Opinion - Advanced non-food biofuels are nearing price competitiveness with gasoline but tiny volumes mean food crops will continue to bear the burden of efforts to wean off crude oil.

One company aiming to boost production is Italy's Gruppo Mossi and Ghisolfi (M&G), which says it's poised to open the world's first commercial-scale, non-food biofuels plant. A clutch of rivals plan to follow next year.

Spurring them on is the growth of biofuels in the world's transport fuel mix, given high oil prices and scant impact so far from electric vehicles.

Sustained high food prices, however, are driving a push for non-food biofuels and a move away from refining ethanol from sugar in crops including grains and sugar cane.

These cellulosic biofuels break down much coarser plant materials including wood, waste and crop by-products such as straw using acids, high temperatures and/or hi-tech enzymes.

A lack of commercial production anywhere, however, is presenting a setback for political targets.

The U.S. Environmental Protection Agency has lowered a blending target to 8.65 million gallons this year from an original goal of 500 million gallons because of a lack of available product.

The European Union has a 2020 target to get a tenth of transport fuel from renewable sources, including electric vehicles and biofuels, compared with half that now.

Nearly there

Italian chemical company M&G says it will launch the world's first commercial scale plant later this year, and reckons its product will be competitive without subsidies.

Chief Executive Guido Ghisolfi says the unit, Beta Renewables, will start production by the end of 2012 in a joint venture with U.S. investors TPG.

Ghisolfi forecasts total production costs at around €0.45 per liter from the outset, compared with European gasoline prices before taxes (which account for about half of the gasoline price) of around €0.70 ($0.93).

That would make the product economically competitive with gasoline, even taking into account ethanol's lower calorific content (energy) but higher octane, which improves vehicle engine efficiency.

To reduce costs, the company says it runs a lower temperature, lower pressure system than harsher processes which may also use sulphuric acid to give enzymes a headstart.

Economics

M&G's production costs can be split between biomass feedstock and processing costs, plus a return on capital.

Ghisolfi assumes biomass costs (including energy to run the plant) at $50 per ton of biomass, or $200 per ton of ethanol.

Processing costs (enzymes, yeast and factory fixed costs) add a further $300 per ton of ethanol.

And a healthy return on capital adds another $250 per ton (based on a 15% return on the $100 million capital cost of a plant with 60,000 tons annual production capacity).

That gives a total cost of $750 per ton of ethanol, or $0.59 (€0.45) per litre (assuming an ethanol density of 0.785 kilograms per liter), or $2.24 per gallon.

Asked about the reliability of his estimates, Ghisolfi says:

"I can be wrong for two reasons. One is the biomass is much more expensive." He says the technology is flexible regarding biomass feedstock, reducing that risk.

"The second thing is the whole thing is wrong. But I have bet over $300 million of my own money ... I'm not going to be wrong."

M&G claims to be at least a year ahead of the competition to launch a commercial-scale plant.

Other developers include:

* Abengoa is targeting completion of a U.S. commercial cellulosic plant in 2013;

* U.S.-based POET reports demonstration costs below $3 per gallon; targeting commercial-scale production by end-2013;

* BP is planning a commercial scale plant in 2014, after buying assets from Verenium two years ago;

* DuPont is planning a commercial-scale plant, after acquiring a majority stake in enzyme maker Danisco last year;

* Denmark-based Dong Energy and Inbicon is currently showcasing ethanol production from straw

* Royal Dutch Shell is in a joint venture with Canada-based Iogen to showcase cellulosic technology;

Land, CO2

Even biofuels using wood and crop by-products will need some land. M&G estimates a factory producing 60,000 tons ethanol annually requires 240,000 tons of biomass, and around 6,000 hectares of land (compared with more than 10 million hectares of farmland in all of Italy).

If accurate, M&G's estimates suggest Italy's 2020 biofuel target could be met using the equivalent of less than 1% of the country's farmland, using cellulosic technologies.

Meanwhile, the carbon emissions impact of burning cellulosic biofuels is not zero: burning biofuels emits just as much CO2 at the tailpipe as fossil fuels.

Accounting for net emissions is a complicated business, figuring out how much the biofuel adds in CO2 compared with the previous land use, including displaced food production: only if they add nothing at all (using pure waste) could they be judged to be net zero carbon emitting.