisconsin plant makes ethanol from, among other things, the byproducts
of paper, beets and artichokes; an Idaho plant uses potato waste.
Probably more important for the industry in the long term, however,
is the development of biomass or cellulose-based ethanol, which
converts the cellulose of plants and other organic matter into basic
sugars, which are then turned into ethanol.
Biomass ethanol today exhibits more promise than production. Pilot
plants using tree trimmings, rice straw and even municipal waste
have been in development for years by the likes of BCI, Genencor
and Arkenol. "I am excited about the prospects of cellulose
to ethanol," said Ralph Groschen, senior marketing specialist
of the Minnesota Department of Agriculture. "In the meantime,
I've been hearing it's around the corner for the last 15 years."
The making of ethanol from biomass is more complex than that of
corn or other crops because carbohydrate-based food crops are more
easily broken down into sugar than cellulose found in plants. The
processing technology is available but unproven on a commercial
scale, which has made larger pilot plants difficult to finance.
Arkenol, based in Mission Viejo, Calif., has a proprietary cellulose
conversion process but has struggled to find investors for a pilot
plant near Sacramento that would use rice straw as the main feedstock,
according to Michael Fatigati, the company's vice president of engineering.
"Project finance has been a real, real problem," Fatigati
said. "If we had a balance sheet like Exxon, we'd just build
it." But it doesn't, and Fatigati said that finding investors
to finance anything "first of its kind" comes at a premium.
"We've got all kinds of people willing to [finance] the second
Ethanol production from food crops likely has a ceilingsome
suggest around 4 billion to 6 billion gallonsbecause there
is a finite amount of crops, and increasing diversion to ethanol
could have a dramatic effect on food as well as ethanol prices.
If biomass ethanol ever develops on a commercial scaleyears,
if not decades awayit could spark new ethanol production by
a factor of 10 or more.
Such a development would likely be a boon to corn farmers because
they hold one of the single largest accessible supplies of biomass
in the form of corn stoverthe leaves and stalks left behind
"I don't see biomass as a threat to farmers," Groschen
said. "I think when it happens the first thing it's going to
benefit are corn plants." Any large-scale shift to biomass
would still be a "huge logistical task," he said. "Who
does that better than farmers?"
Randy Doyal, chief executive officer of Al-Corn Clean Fuels, pointed
out that the farmer cooperative model used by many corn-based ethanol
plants "is light-years ahead of any other means in taking advantage
of cellulosic conversion" because the delivery infrastructure
is largely in place. Such a production shift would require some
capital reinvestment in plants, "but much less than building
a brand new building," he said.
Ethanol processing is also likely to evolve the same value-added
product chain as oil, with future ethanol plants becoming "bio-refineries"
that develop new, higher-value products, according to David Morris,
vice president of the Institute for Local Self-Reliance, an environmental
organization with offices in Minneapolis and Washington, D.C.
Transportation fuelboth oil and ethanolhas a comparatively
low price by weight because it is a commodity, Morris said. Only
half of every barrel of oil goes for gas production, he pointed
out, while the other half is used for the production of specialty
chemicals and products like plastics that provide significantly
The same potential holds for ethanol and is already happening
to small degree. Ethanol can be made from either a dry or wet process.
Along with fuel, wet plants produce corn syrup, industrial starch
and other products that have higher comparative value than fuel
ethanol. Such value-added products don't receive the subsidies of
fuel ethanol but are sold at higher prices.
Dry plantswhich represent the significant majority of ethanol
plants in the Ninth Districttypically produce only fuel ethanol
and a protein-feed byproduct used by cattle ranchers. Groschen said some
dry plants are beginning to produce an industrial-grade ethanol that is
used as a solvent, "and are always looking for other products ... to
expand their markets."