One approach to reducing the production cost is integration of ethanol pro­duction with another suitable plant, e. g. a combined heat and power plant, a starch-based ethanol plant or a pulp and paper mill. Significant reduction of the production cost was obtained in a study on co-production of ethanol and electricity from softwood, based on conditions in California, USA [44]. One of the benefits is that the syrup or lignin residue can be used for steam pro­duction without prior drying. Another option is to integrate cellulosic ethanol production with starch-based ethanol production to utilize the whole agri­cultural crop. This will increase the production capacity drastically, and it may also help to boost the ethanol concentration resulting from the ligno — cellulosic process, if the ethanol-containing streams can be distilled in the same distillation units. This will have a beneficial effect on the energy de­mands in the distillation and evaporation steps. It might be a disadvantage if the residue cannot be used for animal feed (DDGS). However, it will still have a fuel value, which will help to improve the economics of the overall process. The biorefinery concept is also an interesting option. Using chem­ical and biological transformations, the raw material is processed to produce ethanol and, e. g., modified lignin, specialty chemicals and maybe anaerobic biogas, adding value to the main product. In this case the income from other products improves the overall process economics [45,46].

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Conclusions

Flowsheeting, combined with estimates of the production cost, is a valuable tool for the comparison of process alternatives and to determine bottlenecks that require further improvement. It is, however, difficult to compare pro­duction costs from different studies due to the many assumptions made in the simulations, such as ethanol yield, productivity and concentration, as no commercial-scale plants are in existence. Also, differences in capacity and cost of raw material, as well as currency exchange rates, add to the uncer­tainty. This is clearly illustrated by the large variation in the estimated ethanol production cost, from 0.13 to 0.81 US$ L-1 ethanol.

The most important parameters for the economic outcome are the feed­stock cost, which varied between 30 and 90 US$ per metric ton, and the plant capacity, which influences the capital cost. It is thus very important to reach a high overall ethanol yield as this is directly related to feedstock and capital costs for a given production capacity.

One of the major research challenges is to improve the hydrolysis of carbo­hydrates through more efficient and less expensive pretreatment methods, but also by enhanced enzymatic hydrolysis with superior enzymes at a reduced enzyme production cost. The latter is one of the most uncertain costs in most economic analyses.

It is also important to achieve a high ethanol concentration in the fer­mentation or SSF steps to reduce the energy demand. This requires new technology for enzymatic hydrolysis (or SSF) at high solids concentrations and the development of robust fermenting organisms that are more toler­ant to inhibitors. They also have to be able to ferment all sugars in the raw material in concentrated hydrolyzates, while maintaining high ethanol pro­ductivity and a high ethanol concentration.

Finally, process integration within the process and with other types of in­dustrial processes, e. g. a combined heat and power plant or a starch-based ethanol plant, will reduce the production cost further. Regarding the immedi­ate future, we believe that these integrated plant concepts will be used in the first successful industrial-scale production of lignocellulosic fuel ethanol.

Adv Biochem Engin/Biotechnol (2007) 108: 329-357 DOI 10.1007/10_2007_059 © Springer-Verlag Berlin Heidelberg Published online: 11 April 2007

Vancouver, British Columbia V6T 1Z4, Canada warren. mabee@ubc. ca

1 Introduction……………………………………………………………………………………………… 330

2 Biofuel Production…………………………………………………………………………………….. 331

2.1 Brazil……………………………………………………………………………………………………….. 333

2.2 United States…………………………………………………………………………………………….. 334

2.3 European Union………………………………………………………………………………………… 337

2.4 Other Biofuel Producing Nations………………………………………………………………… 341

3 Direct Funding Programs in the USA………………………………………………………….. 343

4 Excise Tax Exemptions in the USA…………………………………………………………….. 347

5 Political Goals and Bioethanol-Related Policy………………………………………………. 350

6 Conclusions………………………………………………………………………………………………. 351

References ……………………………………………………………………………………………………. 354

Abstract Biofuels for use in the transportation sector have been produced on a signifi­cant scale since the 1970s, using a variety of technologies. The biofuels widely available today are predominantly sugar — and starch-based bioethanol, and oilseed — and waste oil — based biodiesel, although new technologies under development may allow the use of lignocellulosic feedstocks. Measures to promote the use of biofuels include renewable fuel mandates, tax incentives, and direct funding for capital projects or fleet upgrades. This paper provides a review of the policies behind the successful establishment of the bio­fuel industry in countries around the world. The impact of direct funding programs and excise tax exemptions are examined using the United States as a case study. It is found that the success of five major bioethanol producing states (Illinois, Iowa, Nebraska, South Dakota, and Minnesota) is closely related to the presence of funding designed to support the industry in its start-up phase, while tax exemptions on bioethanol use do not influ­ence the development of production capacity. The study concludes that successful policy interventions can take many forms, but that success is equally dependent upon external factors, which include biomass availability, an active industry, and competitive energy prices.

Keywords Biofuels • Direct funding • Excise tax exemptions • Policy •

Renewable fuel mandates

1

Introduction

Biofuels derived from sustainable biological sources, including agricultural crops, waste vegetable oils, and woody biomass, is advocated by many in­cluding MacLean et al. [1] and McMillan [2] as a potential substitute for petroleum-derived fuels such as gasoline and diesel. The use of biofuels is generally associated with lower greenhouse gas emissions and improved en­ergy balance compared to petroleum-based fuels [3], which makes them an attractive option for combating climate change and meeting national or in­ternational targets of environmental performance. As the biofuel industry is based on agricultural (or potentially forest) biomass, development of the in­dustry will lead to a diversified rural economy and increased employment, which can support domestic development goals [4-6]. The industry has long been promoted as a means to substitute renewable, sustainable biomass for fossil reserves of oil, which may in turn increase the security of energy sup­plies and reduce dependence upon foreign oil [7]. These attributes make biofuel an attractive option for policymakers, offering solutions to a number of domestic challenges. At the same time, policy is needed in order to increase the competitiveness of bio-based fuels, which are generally more expensive to produce than petroleum-based counterparts [8].

Policy options to support biofuel production may take a number of forms. Some options are “top-down” in form, as they are enacted on a national or regional basis and impact all producers and consumers. One such option is the national target, in which policymakers make a public declaration of their intention to meet a certain level of production (often expressed as a percent­age of overall production) in domestic transportation fuel supply. Top-down policy places the emphasis upon governments, which are then responsible for creating an environment supportive towards industrial expansion. The national target should not be confused with a renewable fuels standard (or obligation), which sets legal standards for the minimum levels at which bio­fuels must be blended into transportation fuels. A renewable fuel standard places the emphasis upon industry, who must then meet the renewable fuel standards with their products in order to be eligible for sale. One commonly observed policy option is exemption of biofuels from national excise taxation schemes, which has the effect of reducing producer costs and thus increasing potential profits. This type of incentive can be identified as a subsidy to indus­try, although lower prices can be and are passed to consumers in competitive markets.

Other policy options act in a “bottom-up” fashion, impacting only par­ticular industrial or consumer participants in the biofuel marketplace. One such option is direct government funding of capital projects to increase cap­acity or upgrade distribution networks. Normally, these types of policies are enacted in a competitive fashion, wherein various industrial producers can compete for projects, which are then carried out in conjunction with govern­ment. Another bottom-up type of policy is targeted at increasing biofuel use in government or corporate vehicle fleets.

In some countries, multiple policies covering the range of options de­scribed above have been enacted to support biofuel development (e. g. [9-11]). The presence of multiple policies within these jurisdictions means that de­termining the effectiveness of individual policies is quite difficult. In this paper, implementation of biofuels in several countries is examined. The abil­ity of two measures to promote domestic biofuel production is compared. The first measure considered is exemptions on fuel excise taxes; the second is funding designed to support projects, infrastructure, or capacity develop­ment for bioethanol production. The industry is then evaluated on its ability to successfully promote broad policy goals of employment, environmental performance, and fuel security. A number of recommendations for the for­mulation of future policies are proposed.

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