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By Sandra I. Erwin

A domestic oil and natural gas boom, as well as concerns about the cost of green fuels, has put biofuel manufacturers on the defensive.

Producers of biofuels saw promising signs from Washington earlier this year when President Obama in his inauguration speech tied green energy to economic growth. Congress also agreed to allow the Pentagon to continue to research and test alternative fuels.

But over the past several months, it has been oil and gas dominating the energy conversation in Washington. Lawmakers are even considering proposals to do away with the renewable fuel standard that mandates that ethanol be blended with gasoline.

The Defense Department has been experimenting with advanced biofuels as a potential drop-in alternative to fossil fuels. Navy and Air Force officials have argued that biofuels could be a hedge against the volatile oil market. This year alone they face nearly $2 billion in unbudgeted fuel bills that will have to be paid with funds from other Pentagon programs. They also fear that instability in the Middle East could one day disrupt oil supplies.

The Pentagon’s adoption of biofuels is critical to the industry’s future, said Hugh C. Welsh, president of DSM North America, a subsidiary of global giant Royal DSM.

“We see the Defense Department as an ally,” Welsh said in an interview. The military, and especially the Navy, he said, have been “pretty forward thinking in alternative energy.”

Although the Pentagon consumes just 1.5 percent of the nation’s fuel, biofuel investors and green-energy advocates have looked upon the military as a catalyst for a massive expansion of alternative fuel production in the United States.

The Defense Department’s biofuels program is expected to remain strictly a research-and-development effort. The Pentagon does not plan to buy commercial-scale quantities of biofuels until their prices are comparable to petroleum products. The Defense Logistics Agency last year procured 450,000 gallons of advanced drop-in biofuels. Over the next three years, the Navy agreed to spend $170 million to support advanced biofuels, with matching amounts from both the Department of Agriculture and the Department of Energy. Under the Defense Production Act, the government is allowed to invest in an industry that it considers important for national security.

Republican lawmakers, meanwhile, have challenged the military’s investments in biofuels as unaffordable luxuries in a time of shrinking budgets.

“This has been somewhat frustrating to the industry because of the politics,” Welsh said. He blames the anti-biofuels climate on misinformation about the high cost of alternatives. The Navy’s “green fleet” experiment stirred controversy last year after lawmakers learned the service was paying $26 per gallon of biofuel. Navy Secretary Ray Mabus defended the purchase on grounds that the green fleet is a research project and the military is buying limited quantities of biofuels, which makes them more expensive.

Welsh said the cost trends are moving in favor of biofuels. Current first-generation corn-based ethanol is a dollar cheaper per gallon than gasoline, he said. Manufacturers are now transitioning to second-generation cellulosic ethanol, which will be made from feedstocks that are not in the food supply, such as corn stover, wood chips and elephant grass. “Within a few years, cellulosic ethanol will be the same price as corn ethanol,” Welsh said.

The military’s advanced biofuels — made predominantly from camelina plants and algae — are expensive, but there will be cheaper alternatives once commercial production of cellulosic biofuel ramps up, Welsh said.

“There was a lot of emotion around the Navy’s green-fleet exercises off Hawaii,” he said. “That was an isolated demonstration.” When commercial cellulosic ethanol plants are up and running around the world, biofuel will be cheaper than conventional fuel, he said.

The military might consider testing lower cost biofuels made from switchgrass, elephant grass, corn stover or other crops grown specifically for cellulosic ethanol, he said. Cellulosic ethanol, however, does not meet military performance requirements. “We hope we can refine it to a high enough octane level that they might be able to use it as a drop-in fuel for jets,” Welsh said. “We see that day coming.”

The political climate, for now, will remain tough for green fuel producers. “This is a hot-button topic with fairly evangelical folks on both sides of the issue,” said Welsh.

Over the last five years, the private sector invested $5 billion in cellulosic ethanol plants in the United States, he said. There are 20 plants under construction. The challenge for the biofuels industry is not manufacturing but fighting the political tide. “The oil and gas sectors will continue to push their talking points about biofuel being a ‘phantom’ that doesn’t exist in commercial scale.”

A recent renewable-energy industry forecast paints a mixed picture for biofuels.

“Industry expert opinions on the future of liquid biofuels for transportation are wide-ranging,” said the REN21 report, published by a coalition of private sector and government groups that support renewable energy.

One of the disagreements among experts is over whether biofuels in the long term will remain mostly first generation — made from corn or sugar — or whether advanced biofuels — cellulosic-ethanol and biosynthetic gas — could eventually dominate markets, the study said. “Cellulosic ethanol plants are still considerably more expensive to build than corn ethanol plants in the United States, by a factor of two to three in higher investment costs,” REN21 reported. “Costs will have to decline significantly, although cellulosic feedstocks are cheaper.”

Some analysts believe commercialization is close at hand, while others believe it may never occur, the report said. Factors include developing cheaper enzymes, feedstock prices, technological learning, and sustainability issues. A variety of advanced biofuels are in research stages that may one day achieve commercial viability, the study said. “Experts pointed to several possibilities, including biomass-gasification-to liquid conversion, sugar-to-biodiesel conversion using yeast fermentation, bacteria for producing biodiesel from cellulosic materials, and algae as a potential biofuel feedstock.”

First-generation biofuels are no longer favored because of sustainability concerns, the report said. Production of corn-based fuel, for instance, has implications for land use, deforestation, biodiversity, food prices, security and social issues with local populations, said REN21. An emerging consensus is that “only advanced biofuels, particularly from agricultural wastes and from crops on marginal lands like switch grass, would ensure future sustainability.”

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