Insights and Commentaries

Insights and Commentaries

New low-carbon fuel policy boosts opportunities for bioethanol production with CCS

7th August 2019

As the world’s demand for energy increases, biofuels will play an increasingly important role in delivering the deep emissions reductions required to achieve global climate targets. In particular, when addressing the challenge of decarbonising the United States’ emissions intensive transport sector, one such fuel, bioethanol, is emerging as a shining example of opportunity.

In the United States bioethanol is produced using corn as the primary feedstock and is sold mainly for use as a blending component with gasoline in order to reduce transport emissions. As the production capacity of the industry continues to increase, as does its capacity to deliver greater emissions reductions through the utilisation of carbon capture and storage (CCS) technologies.

Due to its highly concentrated carbon dioxide waste stream, bioethanol production represents a lower-capture-cost emissions industry and therefore presents a significant opportunity for near-term deployment of CCS. Applying CCS to the fermentation and distillation process in the biorefinery has been shown to significantly reduce the carbon intensity of the fuel.

One region poised to take advantage of this lower-capture-cost opportunity in the production of bioethanol is the Midwest which is the source of most of the ethanol in the United States. Each year, industry in this region vents 40Mt of pure CO2 into the atmosphere of which 35Mt is from ethanol fermentation.

And now, a recent amendment to California’s Low Carbon Fuel Standard (LCFS), an emissions intensity-based crediting mechanism to reduce California’s fuel intensity by 20 per cent by 2030, has created a further incentive for the bioethanol industry to utilise CCS technologies for the production of low-emissions bioethanol.

Effective January 2019, the CCS Protocol qualifies a range of CCS projects that reduce emissions associated with the production of transport fuels sold in California, and projects that directly capture CO2 from the air, to generate credits under the LCFS. These LCFS credits can be combined with a federal tax credit mechanism known as 45Q to support the business case for investment in this emissions reductions technology which is vital to reach global climate goals.

Only six months after coming into effect, industry chatter in the United States indicates that the mechanism could inspire half a dozen new CCS projects over the next few years. Even prior to the CCS Protocol amendment coming into effect, bioethanol refineries were considered to be the earliest, negative emissions opportunity associated with the LCFS, subject to emissions from indirect land use change being sufficiently low.

The opportunity for ethanol production with CCS in the Midwest widens when refineries link to enhanced oil recovery (EOR) sites. The revenue stream created from EOR’s primary purpose – utilising CO2 for the extraction of additional oil from declining oilfields – has been the commercial driver for the majority of CCS projects. With the introduction of the CCS Protocol, a new revenue stream has emerged from the permanent, safe storage of CO2.

However, this opportunity is not without challenges. The distance of Midwest ethanol biorefineries from suitable CO2 storage sites requires substantial investment in CO2 transport infrastructure. In addition, although CO2 from bioethanol production is highly concentrated, the volume is relatively low compared to other industries. This means an EOR operator would is unlikely to build a pipeline to a single biorefinery and may instead invest in transport infrastructure to a higher volume CO2 source, such as a power plant.

To counter this, ethanol biorefineries need to utilise shared CO2 transport pipeline infrastructure; connecting multiple plants and providing sufficient scale to make the process commercially attractive to operators of EOR or dedicated geologic storage sites.

Scale in the CO2 pipeline system is also of great importance. Pipelines with larger capacity have significantly lower cost per unit of CO2 transported. An example can be seen in the 240km Alberta Carbon Trunk Line (ACTL). The pipeline, due to be operational by 2020, will connect emitters in Alberta’s industrial heartland with aging oil reservoirs in central and southern Alberta for use in EOR.

A key, cost-cutting feature of the ACTL is oversizing of the pipeline in the first phase of the project; allowing both the number of emitters and the volume of CO2 to increase over time. The benefits of this approach are numerous, ultimately resulting in a reduction of CO2 transport costs and lowering the investment risk for the capture plants. Oversizing the pipeline has the added bonus of signaling to operators that governments are willing to lend their support to CCS over the longer-term. This, in turn, will help to reduce the perceived policy risk of investing in CCS.

In addition, taking near-term opportunities to build out CO2 pipeline infrastructure will help enable more rapid deployment of CCS in the future as capture costs come down; like the way most renewable deployment has been enabled by existing electricity transmission networks.

The purity of carbon dioxide (CO2) available from production of bioethanol, the high concentration of ethanol biorefineries in the US Midwest region, and the availability of the new LCFS CCS Protocol policy incentive have resulted in a significant, low-cost opportunity for the expansion of bioethanol production in the United States.

Over the coming months and indeed years, the Institute will watch the impact the LCFS CCS Protocol has on the Midwest ethanol production industry with great interest. The amendment has provided a much-needed carrot for the rapid expansion of bioethanol production with CCS in the US Midwest. Add the right mix of policy, project finance and infrastructure investment and the future for CCS to enable the production of low-emissions bioethanol and further contribute to a net-zero emissions future, is looking very bright.

This piece was written by Alex Townsend, our London-based Senior Consultant - Economics and  Lucy Temple-Smith our Melbourne-based Senior Advisor for Advocacy and Communications.

Image credit: i-Stockr

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