Recently, there has been some blog chatter about my comments on the future of lithium ion batteries — my goal here is to clarify my stance.

I do believe that these batteries have been over-hyped in terms of technology available today. However, little focus was given to my statement that Khosla Ventures is backing the technology because the “lithium-ion markets are here today. We’re investing because there are great markets.”

So what kinds of technology are we investing in? I think the traditional approach to lithium ion battery making, such as A123, is going to be competing in an overheated, nearly-commoditized market and will probably not (I guess never say never!) get down the cost curve in the next 5 years. (Longer-term forecasts are futile because so-called experts can make anything they want up — we all know long term we will be on fusion power.)

A number of incremental improvements are underway, but they will at best offer a 2X improvement in price performance. A123 may be a best-in-class battery, but it lost out in the GM Volt race to the LGChem battery, which at the pack level delivers less than 50 KWhr/kg. (Actually, 8KWhr deliverable power, since the battery is cycled to less than 50% of nominal capacity, and a 182kg pack weight, including all the safety systems!) At the pack level, per usable KWh, the costs per KWh including safety systems and packaging are far higher than the $1000/KWhr bandied about and the $250/KWhr that will make batteries truly competitive — and many of these system-level costs will be difficult to reduce without radical changes in the battery cell design and manufacturing approach.

Indeed, the manufacturing processes used for Li batteries for automobiles are quickly becoming mature. They represent improvements, but not radical changes, to techniques used in batteries for consumer electronics. We cannot expect significant increases in performance absent fundamentally new approaches. One thing to look at is the closeness in performance among many electrochemistries — it is precisely because the battery cells are made in much the same way. This generation of cells will address perhaps 10% of the cars by 2020, according to some believable forecast — not insignificant, but not profound, either. Plenty of billion-dollar market caps can be built within this 10%.

Two fundamental problems limit the cost trajectory of these traditional batteries. First, liquid, flammable electrolytes and their related problems cause large “safety” tradeoffs. Hence our investment in Seeo, which is taking a high-risk (mostly because it is so novel) approach to solid electrolytes. They have made far more progress than I would have expected.

Second, the actual capacities of existing battery cells are still fall far below their theoretical values, for the active materials in widespread use (Mn and PO4-based cathodes). That tells us that in order to get to the theoretical values, we need to execute higher-risk, but higher-payoff, cell designs and manufacturing technologies which unlock their full potential and reduce the cost of production. This is what Sakti3 is trying to do with solid-state batteries, with good success.

Selecting manufacturing processes that have been used successfully in lab-scale demonstration, in pursuit of “world’s best,” will not work for automotive markets. What is needed is scalable, low-cost manufacturing technology. Without that, the role of lithium ion batteries as a meaningful tool of carbon reduction will remain fairly limited (though market caps will continue to be high, especially after the A123 IPO, which is expected soon).

These are the types of approaches that have the potential to truly be disruptive and address the markets that really affect overall carbon emissions of cars, especially in emerging economies. Even more disruptive approaches that we have not invested in today may be on the horizon. If EESTOR-like approaches work (I am somewhat skeptical of this particular company, though I believe new science similar to that proposed in its patents is possible), then so much the better. But there is very little visibility today on these radical approaches. I would say these are in the domain of a hope and a prayer.

New manufacturing technologies and chemistries hold out more hope than the traditional style of lithium battery. Of course even the existing players like A123 will not stop where they are, and some of them will try innovative, maybe radically innovative approaches. Even the old lead-acid battery suppliers like Firefly and other lead acid battery makers are making a play to reach electric-car specifications.

What appears more predictable is that traditional bulk cell approaches are not likely to yield the cost equations to make for rapid penetration. If they are successful, it is more likely because oil went to $200 per barrel than any “performance” on the part of these batteries. $200 oil is a different ballgame that may make even cruder lithium ion batteries viable economically.

The key problem is, costs have to come down, or oil prices have to shoot up, for most traditional battery ventures to make big winners of entrepreneurs and their investors. But new technical approaches that change the cost and safety equation (with significant new technology risk) will make the battery technologies competitive even if oil prices stay below $100/barrel. That is what we look for in investments — more technical risk now, less market risk later, and bigger breakthroughs for society. We are dealing with much harder science and technology, so we will see much higher rate of failure, but the wins will be bigger.

We will likely ship a billion new cars worldwide in the next 15 or so years. The key question is not whether hybrid or EV cars/batteries will be successful financially (they probably will), but rather what it will take to get 80% of these billion cars to be low-carbon cars. The most important thing to remember is economic gravity: the cheapest thing ends up winning. Our hope is to win that battle over the long term, because it will take these breakthroughs to change the overall carbon trajectory for passenger cars.

With electric cars, there is yet another major risk: in the foreseeable term, China/India and even the US will be “plugging into a lump of coal” for years to come. And though renewable electricity from wind and solar is a good goal for these cars, it will likely be much more costly (about 5X higher currently in India where a new coal plant costs 4c/KWh), so economic gravity again dictates high-carbon electricity to power these expensive electric cars. Another breakthrough is needed there.

Back in 1990, everybody assumed the digital world would be interactive TV … before the Internet came from left field, from an unlikely instigator: the web browser. Right now, it’s too early to tell what the instigator will be for energy. In the interim, I see plenty of money to be made in both batteries and biofuels, but it will take more than current biofuels and current batteries to make the car world low-carbon. It will require a Black Swan of automotive propulsion.

I have not advocated subsidies for food-based ethanol. In fact, I strongly believe any nascent technology that cannot exist without subsidies beyond an introductory period will not gain market penetration, and is not worth supporting.

I do look forward to the WSJ‘s complaints about oil’s subsidy bonanza, from tax breaks for drilling, loopholes that allow royalty-free or below-market offshore oil leases, manufacturing tax breaks, as well as roughly $7 billion in subsidies in the wake of the Katrina disaster. At a recent WSJ Conference, 75 percent of the erudite audience “voted” (rightly) that oil was more highly subsidized than ethanol.

Were these not such serious matters, the WSJ editorial would be laughable. But there are serious issues at stake. Should we not look past our noses to the larger issues of dependence on oil? The alternative of biofuels raises serious questions deserving more depth than the entrenched, one sided views of the Wall Street Journal.

Discussing biofuels is like discussing drugs: Society recognizes the difference between aspirin and cocaine; we should also be cognizant of differences amongst biofuels. Biofuels vary dramatically in their environmental impact and their effects on food prices. For instance, biodiesel from food oils like soybean or palm oil have traditionally created environmental negatives, they are unscalable and likely to be fundamentally uneconomic. On the other hand, corn ethanol has served as a useful stepping stone to cellulosic ethanol but has recently come under criticism — some of it fair, some absurd. A preferred alternative, cellulosic ethanol, is coming fast, but to be environmentally sound it must not directly (or indirectly) force alternative crop production into environmentally sensitive regions like rain forests.

Currently we are faced with an energy crisis, an environmental crisis, a food crisis, and a terrorism crisis, and all are related to oil. High cost options like hybrids and electric cars may sound good, but are unlikely to materially reduce carbon emissions. To make a meaningful impact, we have to ensure that at least 500-800 million of the next billion cars we produce on this planet in the next 15 years be low carbon cars. The only cost-effective option likely to get broad market acceptance is cellulosic fuel cars in the next decade or two.

Doing nothing is not an option. Instead, it comes down to a fundamental question — given our economic and energy constraints and framework, we must find the best option that can meet our needs, taking care not to let the perfect be the enemy of the good. A crisis is a terrible thing to waste and if pursued intelligently, this crisis may help us to permanently solve our dependence on oil.

Much of public opinion is influenced by paid-for campaigns of interested parties. Recently the Grocery Manufacturers Association has started a multi-million dollar campaign against corn ethanol; meanwhile, the American Petroleum Institute is far more concerned about food prices than oil prices. One hears slogans about how much corn and water are required to produce a gallon of ethanol — a 16oz steak takes about the same amount of corn and more water. Are opponents of corn ethanol also calling for a ban on steaks, especially since chicken is a healthier food and takes less corn to produce?

Similarly, we’re told that hybrid cars are a great solution, but we seldom hear that they reduce carbon emissions about as much as corn ethanol and at a cost that is a hundred fold more per car compared to a flex-fuel car. A recent McKinsey study rated them among the most expensive ways to reduce a ton of carbon emissions.

We must not let the clever PR campaigns distract us from a broader societal goal of producing environmentally sound cellulosic biofuels; thanks to the market that corn ethanol has established, they are getting significant. Congress wisely established a Renewable Fuel Standard that requires oil refiners and fuel blenders to use up to 36 billion gallons of renewable fuels produced in America. This standard caps corn ethanol at 15 billion gallons and provides an incentive to produce next generation cellulosic fuels. Sufficient biomass exists as waste from forestry operations alone to meet all of the 21 billion gallons of cellulosic fuels mandate established in the 2007 energy bill. All 36 billion gallons of the mandate could be produced, at prices approaching $1.00 per gallon within ten years, if we include agricultural crop waste, municipal organic waste, and sewage.

Add winter cover crops grown on current agricultural crop lands during the winter months when the land sits idle and is subject to nitrogen runoff and topsoil loss and we could, even after excluding up to 50 percent of our annual crop lands, replace most of our gasoline imports. By some agronomists’ estimates winter cover crops could produce 450 million tons of biomass within ten years and over 750 million tons of biomass by 2030 on 150 million acres of winter crop land. That is sufficient biomass to replace much of our imported gasoline. All this could be accomplished without an additional acre of land used for biofuels production. At the same time, winter cover crops will improve the ecology of traditional annual food crops during their summer growth period.

Food prices have been a concern recently — but it is little understood that oil prices affect the food Consumer Price Index in the U.S. two to three times as much as corn prices, according to a study by LECG. And oil prices have risen 1,000 percent in the last ten years while corn prices have risen 200-300 percent. Elsewhere, an Informa economic report notes that “just four percent of the change in the food CPI could be attributed to fluctuations in the price of corn.” If biofuels were taken off the market, Merrill Lynch estimates oil prices would be 15 percent higher, which in turn would put further upward pressure on food prices; meanwhile the increased supply of corn would put downward pressure on food prices.

The net effect on food prices is hard to estimate accurately. For the developing-world rural poor, which comprise about 67 percent of those living below a dollar a day, food price increases often increase income as their subsistence farms become economic, while for the urban poor food price increases are disastrous. No wonder developing countries like India and Brazil have been pressing the WTO to increase food prices by reducing western food subsidies so their farmers can generate income form farming. And charities like Oxfam have historically been reluctant to export cheap American corn to Africa for this reason. On the other hand, can you imagine the human benefits of hundreds of billions of dollars going into biomass refineries in Africa every year? It may be the single most important tool we have for poverty reduction in Africa!

The environmental effect of corn and cellulosic ethanol depends upon what one assumes about their source. If ethanol is produced on lands that displace food production into the rain forest, the net environmental effect will be negative. But if we keep burning oil and coal, the environmental consequences will be bad too. A simple national and international policy that incentivizes countries like Brazil and Malaysia to preserve their rain forest through carbon credits while banning biofuels (and maybe all agricultural exports) from countries that do not meet rain forest deforestation reduction targets could dramatically change the environmental benefits of biofuels.

Thermochemical conversion approaches to cellulosic ethanol production reduce water use by 75 percent compared to corn ethanol and below the water use of gasoline refining. Furthermore, they reduce carbon emissions by 75 percent while producing ethanol at production costs well below that of corn ethanol and gasoline.

To incentivize the production of biofuels that are environmentally beneficial, I have suggested a “CLAW” — or carbon, land, air quality, and water — impact rating for all biofuels, much like LEED ratings for buildings. If we reduce the RFS mandates in the energy bill (as some have called for) we are likely to reduce the investment in next generation cellulosic fuels with disastrous consequences for our energy security and the environment. As one of the larger investors in cellulosic and waste based biofuels research, I should know.

It is clear that corn ethanol has served as a stepping stone for cellulosic ethanol and other biofuels, mitigating risk and establishing a market. As a venture capitalist, I would not have invested in cellulosic without corn ethanol’s partial alleviation of the risks of creating a market, creating distribution terminals, E85 pumps and starting our flex-fuel fleet. In fact, I believe that the cellulosic fuel mandates are too low. It would be smarter to change the RFS such that the RFS can be adjusted for five to seven years, both up or down every year, based on the availability of cellulosic fuels at a fair price above a floor price but related to the price of gasoline.

Consumers would be protected by such a “price capped cellulosic RFS” approach and it would offer investors and producers assurance that all cellulosic fuels that are produced at these reasonable prices will be mandated until cellulosic gets to scale by 2015. We will not have to worry about too ambitious a schedule for biofuels production. Yet it will prevent manipulation of cellulosic ethanol by interested opponents of clean fuels while increasing investment in cellulosic research and production facilities. And lest we forget, ethanol is just a starting point. Cellulosic jet-fuel and cellulosic diesel, and even renewable gasoline, are also under aggressive development by many startups, eliminating the need for food-based biodiesel at cheaper prices.

All biofuels are not equal; as with anything, we can do it poorly or we can do it right. I believe that cellulosic biofuels offer scalable, economic, and environmentally meaningful impact on reducing our petroleum usage with benefits to farmers, entrepreneurs, and American consumers. I have many investments in biofuels companies, and some say I believe in biofuels because I have invested in them. I suggest that I have invested because I believe. I believe we can help the environment, our economy, and our national security by remaining committed to our current course.

A few facts:

• I have not advocated subsidies for food-based ethanol. In fact, I strongly believe any nascent technology that cannot exist without subsidies beyond an introductory period will not gain market penetration and is not worth supporting. I have consistently argued that food-based ethanol cannot scale beyond roughly 15 billion gallons or so in the U.S., and that making a material impact on replacing oil requires cellulosic or other advanced biofuels. The corn ethanol subsidies that exist today were part of the 2005 Energy Bill, passed at a time when I had no contacts with Washington.
• I look forward to the WSJ‘s complaints about oil’s subsidy bonanza, from tax breaks for drilling, loopholes that allow royalty-free offshore oil leases, manufacturing tax breaks, as well as roughly $7 billion in subsidies in the wake of the Katrina disaster. At a recent WSJ conference, 75 percent of its erudite audience “voted” (rightly) that oil was more highly subsidized than ethanol.
• It is clear that corn ethanol has served as a stepping stone for cellulosic ethanol and other biofuels, mitigating risk and establishing a market. As a venture capitalist, I would not have invested in cellulosic without corn ethanol’s partial alleviation of the risks of creating a market, creating distribution terminals and E85 pumps, and starting our flex-fuel fleet. Cellulosic ethanol uses non-food feedstocks with significant greenhouse-gas emission reductions, and the first commercial-scale plant is being built today in Soperton, Georgia. Many other non-food-based biofuels companies will be in the market in the next five years. Should we not look past our noses to the larger issues of dependence on oil?
• While corn prices certainly have some impact on biofuels, their impact is constantly overstated by sources like the WSJ. In fact, they would do well to see what the USDA has actually said on the subject. Yesterday, USDA Chief Economist Joe Glauber noted:
  

  On the international level, the President’s Council of Economic Advisers estimates that only 3 percent of the more than 40 percent increase we have seen in world food prices this year is due to the increased demand on corn for ethanol.

  As the USDA noted previously:
  

  Given that foods using corn as an ingredient make up less than a third of retail food spending, overall retail food prices would rise less than 1 percentage point per year above the normal rate of food price inflation when corn prices increase by 50 percent.

  The WSJ cited the USDA as evidence against me in their op-ed. Have they not been reading the press? I do believe the U.N. officials they cite are misinformed and have not done a full food and fuel cost analysis.

• I know the American Petroleum Institute has previously engaged in campaigns against corn ethanol, but the current campaign is run by the Grocery Manufacturer’s Association. In fact, based on presentations at the recent WSJ conference, the API and I have similar views on next generation non-food-based fuels, though our assessments of timing may differ. We do have shared investments with oil companies.
• What is responsible for the bulk of the food price increase? Principally soaring energy costs, increasing demand, and droughts in certain countries amongst others. The WSJ fails to note the impact of higher energy prices on food prices: A 2007 study by John Urbanchuk at LECG [PDF] suggests that increases in petroleum prices have 2-3 times more impact than increases in corn prices on the food Consumer Price Index alone.
• Furthermore, ethanol has played a significant role in reducing costs for consumers elsewhere. Merrill Lynch has estimated that oil prices may be up to 15 percent higher than current levels if not for ethanol. What impact might the withdrawal of biofuels and higher oil prices have on food prices? As noted in a press release issued by the USDA yesterday:
  

  According to the International Energy Agency, the biofuels production that has been available to the United States and European markets over the last three years has cut the consumption of crude oil by one million barrels a day. At today’s prices, that’s a savings of more than $120 million per day.

• In recent farm bill discussions, I have consistently advocated for higher cellulosic biofuel mandates over subsidies. Mandates reduce the ability of any specific party to manipulate or hinder the market by limiting access to biofuels. With regards to these mandates, I have proposed an adjustable Renewable Fuel Standard that can go up or down every year, depending on the availability of cellulosic fuels at a fair market price like $2.50 per gallon (more than a dollar below today’s gasoline prices). Such a “price capped cellulosic RFS” approach protects consumers by offering them an effective ceiling, while offering investors and producers assurance that all cellulosic fuels that are produced at these reasonable prices will be mandated.
• My calculations show that it is conceivable that not one additional acre of land may be needed to replace our gasoline under certain circumstances, but even in more conservative scenarios, the amount of land needed is small. Further insurance to ensure that greenhouse gas reductions from biofuels are significant can come from giving incentives (the carrot) to developing countries to reduce deforestation and providing a stick of banning biofuel (and maybe all agricultural exports) from countries that don’t meet deforestation reduction targets.

While I am certainly an advocate of biofuels, it is vital that we understand that biofuels themselves have differences — we can do them poorly, or we can do them right. We cannot discuss drugs without differentiating between cocaine and aspirin. Criticism of biofuels is certainly fair game (such as palm oil-based biodiesel from Indonesia’s rainforest, which actually hurts the environment more than it helps), but there is an obligation to stick to the facts. Unfortunately, the WSJ‘s editorial failed to meet even this basic threshold.

The lack of genetic optimization and research on cultural practices, harvesting, storage, and transport with would-be energy crops — miscanthus, sorghum, switchgrass, and others — means that there is significant potential for improvement. The application of advanced breeding methods like genetic engineering and marker-assisted breeding, limiting water usage through drought resistant crops, and large-scale application of biotechnology (i.e., optimizing the process by which plants conduct photosynthesis, or reducing stress-based yield losses) will also contribute to increased yields with fewer inputs.

More importantly, different energy crops are likely to be optimal for different climates — jatropha makes sense on degraded Indian land, but not in the American Midwest. Rather than a single dominant energy crop, we are likely to see a variety of feedstocks that allow specialization to local conditions, mixes, and needs, while mitigating the risks.

Some reported examples and datapoints of biomass yields speak to the reasonableness of our estimates of yields between 18-24 tons per acre by 2030 (e.g., Prof. Lee Lynd at Dartmouth):

• Miscanthus averaged 16.5 dry tons per acre per year, where switchgrass averaged 4.6 at 3 Illinois sites, with data taken over 3 years. Research in Europe notes yields ranging up to 16 dry tons per acre (PDF).
• Sugarcane ventures in Brazil (Allelyx is using GMO techniques, Canavalis is using more traditional plant breeding) are breeding energy cane that will likely result in a yield of 25 dry tons per acre/year of harvestable biomass. Similar progress is being made by USDA sugarcane geneticists in Louisiana.
• Megaflora Corp. has measured productivities of 28 dry tons per acre per year from crossing North American hardwoods with the paulownia tree in North Carolina. Similar progress is being made by USDA sugarcane geneticists in Louisiana.
• Anagenesis Corp claims of their trees, “one acre can yield 48x times as much ethanol as an acre of corn.”
• DOE estimates (PDF) suggest that collecting existing biomass with only a small change in agricultural practices could generate 1.3 billion dry tons of biomass in the U.S. (most of our biomass needs) and still be able to meet all food, feed, and export demands. This would be an alternative scenario to get biomass without energy crops.
• According to Prof. Mark Holtzapple at Texas A&M, high-yield sorghum can be grown in 35 U.S. states and produce yields as high as 25 dry tons per acre/year with low water usage.
• Researchers at Texas A&M have developed new “freakishly tall sorghum plants” that reach heights of nearly 20 feet — more than double the height of regular sorghum and yielding double the amount of crop per acre. They use little water and have been bred to prevent flowering (thus trapping more energy), and can be grown on marginal crop lands.

A wide variety of crops have potential as feedstocks for cellulosic ethanol. Bical notes: “The criteria for the ideal energy crop are high dry matter yield, perennial growth, and efficient use of nitrogen, water, other resources, and pest and disease resistance.” The previously cited Univ. of Illinois study compared corn, short-rotation coppice, and miscanthus versus a set of idealized criteria for energy crops and found miscanthus (and by extension, other C4 photosynthetic grasses) to meet most of the requirements (PDF, or see charts below). Of particular interest to me is miscanthus that “partitions nutrients back to the roots in the fall just before harvesting.” I figure crops that provided (and survived) energy for mammals in the prairies can now provide energy for humans!

Many of the advantages of miscanthus are also applicable to some of the other proposed feedstocks. The new, higher-yielding strains of sorghum developed at Texas A&M use less water than conventional sorghum (making them more drought-resistant) and are sterile (not flowering prevents the escape of energy). Their 20-feet height means that yields have effectively doubled. The table below (from Ceres) highlights the advantages and disadvantages of various feedstocks — however, it is notable that most noncellulosic sources (example, vegetable oils) would fail on the vast majority of the criteria.

Examples abound of people in action on energy crops. Ceres has been attacking the problems from a multitude of angles, and is utilizing biotechnology in combination with better crop practices (such as those highlighted earlier).

Firstly, they are attempting to increase the usable land available, by working on crops that can deal with problems such as drought tolerance (and recovery), heat tolerance, salt tolerance, and even cold germination. They are also working on increasing yields with plants that have shorter flowering times, greater photosynthetic efficiency, and greater shade tolerance.

Additionally, they are attempting to reduce the costs per acre by increasing the efficiency of nitrogen utilization, improving the efficiency of photosynthesis with lower nitrogen usage, increasing the biomass present in the root of the plant, and reducing costs through enzyme production while working to increase the gallons per acre that result from various feedstocks.They are also proposing better agronomy techniques like polycultivation (plots of monoculture crops interleaved together) as opposed to a polyculture (mixed crop cocktails).

As a whole, the company is developing genetically modified, commercial energy crops, and expects to have proprietary commercial varieties ready for market in two to three years and transgenic varieties in five to seven years. There are others with similar efforts.

Summary

I have highlighted some of the feedstocks that (I believe) are likely to meet feedstock needs, but there are many other potential sources not yet researched (or discovered!). In time, some feedstocks may prove to be more efficient than others, but local needs and transportation costs mean that cellulosic biofuels (utilizing local feedstocks) can be produced in many locations in the U.S. and worldwide.

The innovation ecosystem will ensure that, over time, new ideas will continue to be developed — the better ideas will persist as more and more intelligent people, resources, and capital join the field, and the best ideas will eventually rise to the top. Of course, traditional oil interests will continue to fight this trend with the hundreds of billions of dollars at their disposal, especially the national oil companies that own 80 percent of the world’s oil resources.

There is plenty of biomass available (computed here for the U.S., but similar calculations are possible for other world geographies). Biomass from energy crops can replace oil while improving traditional agriculture and biodiversity while reducing needs for chemicals and water for both the energy crops and the row crops that we use today. Far from being a “food versus fuel” battle, as many tunnel-vision critics have imagined, biomass-based income may be one of the few fundamental economic tools we may have to solve poverty issues in Africa.

Of course, biofuels can be produced as defined above, or we can produce biomass on land from cut-down rainforests. They can be done well or done poorly. It behooves us to regulate each biofuels facility and qualify its feedstock sources as being eco-qualified (a LEEDS-like rating for each biofuels factory).

1. crop rotation,
2. the use of polyculture plantations,
3. perennials as energy crops, and
4. better agronomic practices.

We address all four issues here. Though none of these have been extensively studied, early studies and knowledgeable speculation point to their likely utility. Further study of these techniques is urgently needed, especially the use of grasses or other biomass-optimized winter cover crops.

Crop rotation

I have proposed the usage of a 10 year x 10 year energy and row crop rotation. As row crops are grown in the usual corn/soy rotation, lands lose topsoil and get degraded, need increased fertilizer and water inputs, and decline in biodiversity. By growing no-till, deep-rooted perennial energy crops (like miscanthus or switchgrass — see below) for ten years following a ten year row crop cycle, the carbon content of the soil and its biodiversity can be improved and the needs for inputs decreased. The land can then be returned to row crop cultivation after ten years of no-till energy crops.

Currently unusable degraded lands may even be reclaimed for agriculture using these techniques over a few decades. A University of North Dakota study highlights some of the benefits for food crops. I expect similar or even greater benefits for food crop/energy crop long cycle rotations, especially in soil carbon content:

• Improved yields: a crop grown in rotation with other crops will show significantly higher yields than a crop grown continuously.
• Disease control: changing environmental conditions (by changing crops) changes the effect of various diseases that may set in with an individual crop, and crop rotation can limit (and often eliminate) diseases that affect a specific crop.
• Soil nitrogen: legumes (or other nitrogen-fixing crops) used as part of a rotation help to restore the nitrogen that has been depleted by previous crop harvests allow a field to remain fertile for longer periods. Energy crops in the rotation can increase soil carbon content and reduce the impact of topsoil loss materially.
• Better land: the study notes that farmers practicing crop rotations comment on improvements in soil stability and friability. In addition, crop rotations have the potential to increase the efficiency of water usage (by rotation deep-rooted and more moderately rooted crops, or rotation of perennials in long cycles with row crops).

One aspect of the crop-rotation approach is utilizing cover crops such as grasses, legumes, or small grains that are grown between regular crop production periods (i.e., winter for most crops, and summer for winter-specific crops such as winter wheat). As Part I details, Professor David Bransby has noted that such crops require no additional irrigation, and use about 30 percent of the fertilizer of regular crops like corn. Elsewhere, Professor Greg Roth at Penn State is studying the usage of specific winter cover crops (like hulless barley) and has noted it could be used to increase biofuel yields per acre.

In communication, Professor Roth notes:

One factor to consider for future research and thinking in this area is that winter cover crop yields are increased with earlier planting, especially in northern states. Planting is often delayed because we are waiting for the primary crop to dry down. If the primary crop can be harvested just after physiological maturity, then yield of both the primary and winter cover crops can be maximized.

He further noted that the system as a whole provides an excellent living ground cover.

In addition to providing biomass, winter cover crops provide the benefits of crop rotation — adding organic matter to the soil, recycling nutrients, and more efficient usage of soil and water resources. Further study of these winter cover crops as a potential biomass source is needed, but they could provide a significant portion of our biofuel land needs while improving the land’s ecology over just planting row crops and leaving the land unused during the winter. This will also improve row crop agriculture during the summer. It is even possible that winter cover crops could eliminate the need for most additional lands to meet our biofuels needs in the U.S.

Use of polyculture plantations

Another important crop practice is the idea of utilizing polyculture species instead of monocultures. This is particularly possible for energy crops, as many processes can accept a mixture of biomass types. The Land Institute notes that polycultures (and the resulting plant diversity) have significant benefits, from the provision of an “internal supply of nitrogen, management of exotic and other harmful organisms, soil biodiversity, and overall resilience of the system.” Further research shows that grasslands that suffer from overgrazing or drought tend to recover faster if there is greater biodiversity.

The Australian Rural Industries Research and Development Corporation notes (PDF) that “polyculture is shown to offer the proverbial ‘free lunch’ by producing more from less.” The report goes on to note that polycultures yield in greater amounts from smaller areas, and their yields are generally more stable than monocultures (with regards to income level and general risk). Furthermore, polycultures were found to be more efficient in gathering resources such as light, water, and soil nutrients. Elsewhere, Professor David Tilman at the University of Minnesota has highlighted the yield and environmental benefits of polyculture crops. These benefits are starting to gain recognition — Ceres Corporation has proposed an alternative approach they call polycultivation.

Illustration of Polyculture Prairie; Wes Jackson, The Land Institute

Perennials as energy crops

In contrast to standard annual crops which need to be replanted yearly, perennial crops (hopefully in polyculture prairies) will produce for multiple years before requiring replanting. As the Land Institute notes, perennial plants provide significant advantages, from cover against wind and soil erosion to improved soil quality, over time. Indeed, “it has been shown that restoring former cropland to perennial vegetation can actually return much of the soil structure and function characteristic of original prairie ecosystems.”

Similarly, the DOE’s Office of Science notes that “perennial grasses and other bioenergy crops have many significant environmental benefits over traditional row crops. Perennial energy crops provide a better environment for more-diverse wildlife habitation. Their extensive root systems increase nutrient capture, improve soil quality, sequester carbon, and reduce erosion.”

Plowing releases an enormous amount of carbon from the soil into the atmosphere. Simply by eliminating tillage, perennial energy crops sequester vast quantities of carbon, in addition to the carbon added to the soil in their roots. An NRDC study, “Growing Energy” (PDF), points out the advantages of a perennial crop (switchgrass) over most traditional row crops: “on average, switchgrass requires less fertilizer, herbicide, insecticide, and fungicide per ton of biomass than corn, wheat, and soybeans.” In addition, the study shows the cultivating switchgrass reduces soil erosion and improves soil carbon.

The advantage of increased soil-carbon is two-fold: a higher sequestration of carbon in the soil ( thus reducing carbon dioxide in the air), and an improvement of soil organic matter levels — truly a win-win scenario. In fact, NRDC shows that negative carbon emissions per mile driven are possible with biomass crop based fuels!

Annual vs. Perennial Root Systems; Wes Jackson, The Land Institute

The extensive roots of perennials, and subsequent access to nutrients, reduces the need for fertilizer (and thus farmer costs), while their evolution in naturally occurring ecosystems has provided them with a greater resiliency to stresses such as droughts, diseases, and insects. Today, perennial grasses like switchgrass offer significant potential as energy crops. While this has been difficult for row crops, energy crops are most suited to perennial, polyculture cultivation.

Importantly, use of these crop practices around perennial, crop-rotated energy crops will offer significant benefits to farmers themselves. One example of the use of perennial crops is highlighted in a University of Illinois study (PDF), along with other research by Ceres: on strictly economic terms, farmers are likely to be better off with miscanthus (a perennial grass) farming vs. a standard corn/soy rotation. The study in question pointed out that a 10-year rotation was likely to yield negative income for the corn/soy farmers, based on historical prices (hence the need for subsidies). In contrast, farmers could see significant profit when growing the energy crop, with improving soils and reduced needs for water and fertilizer even during the row crop phase of the rotation. In light of this opportunity, companies like Bical (U.K.) have been set up to provide “renewable and profitable diversification for farmers and landowners.” Today, it is Europe’s largest miscanthus developer and commercial producer.

Improved agronomic practices

In addition to the changes highlighted here, the use of better agronomic practices can also have a significant impact in raising yields. More than 85 percent of all corn grown in the U.S. is non-irrigated, leading to efficient water usage, according to the National Corn Grower’s Association. Elsewhere, the previously cited University of North Dakota study notes that practices like no-till or minimum-till farming with crop rotations have been shown to reduce wind and water erosion. The NCGA notes that no-till farming is “a practice whose time has arrived.” The CTIC (Conservation Tillage Information Center) notes that 20 percent of all corn surveyed is now grown utilizing no-till practices.

These practices have bourn fruit: even as the corn harvest has increased rapidly over the past 20 years, farmers have reduced soil erosion by 44 percent using a combination of conservation tillage and other soil-caring practices. Energy crops will accelerate these trends dramatically, because they make the farmer more money.

Other benefits to conservation practices exist: Professor David Montgomery of the University of Washington notes:

No-till farming can build soil fertility even with intensive farming methods. It could prove to be a major benefit in a warming climate. By stirring crop residue into the soil surface, no-till farming can gradually increase organic matter in soil, as much as tripling its carbon content in less than 15 years.

We do need strong regulation to ensure against land-use abuses. I have suggested that each cellulosic facility be individually certified with a LEEDS-like “CLAW” rating, and that countries which allow environmentally sensitive lands to be encroached be disqualified from CLAW-rated fuel markets.

We think a good fuel has to meet the CLAW requirements:

C — COST below gasoline
L — low to no additional LAND use; benefits for using degraded land to restore biodiversity and organic material
A — AIR quality improvements, i.e. low carbon emissions
W — limited WATER use.

Cellulosic ethanol (and cellulosic biofuels at large) can meet these requirements.

Environmentally, cellulosic ethanol can reduce emissions on a per-mile driven basis by 75-85% with limited water usage for process and feedstock, as illustrated later. Range, Coskata, and others currently have small-scale pilots projecting 75% less water use than corn ethanol, with energy in/out ratio between 7-10 EROI (though we consider this a less important variable than carbon emissions per mile driven).

Sustainable land use

The question about biomass production that arises first is about land use: how much will we need? What will it take? Is it scalable? For conservatism, I assume CAFE standards in the U.S. per current law, though I expect by 2030 to have much higher CAFE and fleet standards (hopefully up near 54mpg or a 100% higher that 2007 averages), which will dramatically reduce the need for fuel an hence biomass. Yes, this would include lighter vehicles, more efficient engines, better aerodynamics, low-cost hybrids, and whatever else we can get the consumer to buy that increases mpg.

There are many approaches to production of feedstock for biofuels. To make a material impact in replacing gasoline, major feedstocks need to collectively produce more than a hundred billion gallons in the U.S. — preferably more than 150 billion gallons, to replace gasoline. Replacing gasoline and replacing diesel involve different technologies and markets. The focus here is principally on gasoline replacement in America’s cars and light trucks, though I do briefly touch upon diesel feedstocks.

I believe that a sustainable biofuel needs yields of at least 2,000 gallons (ethanol equivalent) per acre in the long run, to meet the world’s oil replacement needs on a manageable amount of land (with the exception of winter cover crops that use no additional lands). I believe, as estimated in my papers elsewhere, that 2,500 gallons of ethanol equivalent per acre annually is a reasonable assumption. (Assuming corn grain yields of 140 to 170 bushels/acre, typical of the mid-Western corn belt, and 2.8 gallons of ethanol from a bushel of corn — the range in ethanol production from corn is only 392 to 476 gallons/acre.)

Chemical and water inputs, and the effect on biodiversity, should be minimal, if any. Cost should be below that of oil. Feedstock production should not materially increase the land under annual cultivation or affect food security, but should enhance energy security, reduce poverty, and increase rural incomes. None of the “food/feed crop” based biofuels (corn or sugar based) or classic biodiesel sources (vegetable oils) come close to these targets.

Is such a fantasy possible? Yes! Part I covers sources of biomass, Part II will cover agronomy practices for yield, biodiversity, water, and chemical efficiency, and Part III discusses the reasonableness of yield assumptions that lead to 2,500 gallons per acre. My calculations later show that if we can increase engine and automobile efficiency materially at the same time, we will need no additional land for biofuels.

Renewable feedstocks

Currently there are two primary feedstocks for the production of renewable biofuels to replace gasoline: sugar from sugar cane (primarily used in Brazil) and starch from corn (the source of most U.S.-based ethanol). In Asia and Africa, tapioca, potatoes, and other starch crops are being used (sadly!). Amongst feedstocks, there has been significant discussion regarding both corn stalks and wheat straw. I am not a huge fan of wheat straw or corn stalks, though they are possibilities.

In my opinion, cellulosic ethanol plants need to reach production levels of 100m gallons per year per plant to achieve economies of scale. (Expensive fuels don’t sell! A local conversion plant near the field and distributed supply would be ideal, and I continue to investigate technologies that might make this possible). That would dictate feedstock needs of around 1,000,000 tons per year, per plant. In the short and medium term, at biomass yields of 10 tons/acre (by 2030 we expect about 20-25 tons/acre), 100,000 acres of land would be needed per cellulosic ethanol plant, or 40,000 acres by 2030. With yields of approximately 2 tons/acre, the usage of either corn stalk or wheat straw would effectively quintuple land usage and substantially increase transportation distances and costs — hence my skepticism.

In addition, there is value to plowing corn stalks and wheat straw under to improve the soil. Winter cover crops like legumes and winter rye (no biomass-optimized winter cover crops have been developed, but grasses are a good candidate), grown on row crop lands during their idle period during winters, can yield 3-5 tons/acre with no additional land usage and may actually improve land ecology where row crops are grown anyway. To quote Prof. Bransby, a renowned agronomist from Auburn University, in a personal communication:

Regarding water and fertilizer needs of cover crops: The answer is that no irrigation is needed, and fertilizer needs are about 30% of the fertilizer requirements of corn. Also, there are multiple benefits from cover crop/traditional crop rotations (compared to traditional crops with no cover crops), including better soil protection/less soil erosion, improved soil organic matter, better water holding capacity, suppression of crop pests, etc. Provided this is done with conservation tillage practices, there should be no serious negative environmental impacts. …

It is reasonable to assume that winter cover crops can be grown on the same land that our summer traditional crops are grown, and summer cover crops can be grown on land where traditional winter crops (mainly winter wheat) are grown. As far as I know, most of this land is currently idle/fallow at the time when these cover crops would be grown. From the USDA National Agricultural Statistics website the 2007 acreage (in millions) for our major traditional crops is as follows: corn, 93; soybeans, 63; cotton, 11; sorghum, 8; winter wheat, 44; Total = 219. At a modest estimate of 3 tons/acre/year, this would provide 657 million tons of biomass annually. With research and genetic improvement, I believe the yield could be increased to 5 tons/acre within 10 years, for a total of 1.1 billion tons/year. Acreage for all annual crops is 317 million. For various reasons, it is unrealistic to assume that 100% of land in traditional crops could be planted to cover crops to produce biomass. Maybe 70%?

To be conservative, in my estimates I have scaled that down to 50% of forest waste and annual land for winter cover crops. My estimates suggest that any feedstock transportation beyond about 50-75 miles (preferably under 30 miles) will reduce its competitiveness, unless the crop is essentially free (like winter cover crops), in which case a maximum 100 mile radius might make sense.

Energy crops and winter cover crops will reduce the need of substantial transport infrastructure for biomass — and answer critics’ questions about infrastructure: If these plants were distributed around the country it would substantially reduce need for infrastructure. If most of the biofuels are not concentrated in the Midwest, smaller pipelines will suffice. Biomass crops will be widely distributed and will minimize the need for infrastructure.

To compete with $50/barrel oil (which we are unlikely to see again without significant reduction in demand), I believe feedstock cost based on current conversion efficiencies (which are subject to improvement), delivered to the factory, has to be below $50/ton of dry biomass (plus or minus 25% depending upon feedstock type). As such, I limit (in my estimates) potential incremental land using feedstocks to crops that yield over 10 tons/acre in the mid-term — effectively, “energy crops." I should also note that a number of “biomass concentration” approaches are being investigated that may ultimately reduce biomass transportation costs even further, but are currently in early research stages. For example, one approach is the production of “bio-oil” at small-scale localized biomass pyrolysis units. This bio-oil can then be transported to a centralized facility for conversion and up-grading to a liquid fuel or used as-is for applications like home heating oil. (See: Kior).

Source: David Bransby & Ceres (PDF)

As discussed earlier, I estimate feedstock costs need to be under $50 per ton delivered within the next decade (and lower in the short run) to compete with $50/barrel oil. Switchgrass and miscanthus-like grasses (C4 photosynthetic grasses) and certain trees are the most likely feedstocks to provide our liquid fuel requirements in the long run. Tree crops developed for the paper pulp business will also make for good crops. Many client paper mills are going out of business, and these communities are crying for local economic stimulus and jobs. Given these prices, biomass has the potential to substantially increase farm income and reduce the need for farm subsidies.

Waste feedstocks?

While I believe that energy crops will meet most of our feedstock needs, I have invested time and money in the potential of waste feedstocks, as I think they can make a material impact and reduce the above cited biomass needs by an additional 10-20% or more. Promising waste feedstocks include municipal sewage, even municipal solid waste — the paper, wood, construction waste, even lawn clippings that are brought to a landfill. Something that has been a problem (especially with disposal) may soon become an opportunity!

There is sufficient municipal waste to produce tens of billions of gallons of ethanol. The waste is available in large enough quantities (in most major cities) to justify waste-specific plants and actually has a negative cost (usually a tipping fee). I’m also intrigued by the possibility of using farm organic waste. One of my favorites is a proposal (LanzaTech) to take all the waste carbon monoxide from steel mill flue gases (already collected and piped, available to go into a process) to make ethanol. There is enough carbon monoxide coming out of today’s steel mills to produce over fifty billion gallons of ethanol! Forest waste could be treated similarly, and is discussed below.

Numbers

Now to the numbers. How much biomass can convert to biofuels without subsuming other uses for land and biomass? More than enough! There are four principal sources of biomass and biofuels I consider

1. energy crops on agricultural land and timberlands using crop rotation schemes that improve traditional row crop agriculture and recover previously degraded lands
2. winter cover crops grown on current annual crop lands, using the land during the winter season when it is generally dormant (while improving land ecology)
3. excess forest product that is currently unused (about 225 million tons, according to the U.S. Department of Energy), and
4. organic municipal waste, industrial waste and municipal sewage.

For the U.S., the world’s most oil intensive economy, my calculations show that a small dose of vision, two decades of agricultural development, and process technology that is in pilots today, with less than 5% of our annual crop and timberlands, could more than supply our biofuel needs to replace all of our light-vehicle gasoline usage by 2030. The table below shows one of many possible scenarios:

While my projections above are based on my most likely scenario, I’d like to lay out a more optimistic vision. In this scenario (as of 2030), I project usage of 70% of annual crop land for winter over crops (approximately 225M acres instead of 150M acres), and 70% of the excess forestry biomass (170M dry tons). Early experimental data has shown that other biofuels may produce yields equivalent to 150 gallons of ethanol equivalent biofuels per ton (as opposed to the 110 projected in the table above), long before 2030 (based on data disclosed confidentially to me).

In this (optimistic) scenario, all of our light-vehicle transportation needs would be met without using any devoted energy cropland! Going further, about 20% of our corn production today is used for ethanol — in this scenario, the 20% of 90M acres (18M acres) devoted to corn for ethanol today could be “released” and utilized for other purposes! And that’s only the beginning — one of our investments is working to improve the mileage efficiency of the standard ICE (Internal Combustion Engine) by 50-100% for ethanol and gasoline, dramatically reducing biomass needs. Increased CAFE standards will help too. Additional degraded land can be recovered if our 10 year by 10 year biomass crop rotation scheme is followed (described in Part II).

In combination with the other factors listed above, we are confident that biomass needs will not be a limiting factor by 2030.

It is worth noting that unless we dramatically reduce carbon emissions and stop global warming, millions of acres of land will be “dislocated” from its current uses and must be figured into the “net land use” equation. Though many technologies will contribute to displacing oil-based fuels, I don’t believe any other technology is pragmatically likely to achieve as large a reduction in emissions from transportation fuels.

A recent Booz Allen Hamilton study noted that worldwide, there is up an additional 6 billion acres of rain-fed land available for agricultural production. (Clearly there would be opportunity cost associated with this land use.) Farmers will make more money. We will sell less subsidized crops — an issue over which the Doha round of trade talks have broken down, as developing countries demand fewer agricultural subsidies in the west. (Organizations like Oxfam now oppose the dumping of subsidized US food crop in Africa, where agriculture is often the only means of income generation.) We will import less oil and export fewer crops, allowing farmers in poor countries to make a living (helping reduce third world poverty) while we in the U.S. improve our trade balance.

The Prius gets 46 mpg, while a similar-sized Toyota Corolla gets 31 mpg. One of our investments (Transonic) is trying to make an engine that (if it works!) can be placed in a Prius to produce a vehicle that will have lower carbon emissions than the hybrid Prius at below $1,000 in marginal cost. Other efficient engine efforts abound. If battery technology efforts like Seeo (one of our investments), EEstor, silicon nanowire batteries (or similar efforts that others have funded and many we are evaluating) are successful, we will get the same effect (better petroleum mpg) with a plug-in — if we can also clean up our grid at the same time!

From my perspective, if I have to pick between a 5-10 times lower cost/performance battery and a cleaned-up electrical grid in the next 5-10 years (or even 20-25 years), or pick cellulosic fuels in 50 percent more efficient ICE engines, I consider the latter lower risk and significantly more probable.

I am confident that cellulosic biofuels without significant land-use impact or biodiversity impact can achieve costs of $1.25/gallon in less than five years and below $1.00 per gallon in 10 years (more details on that, especially on land use / biodiversity and sources of biomass, in a upcoming paper). At this price point, the technology will be adopted broadly and rapidly worldwide, even if oil prices decline substantially.

If hybrids and clean electricity progress faster, or biofuels progress slower, then we will get electricity powering the cars of tomorrow soon. Within 25-50 years, we may well see a transition to an all-electric propulsion fleet, depending on the relative technical progress in battery, fuel, and engine efficiency technology.

One has to guess at the probability and expected value (cost) of such uncertain outcomes. Nonetheless, it appears to me that biofuels are likely to be a significant source of our non-oil transportation energy needs for the next few decades. The extent to which we use them is going to be a function of the cost of oil, the cost of biofuels, and the scalability of biofuel technologies — as addressed in the chart below.

Powering the Automotive Fleet for the Future (from our 2007 biofuel pathways paper [PDF])

Essentially, I consider replacing coal-based electricity plants (50-year typical life) a much longer, tougher slog than replacing oil with biofuels (15-year car life). No one will dispose of old plants. Incrementally, we will start adding new, cleaner plants, but it will take a long time to clean up the U.S. (and especially the worldwide) grid. (I do believe renewable power plants will take a large share of new plant construction quickly — see my coal paper [PDF].)

As my white papers make clear, I consider hybrids and biofuels complementary strategies. Incidentally, the GM Volt serial plug-in hybrid is rumored to be a flex-fuel car. Its evolution, and that of its cohorts, will depend upon the relative progress of the technologies. As ICE engine efficiency, biofuels carbon content, battery cost/performance, and electric grid carbon content progress at different rates, the relative percentage of the cars powered from each of these sources will change. Meanwhile, we continue to invest in breakthrough engines, batteries, and biofuels, and hope that all technologies progress rapidly.

Where do I see hope for hybrids (aside from unforecasted battery breakthroughs)? I am cautiously bullish on serial hybrids, which can run on the battery but offer gasoline as a backup fuel — always available in the tank if the battery runs out. Configurations that, like the Prius, use small amounts of battery capacity (1.6kWh Prius vs 16kWh rumored for the GM Volt) but in serial hybrid configurations like the Volt are promising, as they help engine management and hence engine efficiency.

I have chosen to ignore the expensive cars like the $100,000 Tesla or the Audi plug-in, even though they are potentially successful cars. At that price, they aren’t likely to impact the worldwide adoption of low-carbon cars. I have also chosen to ignore folks who rant at SUV buyers. As one blogger said: Why are you telling other people what they value? What does what you value have to do with what others value? We can’t change consumer preferences as a fix-all; we need technologies to meet consumer and societal needs while reducing CO2 emissions as much as possible.

For the record, I am a fan of much higher CAFE standards, because they make sense as national and global policy (the recently passed bill was a start). With regards to public funding, I am not a fan of continuing any subsidies for hybrids, biofuels, solar power, wind, etc., beyond the first five to seven years of their market introduction. Aid ought to be developmental, not neverending (for example, large oil subsidies still continue). We have helped all technologies, clean and not so clean, get started (e.g., nuclear, with over $100 billion in cumulative subsidies; we’re currently subsidizing IGCC coal with carbon capture and sequestration). I find it somewhat ridiculous that we still have massive subsidies — much larger than we offer renewables — for fossil fuels such as coal and oil, as well as nonfossil fuels like nuclear power.

One potential worry for me is a scenario where battery costs actually rise if 50-80 percent of the world’s car fleet is running on batteries and the raw materials start to escalate in cost. (This happened to corn, silicon, and other commodities; biomass is unlikely to suffer from this, for reasons explained in an upcoming paper.) Cost and sustainability at scale matter more than anything else.

But as Alan Kay said, the best way to predict the future is to invent it.” Our goal is to back entrepreneurs who are doing just that, be they ethanol, butanol, cellulosic gasoline or diesel (we are not fans of classic biodiesel), solar, wind, batteries, higher efficiency lights, cars, pumps, homes, appliances, and more. We have invested in all of these areas, as detailed in my green investing paper [PDF].

I think, as my papers detail, within 25 years we can get most gasoline replaced by biofuels that reduce carbon emissions by 75-85 percent, and have 75 percent or more of the world’s car fleet capable of running on these fuels within ten years. That market penetration, infrastructure switchover, consumer acceptance, and cost effectiveness is unlikely to happen with any other technology. (It’s possible, of course, with breakthroughs I hope happen but am not currently seeing. If they do happen, I will be the first one funding them — I’m out trying to find them right now.)

Some of you will surely pick nits, find errors in our calculations, or disagree with the numbers (all corrections are welcome), but I doubt any of it will change my fundamental conclusions. If it does, you will see a new post and a new direction from us.

PS: GM unveiled a V6 flex-fuel Hummer and a partnership with Coskata, which produces cellulosic ethanol. A Prius running on gasoline will have twice the carbon emissions per mile as this 16mpg (estimated) Hummer V6 running on Coskata’s ethanol. Papers on renewable electric/coal/nuclear power, biodiesel, biomass, biofuels pathways, food vs. fuel, and green investing, as well as our portfolio, are available here.

How do carbon emissions per mile driven compare for various cars? The Volt is expected to be “less than $30,000″ with a 1.0L engine. Compare this to the Corolla, with a 1.8Lengine (peak hp of 126; 31 mpg) and a price of $14,400. It’s worth noting that this is in the optimistic, no-gasoline-use scenario for the Volt, computed below along with carbon emissions for the Volt running on cellulosic ethanol and gasoline, and emissions for comparable-sized ICE cars. Questions on the Volt’s actual usage patterns remain: how many people will recharge everyday? What percentage of total miles will be on the grid, and what percentage on gasoline?

Note: A hypothetical “plug-in Prius” with a Volt-sized 16kWh battery would probably cost more than the Volt. Hence the above comparison of a plug-in Volt and a hybrid Prius is unfair to the GM Volt. The monthly cost includes the monthly amortized cost of purchase (7.5 percent loan — completely financed over 5 years) + cost of fuel (1,000 miles/month). Battery cost of $7,600 (at $400kWh + $1,200 control) in 2010 and $4,000 ($200kWh + $800 control) in 2017 is included in the Volt purchase price of $30,000 — these battery cost estimates are 40-60 percent lower than current estimates of $700-1000kWh and automaker margin is not included. Fuel cost assumptions of $0.11c/kWh electricity (U.S. average per EIA) and 5 miles per kwh for the Volt, $3.00 gasoline cost to consumers (roughly just the material cost of “oil” in gasoline at $100 oil price, before taxes — actual costs are likely to be higher for consumers if oil prices stay high), $2.25 per gallon corn E85 to consumers before taxes ($1.75 production cost per gallon), and $1.50 per gallon cellulosic E85 (based on $1.00 production cost before taxes) in 2017. A 25 percent mileage discount is used with ethanol (equal to current average EPA de-rating for E85). Does not include expected improvement on E85 mileage relative to gasoline or the carbon emissions from battery manufacturing, which are likely to make Prius and battery numbers about 10-20 percent worse on carbon emissions. None of the costs account for subsides or taxes, which we assume will be zero or equal for all technologies by 2017. No vehicle attribute changes are assumed.

The numbers are necessarily estimates, and apples-to-apples comparisons are difficult. Notably, they do not include the carbon emissions for battery manufacture amortized over the assumed 100,000-mile life of the battery. In addition, speculation persists that the GM Volt battery will be leased to consumers — and that the $30,000 price tag is not inclusive of any leasing costs. I suspect these errors are material, and make the electric numbers look materially better than they are. (Can somebody provide a source for a reasonable estimate?)

The assumptions behind this table are as follows: the Volt gets 5 miles/kwh. Given U.S. electrical grid emissions of approximately 1.35lbs per kWh (EIA estimates), that gives us a per-mile emissions level of roughly 0.32 lbs/mile (after adjusting for an electrical roundtrip storage efficiency at 85 percent for the battery, and assuming it is running on battery alone) or about 144 grams of carbon dioxide per mile. On gasoline alone (assuming no battery charging from electricity) the same car’s emissions would be 219 grams per mile.

Using only cellulosic ethanol, the same car would have 75 percent lower emissions, or 55 grams per mile (assuming trucks, etc., supplying biomass, and transportation still running on fossil fuel). We have modeled gasoline emissions for tank-to-wheels to be 80 percent of that from well-to-wheels emissions (roughly what the EIA uses). Any help in refining these numbers would be appreciated.

The percentage of coal in the U.S. grid is expected to go up, not down. Contrary to most forecasts, I think we can do better than that and limit coal-powered electricity to the point where its percentage will decline (we have investments to make renewable grid electricity cheaper than next-gen IGCC coal plants), but the decline will be gradual given typical power plant lifespans. Despite what we might wish for — driving on solar or wind power — the reality is likely to be different. For those of you who want to compute solar PV panels on your roof, its effective cost is between $0.25 (Low-cost panels in sunny Arizona?) to $0.50 (Foggy Seattle?) per kWh, depending upon your cost and the location of the panels. In a few locations wind might be cost-effective, but that would be for a small minority of car owners.

What about the cost of driving a mile? When we get to the incremental clean-grid costs, renewable electricity is expected to cost about $0.10-0.15c/kWh (prior to taxes; $0.06-0.10 per kWh delivered to utilities) delivered to the consumer at any large scale, or about $0.02-0.03 per mile from a vehicle of the Volt class. A production cost of $1.00 per gallon of biofuel (I suspect lower costs are likely in 10-15 years) will likely result in a $1.50 consumer price point (prior to any taxes, which vary by state), so one would have to get 50mpg (very doable; essentially the GM Volt gas-only mileage) in a flex-fuel car to get a similar variable cost per mile driven.

Yes, I do expect — within the decade — a good flex-fuel engine to get the same mileage on biofuels as it does on gasoline (for example, an ethanol-capable engine running at a compression ratio of 16 — ethanol’s higher octane rating means that today’s engines are not optimized for it). That will increase ethanol mileage by another 25 percent, which is not figured into our monthly cost reduction calculations. I should be clear that all numbers are necessarily approximations, probably to within 25 percent.

Corn ethanol, which has been heavily maligned in the mainstream media, reduces carbon emissions (on a per-mile-driven basis) by almost the same amount as today’s typical hybrid. Despite the similar environmental profiles, one is a media darling and the other is demonized, despite its more competitive economics.

My main complaint has been the lack of critical analysis in this space. Corn ethanol (which I don’t believe is a long term solution) has been framed by the oil companies’ marketing machine, farm policy critics, and impractical environmentalists (though the NRDC and Sierra Club support corn ethanol’s transition role as I do, subject to certain constraints). The Prius and hybrids have been positioned by Toyota’s marketing machine. The public is gullible.

I am open and hopeful, especially longer term, on serial plug-in hybrids (a point I’ll address in Part III). Price still remains a major issue. Even for serial hybrids, the ability to keep cost, or at least monthly payments, close to that of a regular ICE (internal combustion engine) car is unclear. Maybe another blogger with knowledge of practical automotive costs can detail the likely trajectory of serial hybrid costs (say, with a typical 40-mile “battery range”), as this remains the critical question.

The Prius is the corn ethanol of hybrid cars, and we should recognize that. It has increased investment in battery development, but beyond that it is no different than Gucci bags, a branding luxury for a few who want the “cool eco” branding (70%+ of Prius buyers make more than $100k per year).

In this series, I will try to lay out my views on hybrids as a whole — what I believe hybrids are good for and what they are not. (My paper on Biofuels Pathways (PDF) delves into the details.)

The primary question is one of cost: how many people will pay $5,000 more (today’s typical parallel hybrid premium) for a hybrid that reduces carbon emissions by 25%? Especially when they can get a flex-fuel car that costs about the same as a regular ICE car and can reduce emissions by 75% or more when run on cellulosic biofuels?

The Prius is selling well as a car model (so are Gucci bags) but in irrelevant numbers as a percentage of worldwide new car sales. It and its cohort hybrids are unlikely to make 50% penetration of the new car sales worldwide (or U.S.) anytime soon. Flex-fuel cars went from under 5% of new car sales in Brazil to over 75% in less than three years because they don’t cost any more than a regular car. They are projected to be 50% of GM, Ford, and Chrysler’s new car sales in the U.S. by 2012.

Serial or parallel plug-in hybrids or electric vehicles (EVs) are unlikely to achieve these kind of penetration numbers any time in the next twenty years. A plug-in, serial hybrid with sufficient driving range to get consumer acceptance (based on automotive folks I have talked to), powered mostly by electricity, would cost at least $5,000 more (probably much more) for the average buyer. (The GM Volt is rumored to have a price point of “less than $30,000″ — I suspect EV’s with “sufficient” range of around 150 miles would be at least $15,000 more.)

The exact percentage by which they would reduce carbon emissions is uncertain, dependant on the location and source of electricity — how much fossil fuel is used in the power grid. Total carbon dioxide emissions from power generation in the grid might one day reach zero, when we have all renewable power in a region and all cars are fully plug-in with large batteries … but when might that happen? Even if we reached a point where 50% of the cars of the U.S. fleet were today’s hybrids, emissions reductions would be an inadequate 10-20%! (Serial hybrid carbon reductions are estimated in Part II.)

Could we get people in India and China, the fastest growing car markets, to ante up this much additional money, when the biggest thrust in volume cars in India is to reduce the cost of the whole car to $2500? Our goal has to be solving the global problem in carbon emissions, and we need to pick technologies that will be adopted by market forces worldwide. We will need cost points such that 50-80% of the car buyers worldwide adopt these new “low-carbon” technology automobiles (in each market — market conditions and price points vary widely form the US to India).

I believe that battery costs will decline and performance increases will continue, but my review of the technology suggests that the upside with known chemistries is limited to maybe 2-4x change in cost per kwh of capacity — a significant improvement to be sure, but not nearly enough to change the hybrid or plug-in hybrid cost dynamic.

That being said, we at Khosla Ventures are investing in batteries to try and enable breakthroughs that can beat this 2-4X barrier, hopefully to 5-10X. Other technologists are doing the same. Still, the outcomes look uncertain at this point and, more importantly in our opinion, far less predictable than $1.00-per-gallon production cost, 75-90% carbon reduction capable cellulosic biofuels. Others may differ with our assessment, but we base it on the status of technologies we see under non-disclosure agreements.

Furthermore, it should be noted that it takes approximately fifteen years for the automotive fleet to turn over in the U.S. Any impact will be gradual, not instantaneous. What is the “adoption” cost point and timeline for these technologies, when the fifteen year fleet turnover period can start? I suspect it is when the additional up-front cost of hybrids is paid back through lower fuel costs within 3-4 years.

When will that happen in the U.S.? In the world? In the long term, I still believe we can reach this laudable, clean-electricity-driven transportation goal, but probably not in the next decade or even two (more calculations on carbon emissions per mile later). I do believe that fifty years from now we will probably be running an all-electric fleet for transportation (be it personal cars or public transportation).