Cellulosic Biofuels Analysis: Economic Analysis of Alternative Technologies

The passage of U.S. laws mandating and subsidizing advanced cellulosic biofuels may spur the development of a commercial cellulosic biofuels industry. However, a cellulosic industry will only develop if the overall economics including government incentives render investment in the sector attractive to private investors.This study compares the profitability of three biofuel production types: grain based ethanol, cellulosic biochemical ethanol, and cellulosic thermochemical biofuels. In order to compare the current profitability of each of the production types, the Biofuels Comparison Model (BCM) was developed. The BCM is a spreadsheet model that estimates the net present value (NPV) for each production type given input and output prices, technical, and financial assumptions. The BCM can be updated to reflect the current profitability through embedded web price links. The study finds that grain, biochemical, and thermochemical production types are all currently unprofitable when subsidies and mandates are ignored. However, the grain based ethanol process is predicted to be the most profitable (lowest loss) compared to the cellulosic biofuels. When the 2008 Farm Bill subsidies are added to the BCM, all three production types are projected to be profitable. With the addition of the different subsidies, the cellulosic biofuels are estimated to have higher NPV’s than grain based ethanol. When compared on an energy equivalent basis, the estimated cost of producing grain ethanol is $114/bbl. crude oil equivalent, biochemical ethanol $141/bbl., and thermochemical gasoline $108/bbl.