Is Isobutanol the Perfect Olive Branch for the EPA?

The olive branch was a sign of peace in ancient Greek and Roman cultures. Renewable fuel producers and refiners could sure exchange one right now. Source: Wikimedia Commons / Marie-Lan Nguyen.

The same agency that refused to reduce volume obligations for corn ethanol for refiners during and after last year's historic drought has done an abrupt about-face on policy. The Environmental Protection Agency has proposed 2014 volume obligations that would reduce biofuel mandates for the first time under the current Renewable Fuel Standard, or RFS2. While the proposals won't be finalized until early 2014 and only after renewable fuel producers voice their concerns, the EPA has created a potentially toxic atmosphere surrounding attitudes toward biofuels.

Admittedly, the EPA is in a tough spot. On one hand. it must acknowledge the concerns of refiners and automakers regarding the Blend Wall with gasoline fuel. On the other hand, a viable alternative to ethanol isn't readily available in large quantities (mostly because of the agency's over-funding of corn ethanol over the years). Cellulosic ethanol simply doesn't have adequate production capacity, nor does it solve the overall problem of using ethanol as a gasoline blendstock. No other alternative fuel has the capacity to serve as an immediate replacement, although isobutanol is awfully close. Can the EPA extend an olive branch to refiners while simultaneously creating a massive opportunity for biobased isobutanol producers such as Green Biologics, Gevo, BP (NYSE: BP  ) , and DuPont (NYSE: DD  ) ?

The time has arrived
It's pretty clear that the ethanol industry, specifically the bulk creating first-generation corn ethanol, will need to check any hopes of growing past 13 billion gallons of annual production to remain below the 10% blending limits of gasoline. As fuel economy increases in the coming decade and drives fuel consumption lower ethanol's share of the fuel market will decline. That presents a major problem for the ethanol industry, which has a current annual capacity of 14.7 billion gallons and another 223 million gallons under construction.

*2013 production estimate provided by POET. Source: EIA.gov.

Ethanol producers will be forced to idle facilities if they can't find other ways to utilize their facilities and feedstock supplies. Luckily, technologies for producing isobutanol offer a promising alternative in the short term. Biobased isobutanol producers still need to master their respective processes to optimize commercial operations but could realistically begin replacing substantial amounts of the nation's corn ethanol capacity within the next 24 to 36 months.

How could it work?
All three major isobutanol producers -- Green Biologics, Gevo, and Butamax (BP and DuPont) -- have developed platforms that enable a seamless retrofit of existing ethanol biorefineries. A retrofit model will allow for lower capital costs and lower risks associated with building new biorefineries. Cooperation is still needed to ensure the quickest route to commercialization.

The EPA could extend substantial subsidies such as grants and tax credits to first-generation corn ethanol producers to give them incentive to switch to isobutanol production. After all, the first-generation corn ethanol industry doubled capacity in the four-year period spanning from 2003 to 2007 and doubled capacity again during the following three-year period on the heels of concentrated subsidies. A similar model would definitely work for isobutanol, especially considering that the infrastructure (biorefineries) and supply chains (feedstock agreements) already exist.

Why would corn ethanol producers want to transition to isobutanol?
Isobutanol is simply better. While 10 gallons of ethanol capacity becomes just 8.2 gallons of isobutanol capacity, the latter is more valuable. It can be blended into gasoline at higher ratios (20%) than ethanol (10%), is compatible with existing infrastructure and pipelines, and is more energy-dense than ethanol. It can also be used as a chemical building block to create a wide range of high-value biobased chemicals. Green Biologics estimates that the global annual opportunities for isobutanol as a blendstock, biofuel, and chemical intermediate exceed $80 billion, $700 billion, and $6 billion, respectively.  

Everyone wins
If the EPA takes full advantage of the opportunity at hand, then the United States could wield the world's first major market for a next-generation biofuel. A world-class isobutanol industry would not only sport key advantages over even cellulosic ethanol and save face for the agency, but would also add a tremendous amount of value to the national economy.

Transitioning from ethanol to isobutanol is almost too obvious of a solution. Of course, this represents a best-case scenario that is unlikely to develop as rapidly or with the same magnitude as I've outlined. However, opportunistic investors will want to stay tuned to seize the megaopportunity that could present itself should the EPA get its move on.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2013, at 5:38 PM, funfundvierzig wrote:

    DuPont's PR-driven Management has been touting and glorifying DuPont's corn cob "gasoline" for nearly a decade, but we have yet to see commercial production and sale. Does it make economic sense to strip a million acres of fertile farmland of rich organic material, corn stover, thereby stoking erosion, polluting ground waters, increasing the need for irrigation and more fertilizer made with natural gas, depriving livestock of winter forage, and using huge quantities of energy to gather, ship, dry and process the material? We think not…funfun..

  • Report this Comment On November 25, 2013, at 11:10 AM, willywolfe wrote:

    The perfect answer is Compressed Natural Gas (CNG), it's cheaper, it burns cleaner and it's plentiful, but that doesn't satisfy the lobbyists.

  • Report this Comment On November 25, 2013, at 12:13 PM, TMFBlacknGold wrote:

    @willywolfe,

    CNG has a place in the nation's energy future. The point of the article was offering one solution of what to do with our over capacity of first generation corn ethanol. I believe isobutanol platforms are the closest to providing an efficient replacement.

    --Maxxwell

  • Report this Comment On November 25, 2013, at 2:19 PM, ITkansas wrote:

    Ethanol is in no way energy positive. It takes more energy - in the form of diesel to plant, harvest, and haul the corn to the ethanol refineries, and in natural gas to speed the distillation process.. than you get from a gallon of ethanol. Along with the fact that it increases food costs for EVERYONE by taking corn that used to sell for $3 a bushel, to $6 and $7 a bushel. Is isobuten whatever any better?

    this is a no-win industry.

  • Report this Comment On November 25, 2013, at 6:03 PM, jessierchid wrote:

    If we don't take advantage of this opportunity, I assure you, Brazil will beat us to the punch. Making it from sugar cane is much cheaper and they are loaded. Plus, they too have lots of ethanol capacity to convert.

  • Report this Comment On November 25, 2013, at 11:20 PM, Jib76 wrote:

    Isobutanol would be a logical next step for America's renewable, sustainable, biofuels. Isobutanol and ethanol produce zero net CO2 emissions because of combustion recycling. CNG is a fossil fuel that burns cleaner than gasoline or diesel, but cannot hold a candle to the cleanliness of isobutanol and ethanol. Cornell University entomology professor Penental has had his energy model for fuels completely debunked: gasoline takes 200% as much energy to drill for, pump from the ground as oil, refine into gasoline than it produces when burned. Ethanol produces 50% less energy than goes into making it.

  • Report this Comment On December 04, 2013, at 8:39 AM, latifff wrote:

    There seems to be alot of positives to immediate replacement of ethanol with isobutanol. If that is the case, does the process of isobutanol production meet current health standards, seeing that employees might be exposed to various microorganisms or toxins for prolonged periods of time.

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