Chapter 10 Renewable Energy and Biofuels – Sustainable Operations and Closed Loop Supply Chains, Second Edition

CHAPTER 10

Renewable Energy and Biofuels

10.1 Introduction

This chapter presents some basic concepts in the area of renewable energy and biofuels, which are key for the reduction of greenhouse gas emissions, both from a policy perspective and from a firm’s own sustainability perspective. Figure 10.1 illustrates the energy sources for the electricity generated in the United States in 2016. Renewable energy accounted for roughly 15 percent of all energy generated in the United States in 2016, up from 10 percent in 2010. Electricity generation from wind increased to 5.6 percent from 2.3 percent in 2010, and solar penetration, although only 0.9 percent of all electricity generated in the United States in 2016, increased from 0.03 percent in 2010. This rapid growth rate for wind and solar clearly indicates the increasing importance of renewables in the power generation sector. Figure 10.1 also shows that electricity generated from fossil fuels (natural gas and coal) accounts for 65 percent of all generation in the United States in 2016, and this figure has been relatively stable. What has changed, however, is the increase in natural gas, from 24 percent in 2010 to 34 percent in 2016, followed by the consequent decrease in coal, from 45 percent in 2010 to 31 percent in 2016. Electricity generation from oil is very low in the United States, at less than 1 percent of total. Natural gas is a cleaner fuel source than coal, as indicated in Chapter 4, and discussed further later in this chapter.

In general, only about one-third of the energy content of fossil (or nuclear) fuels ends up as electricity generated to customers. To illustrate, for every 300 kWh of fuel input, 187 kWh corresponds to thermal losses at the power plant, 6 kWh is for internal plant use, and 8 kWh corresponds to transmission and distribution losses, and so only 99 kWh of those 300 kWh end up as electricity consumed by users.1 We explain the origin of these thermal losses in the next section. Of the total electricity consumed by customers in the United States, 37 percent of it go to the residential sector, 37 percent to the commercial sector, 26 percent to the industrial sector, and 0.2 percent going to railroads and other transportation.2

Figure 10.1 Energy sources for U.S. electricity in 2016 (EIA Monthly Energy Review, 2017).

The above statistics only include electricity generation and consumption, highlighting the importance of renewable energy sources such as wind and solar. The importance of biofuels is evident when one considers the greenhouse gas emissions in the United States from all different energy sources, including electricity generation, transportation, and heating. Transportation accounts for 38 percent of U.S. greenhouse gas emissions, with almost all of it from petroleum.3 Because biofuels have the potential to decrease greenhouse gas emissions when compared to fossil fuels, depending on the biomass source (e.g., corn, sugarcane, cellulosic) and production technology as we see later, biofuels are another key element of discussion in sustainability.

To complete this introduction, a quick review of basic physics related to energy and power is in order. Energy, and also work, are measured in joules (J) in the International System of Units (SI). Other units of energy include calories, British Thermal Units (BTU), kilowatt-hour (kWh), and many others. Power is the ratio of energy delivered (or work performed) by a system per unit of time, and it is measured in watts (W) in the SI system:

Power=(Energy)/(Time)

Thus, in the SI system, 1 W = 1 J/s, or 1 joule per second. The prefixes kilo (k), mega (M), giga (G), and tera (T) refer to multiples of 1000, 106, 109, and 1012, respectively, of any measurement unit, be it power, energy, time, storage (bytes), etc. Thus, 1 kW is equal to 1,000 W; 1 MW is 1,000,000 W (or 1,000 kW), and so forth. Because Power = Energy/Time, then Energy = Power × Time. As a result, 1 kWh is equal to the energy delivered by a system with power 1 kW = 1,000 W during one hour (alternatively, the energy delivered by a system with power 1 W during 1,000 hours).

10.2 Electricity Generation from Fossil Fuels and Nuclear Power

As discussed previously, fossil fuels and nuclear account for 65 percent and 20 percent of U.S. electricity generation, respectively. As a result, it is important to have a basic understanding of how these types of power plants generate electricity. Figure 10.2 shows, schematically, a combined-cycle natural gas (NGCC) plant, including the energy flows. Starting from the top left, fresh air enters a compressor, where it is compressed and then flows to a combustion chamber, where it is joined by the fuel (natural gas). There is combustion, and the hot, high-pressure gas is used to rotate the blades of a gas turbine. The rotating gas turbine is connected to a generator shaft, which then produces alternating current (AC) power. The NGCC plant recovers the heat contained in the hot exhaust gas (over 500°C) exiting the gas turbine through a heat recovery steam generator (HRSG), shown as the box in the center of Figure 10.2. The HRSG transforms water pumped by a water pump into high-pressure steam that is used to rotate the blades of a steam turbine. The exhaust, spent steam is condensed into water, using cooling water (lower right portion of Figure 10.2). The condensed water is then pumped back to the HRSG.

The energy flows in Figure 10.2 indicate that, for each 100 units of energy coming into the NGCC plant through the fuel, approximately 37 are transformed into AC power in the primary generator (connected to the gas turbine), 17 are transformed into AC power in the secondary generator (connected to the steam turbine), 9 are thermal losses from the exhaust gas, and 37 are lost in the condensation and recirculation of the spent steam. The plant depicted in Figure 10.2 has an efficiency of 54 percent (37% + 17%), which is high for a NGCC plant.

The upper part of Figure 10.2, shaded in gray, also shows the basic elements of a gas turbine for electricity generation. The gas turbine does not have a HRSG to recover the thermal energy from the hot gas exiting the gas turbine; the hot gas is thus released into the atmosphere, and that thermal energy is lost. Note that, without the HRSG, the efficiency of the gas turbine shaded in gray in Figure 10.2 would be only 37 percent.

A nuclear power plant would operate in a steam cycle similar to that shown in Figure 10.2, with the difference that the energy used to generate steam from water originates from nuclear reactions, as opposed to natural gas combustion. Similarly, a coal-fired steam power plant operates under a similar principle, with the difference that in a coal power plant the combustion of pulverized coal in a boiler is much “dirtier” than natural gas combustion, and there are considerable pollution control steps to prevent the release of other pollutants. These pollutants include SO2, which is found in coal and thus becomes a by-product of the combustion, and whose release to the atmosphere is prevented through the use of limestone scrubbers; pollutants also include particulate matter, whose emissions are controlled via electrostatic limestone scrubbers. Pollution controls for coal power plants, such as those descried above, account for almost 40 percent of the cost of building a coal-fired steam power plant.

NGCC power plants require lower initial investments (per MW of power) than a coal-fired steam power plant, and with the current low cost of natural gas, relative to historic standards, they can also be cheaper to operate than coal-fired steam plants. Finally, natural gas power plants release significantly less greenhouse gas emissions than coal-fired steam plants. With all these disadvantages, it is thus not surprising that the fraction of electricity generated by coal in the United States has declined from over 50 percent in the mid-1980s to about 31 percent in 2016, as shown in Figure 10.1.

Figure 10.2 Combined-cycle power plant (Adapted from Masters, 2013).

Combined Heat and Power (CHP) plants also operate on a similar principle to the NGCC plant shown in Figure 10.2. The key difference is that the steam generated by the HRSG, shown in the central part of Figure 10.2, is split into two streams in a CHP plant: one for powering a steam turbine to generate electricity (as in the NGCC plant shown in Figure 10.2), and another for heating purposes. The steam can be used for heating buildings, or in industrial processes where heat is needed, such as in paper manufacturing. The percent split between electricity and steam for heating is configured in the design stage. Because hot steam cannot travel too far in steam pipes, due to heat losses, CHP plants are “local,” in that they are used to deliver electricity and heat to a subset of nearby facilities, for example, a university, or a processing plant. CHP plants are also typically connected to the grid, which allows them to return unused produced electricity to the grid for some credit, making them even more attractive for a large electricity and heat user. A typical efficiency of a CHP plant (in terms of energy delivered in the form of heat and electricity versus the energy input of the fuel) is 75 percent, which is considerably higher than a NGCC power plant; again, this is because a significant portion of heat is recovered in the form of steam for use in heating, decreasing losses from conversion of steam to electricity.

10.3 Renewable Energy

As shown in Figure 10.1, different renewable energy sources for producing electricity include hydro, wind, biomass, solar, and geothermal. A hydroelectric power plant uses a dam to store water, typically from a river, in a reservoir. Water released from the reservoir flows through a turbine and spins it; the rotating shaft activates a generator to produce AC power. Renewable electricity from biomass is produced similarly to a natural gas or coal-fired steam power plant. Instead of burning natural gas or coal in a boiler, what is burned are wood chips or other organic residues, such as bagasse from sugarcane. Alternatively, one can also burn biogas originating from a digester filled with organic waste; the gas is generated from the bacteria that digest the waste and produce the flammable biogas. A geothermal power plant is similar in principle to a coal-fired steam plant, with the difference that the heat used to produce the steam that powers the steam turbine originates from the earth’s core, instead of burning coal in a boiler. In a wind turbine, the energy from the wind turns blades around a rotor. The rotor connects to a shaft, which spins a generator to produce AC power, again following the same principle of using some source of energy to spin a generator shaft.

Solar power plants, however, come in two different types. Concentrated solar power plants generate electricity by using a system of lenses and mirrors to concentrate a large area of sunlight into a smaller area. The heat produced by this concentrated solar power boils water to produce steam, which powers a steam turbine just like in a coal-fired power plant. The vast majority of solar power, however, comes from photovoltaic (PV) power stations, which do not have any movable parts, and they convert energy from light into electricity. Photons are the basic particles of light. Photons with high enough energy and short wavelength may cause electrons in atoms from photovoltaic materials (semiconductors such as silicon, germanium, and others) to break free. If there is an electric field, the electrons move toward a metallic contact, where they emerge as direct current (DC).4 The DC is transformed into AC through an inverter. PV power stations are comprised of several individual rectangular modules. A typical module size is 1.6 m × 0.8 m, with a thickness of 4.6 cm.

In terms of PV technology, there are two types. Traditionally, crystal-silicon-based PV (c-Si) technology has dominated the market, but a more recent type, called thin-film technology has started to emerge. The production of c-Si modules is more capital intensive than thin-film, as it requires silicon processing and wafering stages, and as a result, the c-Si modules are typically more expensive than thin-film ones. In contrast, the learning rate—the percentage decrease in cost for every doubling of production—is about 24 percent for c-Si compared to 14 percent for thin-film technology.5 This means that as the production (and sales) of c-Si PV modules double, the unit cost declines by 24 percent. This learning rate is estimated from regression using historical data, and it is thus an average number of a considerable period of time (since 1976 for c-Si, and since 2006 for thin-film technology). In a nutshell, c-Si technology is more mature, more expensive, but has a higher efficiency than thin-film technology. Efficiency here is defined as the percentage of sunlight energy that the module is able to convert into electricity.

It is fair to say that the most significant growth in renewable energy for electricity production comes from solar and wind power, because they do not emit greenhouse gas emissions during their operation. (From a LCA perspective, there are greenhouse gas emissions associated with the manufacturing of PV modules, inverters, and wind turbines, although those can also be mitigated through the use of solar and wind energy during their manufacturing.) Hydro is constrained by natural resources such as appropriate rivers; it is also emissions free but it does cause some disruptions to natural habitats, beside potentially impacting the local climate. Geothermal is not only emissions free, but it also dependent on geographical characteristics. In contrast, electricity from biomass, although renewable, also emits greenhouse gases, as it involves combustion of organic natural resources. Note that solar power can be installed in rooftops, or it can be installed in large solar farms owned by third-parties or utilities, and it is thus very versatile. In contrast, a wind turbine is not usually viable for residential installation, for example.

The interest and growth in solar and wind can be thus directly attributed to the desire of firms and governments to reduce their greenhouse emissions. Until recently, electricity production from wind and solar could not compete with fossil fuels, and it required different types of incentives, such as tax credits, subsidies, or feed-in tariffs. A tax credit is computed based on the overall cost of equipment installed, and then the firm directly claims that tax credit in its final tax bill. For example, suppose the total installed cost of a PV system for a residence, including modules and inverter, is $105,000. A tax credit (at acquisition) of 30 percent means that the owner can take a tax credit of $31,500 in the year of installation. In contrast, a subsidy would be passed directly from the government to the PV manufacturer, reducing the sales price to the customer. Finally, a feed-in tariff is a government-mandated price at which a regulated utility has to buy electricity from a renewable electricity provider; this price is higher than the price of electricity from fossil fuel sources. With the decrease in PV and wind generation costs, some of these incentives have been reduced or phased out entirely, and there are reports of grid-parity in some areas with high efficiencies (think sunny Spain, California or Northern Africa for solar; some coastal areas such as Northern Germany for wind).

The total cost of an installed PV system includes the hardware (modules, inverter, balance-of-system [BOS]), installation labor costs, and other costs such as customer acquisition, logistics, construction, land, overhead, and taxes. Due to the fixed installation costs, larger, utility-scale systems enjoy a lower cost on a unit (per watt) basis. The breakdown and trend of these costs are shown in Figure 10.3 for the residential, commercial, and utility-scale sectors. Notice that the total cost for a residential PV system has decreased from $ 3.11/W in 2015 to $2.93/W in 2016, or a 6 percent decrease in one year. In contrast, the cost of a 100-MW utility-scale system decreased from $1.78/W in 2015 to $1.42/W in 2016, or a 20 percent decrease.

A PV system’s power is rated as watt peak, that is, the power in watts delivered under peak insolation conditions. For example, a 1.6 m × 0.8 m c-Si module might deliver 240 W peak. To find the actual power delivered during, say, one year, one multiplies this rating number by the average efficiency of the solar panel at that particular location. A typical efficiency would be, say, 18 percent for a location with reasonable insolation, such as Los Angeles. This average efficiency figure already takes into account periods such as nights and cloudy days. Considering that Energy = Power × Time, a 240-W peak module at a location with 18 percent efficiency would be able to deliver in one year (8,760 hours) the following electricity quantity: (0.18) × 240 × 8,760 = 378,432 Wh, or 378.4 kWh of electricity in one year.

Many residential and commercial PV installations are connected to the grid. If the PV system is not able to meet the entire electricity demand for that location, then the location buys the electricity from the grid (utility) at prevailing rates. If, however, there is excess electricity produced at a particular period, it is then sent back to the grid and the customer may be compensated. The exact compensation amount (in cents/kWh) depends on the jurisdiction, and in some places it can be zero. Some jurisdictions might even force utilities to only charge customers for the net electricity consumed (i.e., total electricity consumed during periods of excess electricity demand minus the total electricity returned to the grid in periods of excess supply). These types of arrangements, commonly referred to as net energy metering, incentivize customers to build larger PV systems, in some cases with higher capacity than their demand. If the PV system is not connected to the grid, then the location may use energy storage, such as batteries, to store excess electricity produced by the PV system at certain periods. The battery, however, significantly increases the system cost. In the next section, a simple example is provided where the financial viability of a PV system is estimated.

Figure 10.3 Commercial installation costs of PV systems in the United States in 2016. (Source: National Renewable Energy Laboratory)6

10.4 Example: Estimating the Financial Viability of a Rooftop PV System

Consider a hotel that wants to install a 200 kW peak rooftop PV system. How does one assess the financial viability of the system? The average efficiency of the system at that hotel location is 18 percent. The initial system cost is $2.5/W peak, including all hardware, construction, and labor costs. However, the jurisdiction offers a tax credit of 30 percent of the investment at the year of installation. Assume that all electricity produced by the PV system is consumed at the hotel, and any excess electricity demand is purchased from the grid. The price of purchasing electricity from the grid next year (the year after installation) is $0.15/kWh, but this figure is projected to increase at a rate of 3 percent per year. Assume that insurance costs are 0.3 percent of the PV system’s initial (book value) cost. Finally, the PV system degrades at a rate of 0.5 percent per year. Suppose the PV system is depreciated using a 5-year MACRS schedule, as seen in Chapter 6, with percentages 20 percent, 32 percent, 19.2 percent, 11.5 percent, 11.5 percent, and 5.8 percent for years 1-6, respectively. What is the net present value (NPV) and payback of such a project for a discount rate of 4 percent per year? Consider a 25-year useful life of the PV system, and an income tax rate of 35 percent.

The initial investment of the system (before the tax credit) is 2.5 $/W × 200 kW × 1000 W/kW = $500,000. With the 30 percent tax credit, the cash flow at year zero is – 500,000 + (0.30) × 500,000 = – 350,000. The cash flow in year 1 is as follows. The revenue is the electricity generated times the electricity price. This corresponds to the savings from the PV system, relative to buying electricity from the grid. So, for example, for year 1 the electricity generated is 200 kW × (0.18) × 8,760 h = 315,360 kWh, and thus at $0.15/kWh for the price of electricity, the hotel will save (0.15)(315,360) = $47,304 in electricity in year 1. Insurance cost is 0.3 percent of the initial investment of $500,000, or $1,500. Thus, earnings before tax in year 1 are $47,304 – $1,500 = $45,804. Applying the 35 percent tax ($16,031) results in earnings after tax of $29,773. One then adds the tax savings from depreciation, which is equal to the MACRS percentage (20 percent for year 1) times the depreciation basis ($500,000) times the tax rate (35 percent), yielding $35,000. Thus, the cash flow in year 1 is $29,773 + $35,000 = $64,773.

The changes in cash flows in future years, from year 1, are as follows. In year 2, the electricity produced decreases by 0.5 percent, due to PV degradation, and it is thus 315,360(1 – 0.005) = 313,783, however, the electricity price goes up by 3 percent to 0.15(1.03) = $0.155/kWh, translating into electricity savings of $48,480 in year 2. Insurance cost is still $1,500. The MACRS depreciation percentage in year 2 is 32 percent, which means that the tax savings from depreciation are now $56,000. The cash flow in year 2 is then $86,537. One continues in this fashion until year 25; note, however, that there are no tax savings from depreciation in years 7–25. Using Excel, and the formula -350,000 + NPV(0.04, cash flows), where cash flows represent the cell range where the cash flows from years 1–25 are displayed/calculated, yields a NPV of $442,727. The project pays back in year 6 (first year where cumulative cash flows become positive).

10.5 Biofuels

We now close this chapter with some basic facts about biofuels. The data displayed here are based on variety of sources, including Petrobras (the Brazilian oil company), several websites, and a United Nations Environmental Programme (UNEP) report.

The two main types of biofuels are ethanol and biodiesel, which are substitutes for gasoline and diesel, respectively, in the transportation sector. The motivation for using biofuels is that the transportation sector accounts for 38 percent of all U.S. greenhouse (GHG) emissions, as previously discussed. Although biofuels are combusted in engines, just like fossil fuels, they have two key advantages: (i) they are renewable and (ii) they can significantly reduce GHG emissions because the crops used to produce biofuels absorb CO2 during their growth. We discuss this further below. Although biofuels have been used wholly, in many applications they are used in a mix with other fuels. So, for example, E85 means a mix of 85 percent ethanol, and 15 percent gasoline, whereas B5 means 5 percent biodiesel and 95 percent diesel. The energy content of ethanol is 21 MJ/liter, compared to 32 MJ/liter for gasoline. As a result, one needs more than one liter of ethanol to substitute one liter of gasoline. The energy content of biodiesel ranges between 33 and 36 MJ/liter, which is similar to diesel at 36 MJ/liter.

We start with ethanol. The United States is the world leader in the production of ethanol, with 57 percent of the global production of 26.04 billion gallons in 2015, followed by Brazil with 27 percent, and the rest of the world accounting for only 16 percent. The production process for the production of ethanol is shown in Figure 10.4. Sugars are extracted directly from biomass such as sugarcane. One can also use starchy feedstocks, such as corn or soybeans, but one first needs to convert the starch into sugar by adding water (hydrolysis). This is called saccharification, which adds to the cost of ethanol production. Finally, one can also use cellulosic materials for biomass, such as wood and grass—this is called cellulosic ethanol. The process for transforming cellulosic materials into sugar is still rather expensive, and there are limited commercial applications as of now. It is, however, a very promising direction for the future of biofuels. Continuing on the production process, sugars are fermented, resulting in a combination of ethanol and water. Through a first distillation step, 95 percent of the water is removed, resulting in what is called hydrous ethanol. Hydrous ethanol has been used in Brazil as pure fuel since 1978. Another distillation step produces anhydrous (pure) ethanol, which can be blended with gasoline as E10 (what you normally buy at a gas station in the United States as gasoline), or E85.

Compared to corn, sugarcane as biomass has two key advantages. First, ethanol from sugarcane does not necessitate hydrolysis, lowering the production cost. If hydrous ethanol is used as pure fuel, as in Brazil, it also does not necessitate the second distillation, again, lowering the production cost. Second, the productivity of sugarcane is double that of corn for the production of ethanol, in terms of cultivated land area. Specifically, one hectare of land (10,000 m2) produces on average 82 tons of sugarcane compared to 7.54 tons of corn; one ton of sugarcane yields 77 liters of ethanol, compared to 365 liters per ton of corn.7 As a result, one hectare of sugarcane yields 6,314 liters of ethanol, compared to 2,752 liters per hectare of corn.

Of course, the production of ethanol, either via sugarcane or corn, requires the use of fossil fuels for agricultural machinery, transportation of feedstocks to the mill, and for the electricity necessary to run the mill. Thus, the comparison requires some LCA thinking; there are roughly four lifecycle stages: cultivation, transportation, production, and use. Cultivation contributes the most, in general, to lifecycle GHG emissions of biofuels. Numbers vary significantly, depending on previous land use (e.g., virgin forest vs. agricultural land), agricultural yield, fertilization and irrigation needs, etc. For example, clearing of virgin forests for the cultivation of feedstocks certainly contributes to significant GHG emissions, potentially negating any reductions in other stages of the life cycle. Transportation (to/from plant) typically contributes the smallest amount, especially if biofuels are distributed in pipelines. In terms of production for corn ethanol, there are wet mills (about 25 percent of all U.S. production), which are larger and capital intensive plants, and modern, more efficient dry mills (75 percent of all U.S. production). The use stage (when biofuels are burned in engines) is generally carbon neutral, because the CO2 emitted by automobiles and trucks is absorbed by the growing feedstock in a short period of time.

Given all the possible variations in cultivation, production, and transportation, the numbers for greenhouse gas emissions of biofuels (compared to fossil fuels) can vary significantly. The renewable energy ratio (RER) is the ratio of total renewable energy produced per unit of fossil fuel consumed during the life cycle. For sugarcane in Brazil, the average RER is about 9.4, whereas the average RER for corn in the United States is 1.7, although it can be as high as 4.4–5.5 for advanced corn ethanol plants (dry mills) using natural gas, or a CHP.8 The RER figure does not directly provide the level of reduction in GHG emissions compared to fossil fuels. Estimates of GHG emissions reduction for biofuels compared to fossil fuels are provided in Table 10.1. The data in Table 1 are given in terms of ranges, compiled from many LCA studies, considering that the level of GHG reduction depends on assumptions for cultivation, production, and transportation. Note that ethanol from sugarcane significantly reduces GHG emissions (compared to fossil fuels), with estimates from 70 percent to 143 percent, whereas ethanol from corn has lower reductions, with a maximum of 58 percent. This is not surprising, considering the RER values previously reported. Cellulosic ethanol, while still mostly at the concept stage, is promising also from a GHG emissions perspective, with reductions ranging from 78 percent to 90 percent. Finally, it is interesting to note that biodiesel from palm oil can not only have good GHG emissions reduction, with a maximum of 80 percent, but it can also significantly increase GHG emissions (−800 percent reduction) if virgin forests are cleared and burned for cultivation. Biofuels have also been shown to reduce particulate and hydrocarbon emissions (i.e., local emissions) in many studies.

Figure 10.4 Generic production process for ethanol.

In terms of biodiesel, the largest producers of biodiesel in the world are, with their production in parentheses, in billions of liters in 2016: United States (5.5), Brazil (3.8), Germany (3.0), Indonesia (3.0), Argentina (3.0), France (1.5), and Thailand (1.4).10 Biodiesel is produced mostly from rapeseed in Europe, and from soybeans in the United States and Brazil. The EU is a large producer and consumer market for biodiesel, because about 50 percent of the price of fuel in the EU is comprised of taxes, and there are significant tax exemptions for biodiesel, as a result of policies to reduce agriculture food surpluses, beside some individual mandates for production and blending with diesel in some member countries.

Table 10.1 Decrease in lifecycle GHG emissions from replacing gasoline/diesel with biofuels

Biofuel

Minimum

Maximum

Ethanol from sugarcane

70%

143%

Ethanol from corn

−5%

58%

Biodiesel from rapeseed

20%

85%

Biodiesel from soy beans

−18%

110%

Biodiesel from palm oil

−800%

80%

Biogas from manure

37%

14%

Cellulosic ethanol (concept)

78%

90%

(Source: UNEP; numbers above 100 percent are possible due to by-products)9

Of course, biofuels have received criticism as well. For example, in the United States, there are very significant federal subsidies for corn and ethanol production, and most go to large corporations. (There are no subsidies for ethanol production from sugarcane in Brazil.) Further, the production of ethanol from corn in the United States occurs mostly in the Midwest, whereas the largest markets are in the coasts, which increases distribution costs especially because ethanol does not travel well in pipelines of large distances, due to its hygroscopic nature (i.e., it absorbs water). In contrast, in Brazil, production and consumption occur largely in the same geographical areas, especially in the southeastern region. There have also been criticisms of feedstock cultivation for biofuels displacing agricultural or virgin vegetation land. For example, in the United States, there is the displacement of corn for food by corn for ethanol, which can raise food prices and may disproportionately impact the poor. In Brazil, although about 58 percent of the country’s production occur in the most populous state of São Paulo, there have been some concerns about the clearing of forests for sugarcane cultivation, especially in the eastern portion of the Amazon forest.

Despite the disadvantages, there are many advantages of biofuels to replace fossil fuels in order to reduce GHG emissions, and to increase energy security. Further, cellulosic ethanol—the second generation of biofuels—is promising, with significant GHG emissions reduction potential as shown in Table 10.1, and of course for the fact that it can use grass, wood chips, or other organic materials that are by-products of other industrial or agricultural processes. For biodiesel, there is also the promising direction for wider use as aviation fuel, since aviation is responsible for 2 percent of all human-induced GHG emissions11, and commercial aviation is one of the sectors regulated by the EU cap-and-trade scheme.