In the traditional jargon of strategic planners, organizations and programs are often called upon to do a "situation analysis" (7). For this type of analysis, planners scan the environment outside and within their organization to identify strengths, weaknesses, opportunities, and threats to it. This is the first step in identifying strategies for success. Strategic planning has clearly lost the allure it once had in this country as an approach to properly setting a course for the future of an organization, but even its most ardent critics

© 1997 American Chemical Society

recognize the value of a situation analysis in formalizing the process of setting strategies

(2).

In the case of bioethanol, we look at the technology itself in identifying strategies for establishing this renewable energy industry. This perspective allows us to look at bioethanol as a new technology for the United States and what it will take to make it a success, while avoiding the more parochial concerns of a given organization. This section is a brief scan of some external issues related to the deployment of bioethanol technology in the United States; it is also an overview of the strategies for deployment currently in place at the U. S. Department of Energy (DOE). External factors that affect the deployment of bioethanol technology include (3):

♦ Environmental (ecological) issues

♦ Energy trends and national security

♦ Public opinion

♦ Public policy and legislative trends

♦ The market.

The Environment. Concerns about the health of our planet and the quality of life that we are leaving for future generations have become a major focus of our society during the past few decades, starting with Rachel Carson’s landmark book Silent Spring (4), to the more recent book Our Stolen Future, which Vice President A1 Gore touted as the unexpected sequel to Silent Spring (5). This literature focuses on the ecological and health effects of manmade chemicals, which travel through the air, water, and soil. A major theme of Coburn’s new book is that even minute levels of many synthetic compounds have unpredictable effects on birth defects and basic human development (5). In this context, "natural” fuel products such as bioethanol look increasingly attractive. The more immediate and quantifiable environmental impacts of bioethanol focus on two key issues: global climate change and urban air pollution.

Global climate change is a surprisingly old issue. The principle of greenhouse gas effects was first proposed by the French mathematician, Fourier, early in the last century (6). In 1896, Svante Arrhenius identified the potential global warming effect of carbon dioxide produced from the burning of fossil fuels (7). But it was not until 1957 that the first definitive proof that carbon dioxide was indeed accumulating in the atmosphere was finally established (8). Many countries (including the United States) have made moves to reduce carbon dioxide emissions, but global climate change remains an issue plagued by political and scientific controversy. Global temperature data show trends of both increasing and decreasing temperature from 1880 to the present (9). Models being developed to predict the effects of increased carbon dioxide levels remain difficult to verify (9). Some members of the scientific community argue that, from a fundamental perspective, such models will never be reliable (10). Even more perplexing is how to predict the effects of a global temperature increase. Regional effects from flooding to droughts have been projected, but clearly we have no way of predicting these types of calamities regionally (10-14). And then there is the question of aerosols. Many have argued that aerosols have similar but opposite effects on climate change compared to greenhouse gases. The presence of anthropogenic aerosols may double the amount of sunlight scattered back into space. The uncertainty in our prediction of aerosol effects swamps any estimate of global warming potential associated with carbon dioxide accumulation.

But if the uncertainties that surround global warming are great, the potential risks to society if global warming is real are worse. Ice core data and other sources of paleoclimatic data have shown that our climate can abruptly and dramatically change (75). These changes have been assumed to occur only during ice ages, but there is now a growing body of evidence that dramatic climate shifts have occurred within the past 10,000 years. These changes are not as dramatic as those observed in glacial periods, but they would still be catastrophic if they occurred today (76). Thus, the comforting notion that periods of warm climate are relatively stable may be incorrect.

And so the controversy continues. Revelle and Seuss’s conclusions on the question of global warming in 1957 still remain the best we can say about the risks we face (5): "Human beings are carrying out a large-scale geophysical experiment of a kind that could not have happened in the past nor be produced in the future. Within a few centuries, we are returning to the atmosphere and the oceans the concentrated organic carbon stored in sedimentary rocks over hundreds of millions of years."

Urban air pollution is another growing environmental problem, especially in terms of its inpact on human health. Nowhere else in the United States has this problem been more evident then in Los Angeles, where 40 years of efforts to control smog and reduce health effects still leave this city with the worst air quality in the United States (77). A wide variety of pollutants may have effects on human health. These include carbon monoxide, sulfur dioxide, and heavy metals. Pollutants, such as nitrogen and sulfur oxides, particulates, and ozone are being scrutinized for their role in respiratory disease. Nitrogen dioxide is one of the most widely recognized respiratory irritants, and it often exceeds safety guidelines in urban areas. There is evidence that short-term spikes in nitrogen oxide are associated with increased hospital admissions for respiratory problems and asthma. Long-term exposure is linked to reduced lung function. In addition, nitrogen oxides contribute to ozone formation. Ozone, formed from the reaction of hydrocarbons, nitrogen oxides, and light, is an important pollutant. Individual responses to ozone vary, but people with respiratory disease or who exercise regularly are particularly prone to reduced lung function caused by ozone exposure (J8).

During the past few decades, the U. S. Environmental Protection Agency’s (EPA) regulation of pollutant emissions from stationary and mobile sources has resulted in major reductions in carbon monoxide, hydrocarbons, and sulfur oxides. Reduction of ozone and smog remains elusive (79). This is, in part, because of the complex atmospheric chemistry involved. EPA’s current strategy for ozone focuses heavily on the reduction of nitrogen oxides. As with global climate change, the problems of dealing with urban ozone are fraught with uncertainty. Developing a more detailed picture of ozone chemistry is critical to developing the most effective strategies for ozone reduction, and to determining the role alternative fuels, such as bioethanol can play in these strategies.

The transportation sector has a major effect on environmental quality, and the use of bioethanol as an alternative to petroleum-based fuel is an important strategy in addressing environmental quality issues. Air pollution, global climate change, oil spills, and toxic waste generation are all results of petroleum-based transportation fuels. The transportation sector contributes almost 30% of the carbon dioxide produced in the United States (20). EPA estimates that transportation contributes 67% of carbon monoxide emissions, 41% of the nitrogen oxide emissions, 51% of reactive hydrocarbon emissions, and 23% of particulate matter emissions (27). DOE estimates that bioethanol use could reduce net carbon dioxide emissions from vehicles by 90% when used as 95% blend with gasoline in light-duty vehicles (22). This is due to the consumption of carbon dioxide by crops used as feedstock for the production of fuel ethanol. Net reductions in urban air pollutants also occur when a 95% ethanol fuel is used. Sulfur oxide emissions are 60% to 80% lower. Volatile organic compound emissions are 13% to 15% lower than those of reformulated gasoline. Net changes in carbon monoxide and nitrogen oxides are marginal (22).

Energy Trends and National Security. Concerns about energy security are among the greatest motivations for the DOE’s Bioethanol Program. It is common sense that some day we will want to switch from a depletable resource such as petroleum to renewable and sustainable sources of energy. The tough questions are how and when. Should we pay more for renewable energy? Do we need to switch sooner rather than later? The answers to these questions have a dramatic impact on the near-term future of bioethanol technology and on how to deploy this technology. Projections for the depletion of domestic sources of conventional and unconventional petroleum suggest that we would run out of domestic oil within 70 years (5). The American Petroleum Institute (API) seems to recognize the legitimacy of these estimates (23), and has used the same U. S. Geological Survey estimates of reserves to show that, if we wished to be absurdly optimistic, there is a 5% probability that we will be able to sustain our petroleum production at current levels for the next 93 years! And there are other ways to extend this sense of optimism. Improvements in technology will increase supply from known resources. Ultimately, API relies on the argument that "unconventional" sources of fuel will triple our resource base. These "unconventional" sources, such as oil shale, are not cost competitive today.

Oil imports are on the rise. The Energy Information Administration estimates that, by the year 2010, we will be importing from 52% to 72% of the oil we consume. Even these estimates may be conservative; in 1995, we crossed the 50% threshold for imported oil. Rising imports not only increase our vulnerability to foreign control of energy supplies (23); they introduce a cost to our economy. DOE’s 2010 projections for imports correspond to economic losses of $114 to $140 billion per year (24). This vulnerability is exacerbated by our transportation sector’s reliance on petroleum for 97% of its fuel demand. These trends show that our energy outlook is clearly becoming a matter of national security.

Public Opinion. Public opinion is one of the most vexing aspects of establishing a strong renewable energy policy. In 1995, a poll asking for people’s priorities in government funding of energy research showed an overwhelming preference for renewable energy as the top priority. But this same poll showed a great deal of ambivalence toward renewables when people use their votes or their pocketbooks to support renewable energy (25). A 1990 report summarizing public opinion polls on energy and the environment during the past 20 years shows erratic swings in our attitudes toward energy security (26). In times of crisis, concern over shortages is high, but it falls off dramatically between events like the Persian Gulf War or periods of long lines at the gas pumps. At the same time Farhar’s report shows a reasonably steady (and more consistent) increase in concern over environmental quality.

Legislation and Policy Debates. Three major pieces of legislation affect the deployment of bioethanol technology:

• The Clean Air Act Amendments of 1990 (CAAA-90)

• The Energy Policy Act of 1992 (EPACT)

• The Alternative Motor Fuels Act of 1988 (AMFA)

CAAA-90 has brought about the increased use of ethanol as an oxygenate in reformulated gasoline for regions considered carbon monoxide and ozone nonattainment areas. EPACT places aggressive mandates on the use of alternative fueled vehicles. The law is intended to force a 10% displacement of fuel consumption with alternative domestic sources by the year 2000. This displacement is to reach 30% by 2010. AMFA complements the efforts of EPACT by putting specific mandates on alternative fuel vehicles for federal fleets. In addition to these three federal laws, there are tax incentives in various states and at the federal level for fuels with a renewable alcohol content of at least 10%. Blenders and sellers of renewable alcohols are eligible for income tax credits. All these incentives are scheduled to expire in the year 2000 (27).

These three pieces of federal legislation attempt to translate environmental and energy security issues into a direct cost of doing business. In other words, these legislative actions force the marketplace to recognize the cost of these societal issues while allowing the marketplace flexibility in finding the most cost-effective solutions to these problems. Vice President A1 Gore has argued that the marketplace has long been blind to many types of "external" costs {28). Even more conservative business-oriented pundits such as Peter Drucker, have come to see this view lacking in the marketplace (29).

The continuing debate in policy circles is how the translation of externalities should be done. In 1992, for example, the Clinton Administration pushed for a "Btu tax" or a "carbon tax" that ultimately lost support and was dropped in favor of a motor fuels excise tax increase that actually penalized alternative fuels (27, 30). Are there uniformly acceptable ways to calculate cost benefits for regulations that address hidden societal costs, such as energy security, the environment, health, and safety? Many economists argue that the answer to this question is yes {31). Such debates become even more difficult when surrounded by a high level of uncertainty. In the case of renewable energy, it is much easier to calculate the cost of mandating their use than to estimate their benefits, because there is no consensus about them. How valuable are reductions in greenhouse gases? Thus, policymakers need to temper their approach with a "risk management" analysis that allows for a balance of probabilities against the seriousness of the risk to society for these externalities {32). European political communities seem more successful at building consensus on these types of issues than their counterparts in the United States {33).

One hundred years after Arrhenius first raised concern about global warming from the burning of fossil fuels, the United Nations’ Intergovernmental Panel on Climate Change (IPCC) concluded that "the balance of evidence suggests that there is a discernible human influence on climate." This may be one of the most important milestones in the policy debate on global warming. That report is now being assailed by an industry group in the United States which argues that no such influence has been proven. Despite the ongoing debate in the United States, the Clinton administration has reversed the U. S. position on limits for greenhouse gases. The United States has now agreed to mandatory limits. Representatives of the U. S. energy industry are reportedly upset by this new position. Specific limits have not been set, and details of how the mandates would be implemented remain unclear (34). Nevertheless, the policy discussion on global warming in the United States has taken one step closer to converting global climate change risk from an externality to real market cost.

The Market. The marketplace will, to the degree that government policy forces it to recognize externalities, ultimately decide the fate of bioethanol as a renewable fuel in the United States. One of the biggest factors that affect this decision is the price of oil. At the low end, DOE projects that oil prices will remain at a level of around $14 per barrel through the year 2010. At the high end, these projections suggest that oil prices could reach $28 per barrel by 2010 (35). DOE has consistently lowered the projected cost of petroleum during the past few years. The same perspective can be seen from annual oil price projections done by IE A (36). With each subsequent year, starting in 1981, IE A pushed its projections for oil prices lower and lower. Prices will arguably remain stable or even drop to levels of $10 per barrel. Stable pricing, so the argument goes, is based only on a psychological momentum that accepts current pricing. But a significant change in the oil market, such as the re-entry of Iraq as a supplier, might bring about a shift down in prices (36).

For the foreseeable future, the market for ethanol will be as an octane enhancer and as an oxygenate in reformulated gasoline (37). The former demand is purely market driven; the latter is driven by CAAA-90 discussed earlier. EPACT and AMFA will have little influence on bringing ethanol into the marketplace as a neat fuel, because its value to a refiner as an octane enhancer and as an oxygenate is much greater than as neat fuel (where it must compete with the continuing low cost of gasoline). A linear programming model has been used to estimate ethanol’s value to refiners. Ironically, ethanol has more value as an octane enhancer than it does as an oxygenate (37). At the lower price projections, for oil, ethanol may demand up to $0.70/gallon. At the high end for oil cost projections, ethanol can compete at around $0.90/gallon. This compares favorably with current estimates for ethanol production in the year 2000 from waste cellulosic materials of around &L08/gallon (Glassner, D., personal communication, 1996). So there is clearly a gap to be filled between the price targets for bioethanol and its market value. The price projection for bioethanol is based on conventional financing of a grassroots (new) ethanol facility: Many other factors could come into play to reduce this cost, including the use of an existing facility to reduce capital cost and unique opportunities for financing and subsidies. Finally, as indicated earlier, the value of ethanol could be influenced by policies that bring externalities involving energy security and environmental quality to bear in the marketplace.

DOE’s Strategy for Bioethanol. DOE outlined its strategies for biofuels in 1994 (38). Reductions in budgets since that time have caused some changes in these goals, but fundamentally, for bioethanol, the goals remain the same:

• Deploy commercial ethanol technology that utilizes waste cellulosic materials by the year 2000

• Introduce the first facility that utilizes a dedicated energy crop, switchgrass, as a feedstock for bioethanol by the year 2005

• Introduce hybrid poplar energy crops for use in bioethanol production after the year 2010

Waste feedstock technology has been chosen for the first deployment, because the feedstocks are cheaper, and such a scenario may be able to take advantage of unique environmental concerns to reduce the cost of ethanol and make it competitive in the market place. Though less predictable, the effect of policies on global warming and environmental quality are expected to improve the value of ethanol above that currently projected in the gasoline market. Clearly, we cannot count on these types of policies, so research and deployment efforts will focus on establishing ethanol production at prices that are supported by the fuel market. These feedstocks include:

• Softwood waste and materials collected from forest-thinning projects in the West aimed at reducing forest fires

• Sugarcane waste

• Hardwood sawdust waste

By 2005, switchgrass should be available for use in a facility that has the technology to use this dedicated energy crop, possibly in combination with other low-cost waste feedstocks. Ultimately, DOE plans to utilize short rotation woody crops, such as hybrid poplars, as a long-term, high-volume resource for producing ethanol. The specific technology approaches for meeting our strategic goals are discussed in the subsequent sections.