Even reduced second-gen ethanol targets too high

Speaking of ethanol, despite all of the whinging about the reduction in second-generation ethanol target from 250 million gallons to only 6 million, producers will by their own admission struggle to supply half of that.

As cellulosic refineries across the country are stuck in start-up phase, the U.S. presently has the capacity to refine only "a few million gallons" of that type of ethanol annually, said Matt Hartwig, spokesman for the Renewable Fuel Association industry group.

Not surprising - the "valley of death" between demonstration and commercial scale has not been successfully bridged by anyone to date. The industry complains a lot about lack of sufficient capital, but it seems like more of a chicken and egg problem.

Bipartisan support to end ethanol subsidies?

In today's political climate in the U.S., it's rare to find bipartisan support for anything, let alone an eminently sensible idea like ending subsidies for ethanol. (Not to be confused with cutting the cellulosic ethanol RFS requirement for 2011 by 97%, which is unfortunate but necessary given that we haven't actually figured out yet how to produce cellulosic ethanol economically at scale.) It will be interesting to see how the 42 ethanol state senators push back against this one, but it does seem that the shifting balance toward fiscal conservatism makes it both more likely that subsidies could expire and more difficult for them to be re-established once the do, as NRDC's Nathanael Greene points out in the NY Times article.

I'm not close enough to corn futures markets to know to what extent the expectation of lapsing subsidies is baked in, but I'll be very curious to see how world grain prices react if subsidies are allowed to expire. The discontinuity may give us a crude sort of counterfactual to help answer the persistent question of how much biofuels drive up food prices.

Via Michael Roberts, who's also cheering.

Biofuels still the hungry little sibling for government funds

DOE just announced $21 million in funding for five projects in second-generation biofuels research. Sounds nice, but that kind of money won't get anywhere near bringing second-generation biofuels across the Valley of Death - a single commercial-scale plant costs upward of $100 million.

Second-generation biofuels players like Range Fuels are likely looking jealously at the wind power sector, which has secured government support on a different scale:

Big banks including Morgan Stanley and Citigroup are underwriting wind farms worth more than $100 million each.

That’s partly a result of new government policy: For the first time, wind-farm developers have the option of receiving 30% of the cost of the project in cash, rather than getting tax credits over the life of the wind farm.

30% of $100 million is the kind of money that would definitely help a demonstrated second-generation biofuel build a commercial-scale plant... and it's more than the recent DOE grant in its entirety.

Update: Environmental Capital has the numbers on the wind grants. $500 million in total, with $294 million swept up by Iberdrola for five projects, or almost $60 million each on average.

Granted wind projects have much more commercial certainty than a first-of-its-kind commercial-scale plant for second-generation biofuels, but that's also an argument that the private sector should be able to bear the burden on its own. The next generation of biofuels is unproven, so there are broader public benefits of the "Valley of Death" being crossed, and the rationale for government intervention is stronger.

Maybe the government can take equity rather than give a guaranteed loan, in order to avoid accusations of favoritism towards one of the many second-gen biofuel companies out there?