International Business Lawyer, Business Attorney, Fukuda Law Firm, San Francisco, California

Ethanol Collaboration For 21st Century Transportation Fuel

We have seen recently that the dependence of the U.S. on oil is a serious risk to the American energy, economic, and environmental well-being. The U.S. is too dependent upon imported oil in perilous parts of the world. There are serious risks for major disruptions in world-wide production and distribution of oil.

Economic and political conflict in oil-producing countries, together with accelerating oil demand from China and India has caused energy price increases and negatively impacted the U.S. economy, increased the trade deficit, and created serious impacts.

The U.S. must mitigate its risks by increasing the percentage of transportation fuel generated by American ethanol to 5-10 percent by 2010. The U.S. needs to produce 8-10 billion gallons of ethanol by 2010. In the medium term, the U.S. should produce 10-15% of its transportation fuel from ethanol and bio-diesel at least 1 billion gallons a year from bio-mass based ethanol.

Although the ethanol industry has been growing and may produce 5 billion gallons a year by 2007 and is expected to achieve the 8 billion gallon target by 2012, production above that amount may impact corn prices and livestock feed costs.

Ethanol From Bio-mass
In order for ethanol to increase its share of American transportation fuel requirements, it is essential to create new production sources, including lower-cost bio-mass feed-stocks.

Bio-massethanol will cause savings in carbon dioxide emissions and reduce the impact of climate change. Bio-mass ethanol should improve productivity for farmers, agricultural co-operatives, and agri-business concerns. Bio-mass ethanol will certainly broaden production and diversify feed-stocks to other sources such as corn stover, wood waste which will offer the potential for ethanol production throughout the U.S.

In order to achieve the need to increase bio-mass ethanol production, a variety of generators have the serious potential to replace petroleum from insecure regions in the next several years.

American legislators have been recently reviewing the prospects of amending the U.S. tax code to provide additional incentives for bio-mass-derived ethanol relative to improved energy efficiency in production and reduced carbon emissions. It is expected that this system will not negatively impact corn ethanol production. Rather, new approaches should encourage utilization of feed-stocks with improved energy efficiency.

Research and Development
Research subsidized by the Departments of Defense, Energy, Agriculture, and Transportation and the Environmental Protection Agency should improve investment in research and innovation to speak to the usage of bio-mass. In the short term, improved technology will certainly be implemented in ethanol plants. These may utilize cellulose from corn kernel and corn stover to make ethanol production more efficient, enrich investments in existing production facilities and feedstock logistics and improve farm income.

Commercialization and Production Incentives
This approach offers a cost-effective and efficient transition model to expand production of ethanol from other bio-mass materials. However, long-term research is required in order to raise efficiencies and opportunities.
Bio-mass ethanol technology will benefit from improved technology in broad-scale commercial facilities.

Renewable Fuels Act and Incentives
Experts suggest that the goals of producing 5-7 % of American transportation fuel annually from ethanol by 2010 and generating 8 billion gallons annually by 2012 are achievable. At that point, the U.S. may produce at least 10 % of its transportation fuel from ethanol and bio-diesel.

Flexible Fuel Vehicles
It is imperative to develop more flexible fuel vehicles in order to convert the transportation fuel market. For example, Congress may mandate vehicles which are fuel flexible e.g. 85% ethanol, over the medium term.
With nearly all new vehicles designed for the exclusive use of gasoline to which significant amounts of ethanol can be added, passenger vehicles capable of operating on higher ethanol blends will be needed to develop larger market share of bio-fuels.

The U.S. needs to focus upon the opportunities of greater investment in bio-fuels, instead of short term returns. As energy costs increase, the sector is recognizing that potential gains can be realized by firms in a reasonable period. The challenge will be to realize significant expansion of bio-mass ethanol and the serious reduction of the national security risks arising from imported energy sources.

Bio-Mass Research
Bio-mass fuels need to accelerate research and integration of technology and create broader research efforts. Advances in feedstock production are essential.

Broad based research covering a variety of technologies is essential. A combination of technologies and processes is imperative. More creative solutions and technologies are essential.

Bio-mass ethanol research should be redirected from past research from the Departments of Agriculture, Energy, Transportation, Defense and the EPA.

Expansion of ethanol production capability by the use of bio-mass (e.g., corn stover, forest products waste, grasses, municipal solid waste). Feed-stocks and co-products will enable the industry to significantly add to their technical capabilities as well as overall ethanol production capacity.

Resources should be provided to address the utilization of cellulose associated with the kernel of corn and corn stover. This will improve the efficiency of ethanol production, take advantage of investments in current production facilities and improve farm income. It may be possible to create a more cost-effective model for ethanol production from other cellulose materials.

Legislation
It should be possible to leverage upon the Bio-mass R&D Development Act of 2000, extended by the Energy Title of the Farm Bill. A major barrier to commercialization of bio-mass ethanol technology is the unproven nature of the technology in large-scale commercial facilities and the inherent unwillingness of the financial markets to risk capital.

The government should offer production incentives for commercial application to support large-scale operations resulting in annual production of 1 billion gallons of bio-mass-derived ethanol at a cost that is competitive with gasoline and diesel.

Production incentives and pre-commercial pre-production activities should be encouraged.

The government should establish a substantial fund to support the creation of large-scale bio-mass ethanol production. Such a fund should encourage developers and capital markets that commitment will be increased over a fixed period. At a certain point, the federal tax code should be revised to offer investment tax credit to drive private capital toward new bio-mass projects.

Next Steps
There is international concern over the world’s energy, economic, and environmental security. This has given rise to the analyses of serious alternatives. To meet the worldwide growing fuel needs and reduced vulnerability to unstable sources of oil, a concerted course of action to expand ethanol use and production is essential.

Summary
Due to the recent energy crisis, energy, agricultural, government, research, and environmental organizations are concerned about the need to provide legislators and decision-makers in the executive branch at the state and federal levels are concerned about energy and bio-energy issues. As a result, it is essential to convey the potential of ethanol produced from both agricultural and nonagricultural sources and inform the public in order to develop effective pubic policy.

A wide range of groups should provide renewable fuel security standards, research and production recommendations. At the same time, the public needs to be constantly informed about the benefits of renewable, domestic bio-fuels such as ethanol and improve communications with policy makers and industry to encourage partnership.