California Kicks Corn-based Ethanol to the Curb; Welcomes Futuristic Biofuels

The corn ethanol industry already reeling from low gasoline prices and higher corn and energy costs suffered another blow to its bottom line and possibly its future Thursday when the California Air Resource Board OK'd the nation's first low-carbon fuel standard.

In a 9-1 vote late Thursday CARB approved new rules that require producers, refiners and importers of gasoline and diesel to reduce the carbon footprint of their fuel by 10 percent in the next decade.

It's how that carbon footprint is measured that's causing corn-based ethanol producers to cring.

The low carbon fuel standard calculates the impact of fuels throughout their lifescycle and takes into account emissions generated from extraction and production all the way to combustion.

Corn-based ethanol receives a poor emissions score under the regulation -- slightly worse than petroleum -- because of so-called indirect land use effects. It is penalized because of the indirect effect of growing corn for energy on land that would normally be used to grow crops for food. The regulation assumes that by growing corn in the Midwest to make ethanol leads to burning grasslands and jungles elsewhere to grow more food.

Lots of pro-ethanol folks including former Gen. Wesley Clark, who is co-chairman of Growth Energy, say the rule unfairly discriminates against corn-based ethanol. Clark even went as far to say the board failed to account for carbon-intensive effects of U.S. military forces protecting oil reserves in the Middle East, in the LA Times.

The low carbon fuel standard begins January 2011. The corn ethanol industry's only hope hinges on CARB's decision to review the indirect fuel effects rule. Of course, the industry could always file a lawsuit.

If the indirect fuel effects measure stands then corn-based ethanol would not meet California's low carbon fuel standard. Corn-based ethanol would essentially be banned from use in the state. With a number of other states and federal legislators considering a national low carbon fuel standard this could be more than problematic for corn-based ethanol.

Who are the winners and losers of CARB's ruling?

The losers:

• Biggest loser award goes to Pacific Ethanol. It's a corn-based ethanol producer running out of cash, on the brink of bankruptcy and it is based in California.
• POET, the country's largest ethanol producer has a lot on the line. Mark Stowers, POET's vice president for research and development, is worried the standard could hurt the company's plans to move into cellulosic ethanol the same year the low carbon fuel standard take effect. Cellulosic ethanol meets CARB's standards, but Stowers is concerned it could "dampen" investment in cellulosic ethanol.
• Corn growers. As corn-based ethanol comes under fire, expect prices for corn to fall. Not so great for the guys growing the stuff.

• Ethanol. The ruling opens the door for other types of ethanol. the problem is that many of these futuristic biofuels -- cellulosic ethanol produced from grasses and crop waste -- don't exist on a commercial scale yet. One of the biggest champions of yesterday's ruling was Kirk Haney, president and CEO of SG Biofuels, which is developing biofuels from the jatropha, a non-edible plant-based feedstock.
• Brazil.The country makes ethanol from sugarcane and even under the indirect land use effect it meets CARB's standards. California revised its ethanol blend requirements, which will push it from 6 percent to 10 percent ethanol by next year. So if you don't have any commercially viable cellulosic ethanol available and corn-based ethanol is banned, where do you go? Yup, Brazil.
• Former oilman T. Boone Pickens and natural gas. Natural gas has no problem meeting the CARB standard and gets an even better score if it comes from a landfill. Pickens is pleased.
• Electric car makers. About 40 percent of California's greenhouse gas emissions come from transportation. Expect a big push and probably more state incentives to develop technologies that have a low carbon intensity value. Electricity is one of them.

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