Ethanol Supply Chain and Industry Overview: More Harm Than...

Ethanol Supply Chain and Industry Overview: More Harm Than Good?

Authors: Sarah L Bruce

Advisor: Alexis Hickman Bateman, Edgar Blanco

Sponsor: Yossi Sheffi

MIT SCM ResearchFest May 23-24, 2012

Ethanol Topics

• What is Ethanol?

• Thesis Objective

• Goals of Ethanol

• Key US Legislation

• Unique Ethanol Properties

• Unintended Consequences

• Ethanol Supply Chain

• Ethanol Environmental Effects

• Conclusion

May 23-24, 2012 MIT SCM ResearchFest 2

Thesis Objective

• To determine if ethanol nets society more harm than good, based on the aggregation of a number of studies


Ethanol Goals

• Reduce Greenhouse Gas (GHG) emissions

• Eliminate dependence on foreign oil

• Reduce fossil fuel consumption


Renewable Fuel Standard 2007 (RFS2)

• Mandates 36 bgal of biofuel by 2022

• 4 of those biodiesel

• 99 bgal gasoline used for transportation 2009 approximately 32% of transport fuel ethanol 2022

• RFS2 caps corn ethanol at 15 bgal (by 2015)

• Rest (22 bgal) must be fulfilled by Advanced Biofuels


Ethanol Properties

• Corrosive

• Absorbs water

• Lower energy content

• Higher octane

Leads to “Blend Wall”

Higher than 10 percent ethanol (E10) creates difficulty transporting and in engines


Transport: Farm to Ethanol Plant

• Bulky feedstocks mean ethanol plant needs to be close to harvest site.

• From Ethanol plant must travel to Blender terminal to be mixed with gasoline


Ethanol Production and Distribution Gasoline Consumption & Distribution

Transport: Ethanol Plant to Blender

• Pipeline constraints

• Demand on Rail Capacity increases significantly

• Infrastructure upgrades needed if ethanol blends over E10, which will be case this year

• US needs about $2.6 billion in transportation investment to meet demand


Transport: Blender to Refueling Station

• Stations must upgrade components

• 156,065 refueling stations in US in 2013

• 2,339 ethanol refueling stations in US in 2013

• For ten percent availability: $1.6 billion capital investment. For presence at all gas stations: $18 bill


End Use: Consumers and Cars

• 8 million Flex Fuel Vehicles on road in US

• Study showed consumers learn about decrease in energy content with E85 (85% ethanol) which results in a plateau in demand.

• Ethanol prices less than gasoline but not low enough to account for decrease in energy content.

• E85 represents very small portion of demand


Summary of Supply Chain

• Given RFS2 mandates ethanol is about 32% of fuel in 2022.

• Total of at least $4.2 billion capital needed by private and government funds to upgrade infrastructure

• Results in much higher blends than E10, like E30. Given past consumer patterns they may not want.


Unintended Consequences

Food versus Fuel

Land Use Changes

Direct and Indirect


Food versus Fuel

• 10% of corn crop “Sweet corn” for human consumption. “Field corn” used for livestock feed or ethanol.

• In 2012 40% of corn crop went to ethanol production which produced 13.8 bgals of ethanol.

• 33% of ethanol production goes to distiller’s grain which is also used for livestock feed.

• 48% of corn crop still avail for feedstock


Land Use Changes US crop yields have increased


Land Use Change

• 52 countries with biofuel mandates over 60 bgals by 2022.

• US has nearly reached maximum amount of corn-based ethanol with current amount of land.

• Additional ethanol to come from cellulosic, sugarcane or other advanced biofuels.

• Cellulosic technology is slow to ramp up.


Ethanol Environmental Impact

• Assessed using Lifecycle analysis

• Greenhouse Gas Emissions

• Iowa study showed some methods of ethanol manufacture results in 22% less ghg emissions than gasoline, but more gasoline if include global land use change.


Lifecycle Greenhouse Gas Emissions


Emissions GREET BESS* BESS** BESS***

CA GREET

Low

CA GREET

High

Crop Production 44 29 35 34

Biorefinery 43 30 31 25

Coproduct Credit -17 -16 -19 -22

Denaturant - - - -

Land Use Change - - - - 30 30

GWI 70 45 48 38 74.7 120.99

Gasoline 92 92 92 92 99.18 99.18

GHG Reduction -24% -51% -48% -59% -25% 22%1units in g CO2-eq/MJ combusted fuel

*MidWest, New Natural Gas

**Nebraska, Natural Gas

***Nebraska & N. Gas with wet distiller's grains only

Conclusion

• Ethanol’s benefit to society is not a binary decision, good or bad.

• Criteria for judgment is not solely environmental.

• Should not be 100% of transportation fuel solution.

• Ethanol industry is very competitive.


Recommendations

• Most studies and models do not account for the shipping south to Brazil for corn ethanol exports

• More capital investment for development of commercial scale cellulosic plants is needed.

• Could fuel policy be regional policy: Optimal fuel solution is likely geographically dependent.


In Closing

Ethanol Policy and Execution of Policy must be managed and evaluated carefully. (i.e. do not cut

funding to the EPA)

Thank you for your time.

Questions?


Ethanol Supply Chain and Industry Overview: More Harm Than...

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