European commentators and analysts were far less sanguine on the desirability of fuel ethanol as a strategic industry for the future in the mid-1980s. This was a time of steeply falling oil prices, both expressed in real terms and in the actual selling price (figure 1.3). In 1987, two independent assessments of ethanol production from agricultural feed­stocks were published in the United Kingdom and Europe.17-19 Across Europe, the introduction of lead-free fuels heralded an important new market for ethanol and other additives but the competition among these compounds (including MTBE and metha­nol) was likely to be intense for the estimated 2-million-tonnes/year market by 1998.17

The U. K. survey included wheat grain and sugarbeet as possible local sources of carbohydrates; in both cases, raw plant materials dominated the production cost analysis (table 5.6). The monetary value of coproducts were important, although only animal feeds were considered as viable sources of income to offset ethanol production

costs.17 The market prices for all major agricultural products were determined by the price support policies of the Common Agricultural Policy (CAP), an essential part of the Treaty of Rome (March, 1957), under which the European Economic Community (EEC) was set up and regulated; among its many provisions, the CAP was designed to ensure both a fair standard of living for farmers and reasonable consumer prices, and the CAP operated to guarantee a minimum price for basic agricultural products through intervention prices and protected the community’s internal markets against fluctuations in world prices through the establishment of threshold prices. Technical progress was, however, also a goal of the CAP to increase agricultural productivity. The CAP has been controversial inside the EEC and subsequently the European Community and European Union as individual member states have received varying benefits from the policy but it has the advantage of enabling commodity prices to be more predictable, a useful factor when calculating possible trends in feedstock prices for the production of biofuels. In 1987, the likely costs of ethanol from wheat and sugarbeet were greatly in excess of the refinery price of petrol (gasoline), with a cost ratio of 3.2-4.4:1, allowing for the lower energy content of ethanol.17 The continuing influence of the CAP was moreover highly unlikely to reduce feedstock costs for bioethanol to be price competitive with conventional fuels.

The second volume of the U. K. study gave outline production cost summaries for ethanol derived from wood (no species was specified) using acid and enzymatic hydrolysis for the liberation of glucose from cellulose (table 5.7). Additionally, straw residues were considered from cereals (wheat, barley, and oats), field beans, and oil seed rape (canola) using acid and enzymic hydrolysis; electricity and lignin were modeled as saleable coproducts. No source for ethanol could yield a product with a production cost less than three times that of conventional fuels (figure 5.4). These poor economics resulted in the authors being unable to recommend initiat­ing a large program of work directed toward bioethanol production in the United Kingdom, although continued support of existing research groups was favored to enable the United Kingdom to be able to take advantage of fundamental break­throughs, especially in lignocellulose conversion. A return to the high oil prices experienced in 1973-4 and 1978-80 was considered unlikely until well into the

twenty-first century in any case, because transport costs were inevitably an impor­tant element of feedstock costs in the United Kingdom, rising oil prices would tend to increase the total costs for bioethanol production.18

The European study presented less detailed economic data but considered a wider range of feedstocks, not all of which were (or are) major agricultural products across the whole of Europe, but which represented potential sources for expanded agricultural production or as dedicated energy crops. For production facilities capable
of manufacturing more than 150 million liters (40 million gallons) of ethanol/year, wheat grain was the cheapest source with a production cost of the feedstock equiva­lent to $0.36/gallon (converting the now obsolete European currency unit values to U. S. dollar at the exchange rate prevailing in early January 1987), followed by corn ($0.62/gallon), sugarbeet ($0.83/gallon), Jerusalem artichoke ($0.87/gallon), potatoes ($1.89/gallon), and wine[48] ($2.73/gallon).19 The estimated cost of ethanol production from wheat was 0.49 ECU/l (equivalent to 530/l, or $2.01/gallon); in comparison, the Rotterdam refinery price for premium gasoline in late 1986 was approximately 100/l. The consultants who assembled the report concluded:

1. Encouragement of a bioethanol program was not in the economic interests of the European Community

2. A large reduction of the feedstock costs would be required to show a net economic benefit from bioethanol production

3. Alternatively, an oil price in the range $30-40/barrel would be required to achieve economic viability for bioethanol

Although the conversion of ethanol to ethylene was technically feasible, a cost analy­sis of this route indicated that it would be even less viable economically than ethanol production as a fuel additive.

The European study included an analysis of the development of fuel ethanol indus­tries in Brazil and the United States, noting that the bulk of the financial incentives in the U. S. corn ethanol sector benefited the large producers rather than the small opera­tors or the corn farmers; even more disturbing to European decision makers was the conclusion that blenders had benefited disproportionately, enjoying effectively cost — free ethanol as a gasoline additive during 1986, and using the available subsidies to start a price-cutting war between ethanol producers rather than promoting total sales. The prospect of subsidies being essential for establishing and maintaining a bioetha­nol program in Europe was nevertheless consistent with the European Community and its long-established strategic approach to agricultural development.