Potential leverage points for development of the cellulosic ethanol industry supply chain

Figures & data

Table 1. Selected points of intervention studied.

Leverage point	Incentive focus	Example
Feedstock supply	Feedstock production	The Biomass Crop Assistance Program (BCAP) was part of the 2008 Farm Bill and helps agricultural and forest land owners and operators to establish and produce eligible crops in selected project areas for conversion to bioenergy, and it supports the collection, harvest, storage, and transportation of eligible material for use in a biomass conversion facility.[21]
Conversion	Production of cellulosic ethanol	Cellulosic ethanol producers receive a tax incentive for ethanol sold and used by the purchaser in the purchaser's trade or business to produce a cellulosic ethanol mixture, as a fuel in trade or business, or at retail for use as a motor vehicle fuel. The incentive is allowed as a credit against the producer's income tax liability. Eligible fuels must be qualified types of fuel produced in the United States between 1 January 2009 and 31 December 2012, for use in the United States.[22] In addition, this incentive could be seen as a proxy for the RFS, assuming that Renewable Identification Numbers benefit ethanol producers.
	Production of starch ethanol	The US government subsidizes ethanol producers at a fixed rate per m^3 of ethanol. A version of this incentive that was implemented, the volumetric ethanol excise tax credit, was allowed to expire at the end of 2011.[23]
	Biorefinery capital cost share	The US government can agree to cover a certain percentage of total investment costs for a new biorefinery. For example, in 2007 the government committed US$385 million to cover 40% of the costs for six cellulosic ethanol plants.[24]
	Biorefinery loan guarantees	The 2008 Farm Bill created a US$320 million loan guarantee program for biorefineries that would produce advanced fuels, such as cellulosic ethanol.[25]
Downstream	Distribution of ethanol	This policy would be a per-m^3 incentive available for distribution terminals to encourage them to add more ethanol storage and distribution capabilities. Currently, the United States does not subsidize distribution and storage facilities.
	New tankage and repurposed tankage grants for dispensing stations	A tax credit is available for the cost of installing alternative fueling equipment. Qualified alternative fuels are natural gas, liquefied petroleum gas, hydrogen, electricity, E85, or diesel fuel blends containing a minimum of 20% biodiesel. While states also have funding for dispensers at fueling stations, the federal credit expired 31 December 2011.[26]
	Gasoline tax	Per-m^3 gasoline taxes in the United States vary by state. For carbon policy scenarios, the tax can be adjusted to equate to a carbon tax.
	Consumption of ethanol	This policy would be a per-m^3 incentive available for E85 at fueling stations. Currently, the United States does not subsidize E85 purchases at the point-of-use.

Figure 1. Ethanol consumption under different scenarios from 2010 to 2035.

Figure 2. Variations of the reference policy case, where just one of the policies comprising it is ‘turned off’ with cellulosic ethanol production levels in 2020 and 2035.

Figure 3. Simulated potential cumulative government spending (relative to 2010) on incentives in the reference case versus no sunset case. ‘Loan guarantee exposure’ does not represent actual spending, but rather the potential cost of defaults of loans guaranteed by the government; ‘downstream’ combines ethanol storage, distribution, and end-use.

Table 2. The ‘reference incentive case’: inputs that produce a moderate, sustained industry takeoff.

Policy^§	Magnitude	Expiration year
Biomass Crop Assistance Program	Matching payments of US$0.50/Mg until 2013, then annual payments for project areas	none
Conversion grants for pioneer-scale biorefineries	60%	2021
Loan guarantees for pioneer-scale biorefineries	30% for first 10 cellulosic biorefineries	2021
Point-of-production (cellulosic) incentive	US$700/m^3 cellulosic ethanol subsidy for first 3785 km^3, then US$39.63/m^3 for future m^3	none
Point-of-production (starch) incentive	US$119/m^3starch ethanol	2011
Point-of-distribution incentive	US$39.63/m^3 ethanol subsidy	2019
New tankage grants	80%	2030
Repurposed tankage grants	80%	2030
Point-of-use incentive	US$132/m^3E85 subsidy	2023
Gasoline tax	US$132/m^3gasoline	none

^§ See Table 1 for a more detailed description of the policies.

Figure 4. Total ethanol production under progress ratios of 75% to 95%.

Figure 5. Effect of removing downstream infrastructure constraints. ‘Full Coverage’ refers to a scenario where all storage terminals and dispensing stations can handle ethanol.

Figure 6. Synergistic effect of policies on cellulosic ethanol production.

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