Report No. 3021

Alcohol Production from BiomassPotential and Prospectsin the Developing CountriesJune 4, 1980

Industrial Projects Department

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwisebe disclosed without World Bank authorization.

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FOR OFFICIAL USE ONLY

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

API - American Petroleum InstituteCR - Compression Ratioc.i.f. - Cost, Insurance and FreightEEC - Europian Economic CommunityF.O.B. - Free on BoardLDPE - Low Density PolyethyleneMON - Motor Octane NumberNER - Net Energy RatioPVC - Polyvinyl ChlorideRON - Research Octane NumberSRI - Stanford Research InstituteSTI - Secretariate of Industrial Technology

This document has a restricted distribution and may be used by recipients only in the performanceof their oMcial duties. Its contents may not otherwise be disclosed without World Bank authorization.

ALCOHOL PRODUCTION FROM BIOMASS

POTENTIAL AND PROSPECTS IN THE DEVELOPING COUNTRIES

Page No.

SUMMARY AND CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . .i-xi

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. ETHANOL CHARACTERISTICS . . . . . . . . . . . . . . . . . . . . 2

A. Physical/Chemical Properties . . . . . . . . . . . . . . . 2B. Energy Content of Ethanol . . . . . . . . . . . . . . . . . 4

III. CURRENT AND POTENTIAL USES . . . . . . . . . . . . . . . . . . 4

A. Ethanol Use as Boiler Fuel . . . . . . . . . . . . . . . . 5B. Ethanol Use as Gasoline Substitute . . . . . . . . . . . . 5C. Ethanol Use as Diesel Substitute . . . . . . . . . . . . . 7D. Ethanol Use in Chemical Industry . . . . . . . . . . . . . 8

IV. HISTORIC PRODUCTION AND CONSUMPTION OF ETHANOL . . . . . . . . 10

A. World Ethanol Production . . . . . . . . . . . . . . . . . 10B. Historical Ethanol Consumption . . . . . . . . . . . . . . 11C. Recent Ethanol Prices . . . . . . . . . . . . . . . . . . 14

V. BIOMASS RAW MATERIALS FOR ETHANOL PRODUCTION . . . . . . . . . 14

A. Sugars ................ . . . . . ... 15B. Starches . . . . . . . . . . . . . . . . . . . . . . . . . 17C. Celluloses. . . . . . . . . . . . . . . . . . . . . . . . . 18

VI. ETHANOL PRODUCTION TECHNOLOGY . . . . . . . . . . . . . . . . . 19

A. Current Technology . . . . . . . . . . . . . . . . . . . . 19B. Technology Development ...... ........... . 22C. Environmental Impact ....... ........... . 23D. Surplus Bagasse . . . . . . . . . . . . . . . . . . . . . 24E. Energy Balance for Ethanol Production . . . . . . . . . . . 25

This report was prepared by Messrs. Harinder Kohli, Donald Brown, PierreLarroque, N.C. Krishnamurthy and Rakesh Bhan of the Industrial ProjectsDepartment, and T. James Goering of the Agriculture and Rural DevelopmentDepartment.

Page No.

VII. CAPITAL COSTS OF ALCOHOL PLANTS . . . . . . . . . . . . . . . 28

A. Sugarcane-Based Plants ...... .......... . . 29B. Molasses-Based Plants . . . . . . . . . . . . . . . . . . 30C. Cassava/Corn-Based Plants . . . . . . . . . . . . . . . . . 30D. Economies of Scale . . . . . . . . . . . . . . . . . . . . 31

VIII. ECONOMICS OF ETHANOL PRODUCTION AND USE . . . . . . . . . . . . 33

A. General Approach ........ .. .......... . 33B. Economics of Ethanol as Gasoline Blend . . . . . . . . . . 34C. Economics of Ethanol for Chemical Applications . . . . . . 41D. Employment Impact ........ ... .. ........ 43

IX. PROSPECTS FOR ALCOHOL PRODUCTION IN DEVELOPING COUNTRIES . . . 43

A. Agricultural/Energy Self-Sufficiency . . . . . . . . . . . 44B. Economic Parameters . . . . . . . . . . . . . . . . . . . 46C. Potential Countries . . ...... . ....... . . . 47

X. POLICY ISSUES RELATED TO ALCOHOL PRODUCTION IN THE DEVELOPINGCOUNTRIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

A. Competition between Food and Energy Crops . . . . . . . . . 48B. Need for Integrated Alcohol Systems . . . . . . . . . . . . 49C. Need for National Alcohol Program Policies . . . . . . . . 50

XI. PROPOSED BANK ROLE . . . . . . . . . . . . . . . . . . . . . . 50

Annex

Economics of Ethanol Production from Sugarcane,Molasses, Cassava and Corn

ALCOHOL PRODUCTION FROM BIOMASS

POTENTIAL AND PROSPECTS IN THE DEVELOPING COUNTRIES

SUMMARY AND CONCLUSIONS

i. Biomass ethanol is the major renewable energy source which offersimmediate prospects of providing a premium liquid fuel based on domestic re-sources to partially substitute for petroleum products in selected developingcountries. Forestry products and hydroelectric power, the other renewablemajor energy sources, are most suited to produce other non-liquid forms ofenergy. Ethanol use as a substitute for the lighter petroleum products (suchas gasoline, diesel and naphtha) would complement efforts to promote coal,wood and hydroelectric power as substitutes to heavier petroleum products(fuel oils) thus permitting the theoretical replacement of the major parts ofthe petroleum barrel. The basic technology for producing ethanol from anumber of biomass raw materials is well known and is appropriate for easytransfer to most developing countries, even though many technical improvementsare currently being developed to enhance its economics. Ethanol productionrequires medium scale industrial units located in rural areas and can becomean important additional source of permanent rural employment at a relativelylow cost. In addition, alcohol production can offer markets for surplusagricultural production, stabilize rural incomes, and help stem the migrationof rural population to the urban centers.

ii. Despite these attractions, biomass ethanol production cannot offera general solution to the energy problems of the developing countries. Inthe immediate future, practical difficulties in creating successful agro-industry-energy systems would most likely limit the economic production ofalcohol production on a large scale, except in a few countries such as Braziland the US. More importantly, over the medium term, availability of sufficientagricultural land would be the constraint to any large substitution of petroleumon a worldwide scale. Even if the entire current world production of molasses,sugarcane, corn and sweet sorghum, for which commercially proven fermentationtechnology is available, were converted, the total ethanol production wouldsubstitute for only about 6-7% of the total current world oil consumptionor about 20% of total gasoline consumption. These prospects would improveif the yields of energy crops are substantially increased and new technologiesare developed for the economic conversion of cellulosic materials, but thesedevelopments are unlikely to have any major impact during the next 5-15years. Still, ethanol production in individual countries, particularlythose with a substantial agricultural base, could lead to significant savingsin their petroleum imports.

iii. Two different types of alcohol are of main interest, ethyl alcohol(ethanol) and methyl alcohol (methanol), both of which can be produced eitherfrom hydrocarbon (petroleum/gas) products or from biomass. Because of tech-nological constraints concerning methanol production and use, and because thebiomass raw material base of most petroleum-deficit developing countries islikely to be more suitable for ethanol (rather than methanol) production,

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ethanol is considered as the alcohol of most immediate interest to the develop-ing countries. This report, therefore, discusses primarily the potential andprospects of ethanol production from biomass in these countries.

iv. Ethanol, an organic chemical, currently has three main applications:(a) as a potable alcoholic beverage; (b) as an intermediate chemical; and(c) as a feedstock for the production of other chemical materials. In thelast two applications, fermentation (biomass) ethanol had been steadily losingground to cheaper petroleum-based substitutes including synthetic ethanol.Until the beginning of this century, ethanol was also considered as an attrac-tive automobile fuel. Chemical applications constitute still the largest useof ethanol worldwide. Ethanol is a versatile speciality chemical, whichtechnically can be used for a wide variety of applications both as an inter-mediate chemical and as a raw material for the production of other chemicalproducts. It is in this latter use that ethanol has, until recently, beensteadily substituted by the cheaper petroleum-based derivatives, such asethylene. For use as an intermediate chemical, ethanol has actually been alsoproduced synthetically from petroleum derivatives (synthetic ethanol). Themain direct use of ethanol (apart from beverage use) is as a solvent, in theproduction of toiletries and cosmetics, detergents and disinfectants, food anddrugs processing, surface coating, and pharmaceuticals. Ethanol is also being,used for the production of many small volume chemical products. However,since ethylene is the basic building block in the petrochemical industry, anylarge-scale substitution of petroleum products in the industry by fermentationethanol is dependent on ethanol-derived ethylene becoming competitive withnaphtha or ethane derived ethylene.

v. With the more than ten-fold increase in petroleum prices during thelast decade, biomass-based ethanol is again being considered for a number ofapplications it had previously yielded to petroleum products. As a petroleumsubstitute, biomass-based ethanol has four possible major applications as:(a) boiler fuel to substitute for fuel oil or other fuels; (b) gasolinesubstitute; (c) diesel substitute; and (d) chemical product or feedstock.Basically, the use of ethanol as boiler fuel does not exploit its potentialas a superior liquid fuel, while as a diesel substitute ethanol suffers fromserious technical drawbacks. On the other hand, its unique physical/chemicalproperties increase ethanol's value, beyond its heating value, as gasolinesubstitute and as a chemical feedstock.

vi. Ethanol use as a gasoline blend and/or substitute for gasoline hasdrawn the most attention both because it can directly substitute for a premiumpetroleum product used on a large scale worldwide and because this applicationcan take advantage of its many physical/chemical characteristics. When usedin an internal combustion engine as a gasoline blend or substitute, ethanolsignificantly changes combustion efficiency and also results in changes inoctane rating and other engine performance characteristics such as starting,carburetion and emissions. Ethanol can be used as automobile fuel either as"gasohol," in which case anhydrous (99.8%) ethanol is mixed with gasoline upto a 20% ratio, or as hydrous or straight alcohol, in which case hydrated (94%purity) ethanol is used straight. The economic value of alcohol as gasolineadditive is about 15-20% higher than as a straight gasoline substitute.

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vii. Ethanol can be produced from three main types of biomass rawmaterials: (a) sugar bearing materials (such as sugarcane, molasses, sweetsorghum, etc.) which contain carbohydrates in sugar form; (b) starches (suchas cassava, corn, babassu mesocarp, potatoes, etc.), which contain carbo-hydrates in starch form; and (c) celluloses (such as wood, agriculturalresidues, CLc.) whose carbohydrate form is more complex. Production ofethanol from these materials includes, except in the case of sugars, threestages: first, conversion of carbohydrates into water soluble sugars, thenfermentation of these sugars into ethanol, and finally separation of ethanolfrom water and other fermentation products by distillation.

viii. The main attractions of sugar bearing raw materials for alcoholproduction lie in the fact that their carbohydrate content is already inthe fermentable, simpler sugar form and that they also produce their ownsource of fuel in the form of bagasse. Starches contain carbohydrates ofgreater molecular complexity, which have to be broken down to simpler sugarsby a saccharification process, which adds another process step and increasesthe capital and operating costs. In addition, value of the carbohydrates incorn is higher than the carbohydrates of, for example, molasses, and both cornand cassava (the two starch materials of most interest) require an outsidesource of fuel. Carbohydrates in the cellulosic materials have an evengreater molecular complexity and have to be converted to fermentable sugarsby the more complex acid hydrolysis process, which also has a lower overallcarbohydrate-to-alcohol conversion efficiency.

ix. The table below shows ethanol yield per ton of the major potentialbiomass raw materials, as well as estimated ethanol yield per hectare ofland for average developing country situations.

Ethanol Yields of Main Biomass Raw Materials

Biomass Ethanol Yield Biomass Yield OverallRaw Material Per Ton of Biomass Per Ha of Land Ethanol Yield

(Liters/ton) (ton/ha) (Liters/ha/yr)

Molasses 270 n.a. n.a.Sugarcane 70 50.0 3,500Cassava 180 12.0 2,160Sweet Sorghum 86 35.0 3,010Sweet Potatoes 125 15.0 1,875Babassu 80 2.5 200Corn 370 6.0 2,220Wood 160 20.0 3,200

x. The basic technology for ethanol production from sugar and starchraw materials is well known. In sugarcane-based plants, which are simplestin design, the cane is washed and crushed, and filtered to separate thecellulose ("bagasse") from sugar juice. Bagasse is dried and burned togenerate steam and power. The sugar juice is concentrated and sterilizedand then fermented in a batch fermentation system with yeast. Ethanolis separated from the fermentation solids and the bulk of the water in the

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8-10% alcohol solution by stripping and distillation by batch process. Thewaste stream, called stillage, contains about 1-2% fertilizer nutrients, whichmust be disposed of properly to avoid potential environmental problems. Thebasic process for other sugar materials is the same. Starch-based plants aresimilar in design, but have an extra processing step at the front end to breakdown the starch into fermentable sugar. Furthermore, since cassava roots andcorn contain virtually no cellulose, there is no "bagasse" formed and theenergy requirements for these plants, which are slightly higher than for asugarcane-based plants because of the extra processing step, must be suppliedfrom external sources. In general, processes involved in alcohol productionfrom celluloses are more complex and larger scale than those from sugars andstarches. There are also no demonstrated processes available yet for commer-cial scale plants in developing countries. However, considerable developmentwork is underway in many countries and it is possible that during the nextdecade cellulosic materials can become an important biomass source of alcohol.

xi. Until recently, alcohol production from biomass was based on oldtechnology since the demand for ethanol for potable and chemical uses was notvery sensitive to processing costs. Therefore, process and equipment designhave not benefited from the recent advances in the design and engineering ofother chemical plants. However, with the increasing interest in ethanol as afuel, a large number of major engineering companies, equipment manufacturersand other parties have initiated efforts to improve the technology base anddesign of alcohol plants to improve their efficiency. Most of these effortshave focused on four major areas:

(a) development of continuous fermentation technology to yieldhigher alcohol concentration (up to 12% alcohol contentliquor instead of the 8-10% currently possible). Additionalmicrobiological research and development work is underwayon improving the yeast strains to yield still higher alcoholconcentration in the fermentation step. This improvedtechnology should ultimately result in substantial reductionsin energy requirements for ethanol production;

(b) improvement of the energy efficiency of ethanol productionthrough more efficient distillation and heat recovery design,using engineering concepts commercially proven in otherchemical industries;

(c) utilization of agricultural wastes for feedstock and/or fuelpurposes. A major constraint in cassava and corn utilizationsis the need for an external fuel source. Agricultural wasteproducts could be used for fuel in modified boiler designs; and

(d) development of alternative energy crops to reduce relianceon sugar-based biomass. Typical crops would be sweet sorghum,wood, babassu and other crops which produce a high yield ofstarch or sugar per hectare and also produce a usable cellulosecomponent for fuel.

xii. Practically all existing biomass-based alcohol plants based onsugarcane and molasses, are relatively small in size (60,000-120,000 liters/day) and employ old plant designs which are not very efficient, partic-ularly in their energy balance. Except in the case of Brazil, there is alsolack of actual experience with the construction of a large number of plants ofdifferent sizes and at different locations. The uncertainty is even greaterfor other raw materials such as wood and cassava, since there is practicallyno industrial scale experience with such plants. In addition to considerableindustrial development and demonstration work necessary to improve theprocessing efficiency, significant development effort is also needed in theagricultural area to improve crop yields, develop optimum crop rotationpatterns and convert some existing subsistence crops (e.g., cassava, babassu)into commercial energy crops.

xiii. Based on data submitted by a number of engineering firms, contractorsand consultants for planned or potential projects in the US, Africa, Asia andLatin America, and the information collected by a recent Bank mission to Brazil,staff have developed a rough comparison of key parameters of alcohol productionfrom different biomass materials shown in the table on the following page.

xiv. The economics of biomass ethanol production and use depend on anumber of complex factors, some of which are difficult to quantify. Thespecific factors that complicate the economic analysis include: (a) ethanolcan potentially be produced by a large number of biomass materials, most ofwhich have not yet been tried on a commercial scale; (b) economic cost ofbiomass materials is very country specific, depending on land availability andquality, agricultural productivity, labor costs, etc.; (c) existing ethanolproduction technology was developed for applications where cost of productionand energy consumption were not important, and efforts to develop technologysuitable for large-scale ethanol production have only recently started; (d)limited actual experience is available outside of Brazil on ethanol plantconstruction and operation; (e) ethanol production costs depend on the plantlocation, size and technology, all of which vary a great deal between coun-tries; (f) economic value of ethanol varies substantially between variousapplications and only limited data is available on large-scale ethanol use;(g) economic price of gasoline and ethylene (the two major petroleum productsethanol can substitute) in individual countries would depend not only on thefuture petroleum prices, which are uncertain, but also on domestic refiningand chemical industry characteristics; and (h) most countries consider sub-stitution of imported petroleum energy by domestic resources of substantialstrategic value, which while a legitimate factor, is difficult to quantify.Economics of ethanol production and use, therefore, are very country andproject specific.

xv. This report analyzes the economics of alcohol production in'standardized' plants operating under parameters that simulate the conditionsexpected to prevail in different countries. While this analysis cannotsubstitute for the country (and project) specific analyses, which must beundertaken to determine merits of large-scale ethanol production in individualcountries, it has identified broad parameters which can be used to selectcountries and situations where further in-depth reviews appear justified. Theresults of the analyses are illustrated in a series of charts included in thereport and briefly summarized below.

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KEY PARAMETERS OF ETHANOL PRODUCTION FROM DIFFERENT BIOMASS MATERIALS

Unit Molasses Sugarcane Cassava`/ Corn a

A. YIELDS

Ethanol Yield/ton of Biomass liters/ton 270 70 180 370Biomass Yield/ha of Land b/ tons/ha n.a. 50 12 6Ethanol Yield/ha of Land liters/ha n.a. 3,500 2,160 2,220

B. PROCESSING PLANTS

Economic Plant Size Range liters/day 60-240,000 120-240,000 60-120,000 120-240,000Number of Operating Days days/year 180 180 275 275Annual Production in 120,000liters/day Plant: - million liters/year 21.6 21.6 33.0 33.0

- million US gallons/year 5.7 5.7 6.9 6.9- tons/year 17,100 17,100 26,100 26,100

Installed Cost of 120,000liters/day Plant in: /- Low Cost Countries - / US$millions 6.8 7.6 9.1 9.1- Medium Cost Countries c/ US$millions 7.6 9.5 11.4 11.4- High Cost Countries c US$millions 11.4 14.3 17.2 17.2

C. ECONOMICS AS GASOLINE ADDITIVE

Ex-Plant Biomass Raw Material Costfor 10% ERR d/

- At US$31/bbl FOB Crude e/ US$/ton 62 14 13 neg.- At US$35/bbl FOB Crude e/ USS/ton 70 16 17 1.2 -

- At US$43/bbl FOB Crude e/ US$/ton 85 20 23 1.8 -

Ex-Plant Biomass Raw Material Costfor 8% ERR d/

- At US$31/bbl FOB Crude e US$/ton 65 14 16 neg.- At US$35/bbl FOB Crude e/ US$/ton 73 17 19 1.4-- At US$43/bbl FOB Crude e/ US$/ton 90 22 25 2.1 f

a/ Based on current designs and fuel oil as fuel source.b/ Based on current average yields in Brazil, except for corn which is based on US average.c/ Low cost country data for sugarcane plants based on Brazil costs, others on data supplied by

various sources and extrapolations by Bank staff. All costs in late-1979 Dollars.d/ For medium cost countries.e! Assuming ethanol value equal to that of gasoline in volume terms. Gasoline price assumed as 1.3

times that of ex-refinery light Arabian Crude price, by volume; this relationship assumed to godown with increased crude prices. Crude price assumed to increase at 3% p.a. in real terms,gasoline price at 2.5% p.a., and raw material cost at 1.0% p.a.

f/ For corn US$/bushel. One bushel weighs 56 lbs. One ton equivalent to 39.4 bushels.

Industrial Projects Department

May 1980

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xvi. In the "medium capital cost countries", 1/ sugarcane-based ethanolproduction is likely to be economic at the present oil price levels of aboutUS$31/bbl f.o.b. Arabian Gulf (roughly equivalent to an ex-refinery gasolineprice of about US$0.27/liter or US$1.00/US gallon) provided the economic costof sugarcane at the factory gate is less than about US$14/ton. Sugarcaneproduction costs in many relatively efficient sugar producing countries(such as Brazil, South Africa, and the Philippines) are considered to bebelow this level. Sugarcane opportunity value corresponding to the Bank'slong-term sugar price projection of US$0.16/lb is about US$17/ton. Theeconomic viability is most sensitive to the assumption about the economicprice of gasoline and its future increases and to the cost of raw material.The economics of ethanol production from sugarcane are also sensitive to thecapital cost of ethanol capacity, which is determined by (a) the installedplant costs of the alcohol distillery, (b) number of operating days per year,and (c) economies of scale.

xvii. Regarding production from other biomass raw materials, ethanolproduction from molasses with bagasse as the fuel source (in a medium invest-ment cost country) is likely to be economic at present petroleum prices incase the economic cost of molasses is less than about US$60/ton at the plant.However, in case fuel oil (or some other high value fuel) is used in thedistillery instead of bagasse because of inefficiencies in plant operations,the economics of ethanol production become significantly less attractive.Cassava and corn-based ethanol plants are less attractive compared to sugar-cane and molasses, due to their need to purchase an outside source of energyand their higher capital cost. To compensate for these drawbacks, theseplants must obtain their raw materials at a relatively low cost; deliveredcost of cassava would need to be below about US$13/ton and of corn less thanabout US$1/bushel for plants based on currently available technology and apetroleum fuel source. All these numbers must be treated as broad orders ofmagnitude, since as mentioned, the economics of ethanol production are verycountry and project specific. While over the long term, ethanol productionfrom wood offers considerable promise, significant technology developmentefforts are required before wood becomes an economic source of liquid energy.

xviii. The general prospects for alcohol production from biomass in thedeveloping countries can tentatively be assessed by first identifying thecountries which offer an agricultural/energy balance which would give impetusto the consideration of a biomass energy program, and then locating amongstthem those countries that offer the economic parameters which are likely tomake alcohol production economically attractive. The developing countrieswith surplus agricultural production but an energy deficit are likely to havethe strongest will to develop large biomass energy programs to reduce theirdependence on imported energy, and most of the countries with viable alcoholprograms are likely to belong to this group. Many of the large developingcountries, however, are net importers of both agricultural products andenergy. The lack of adequate agricultural production is normally related toscarcity of agricultural resources and would be reflected in higher economiccost of biomass raw materials. In most of these countries, therefore, ethanolproduction is likely to be attractive only if based on surplus biomass materialsuch as molasses and agricultural crop residues (or sugarcane during periods ofworld sugar surpluses.)

1/ See Item B in table on page vi.

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xix. The relative economic merits of alcohol production in the potentialcountries will vary depending on the specific economic parameters of theiragricultural, industry and energy sectors, the most critical of which are:

(a) Cropping Pattern: Countries with existing large-scale and/orsurplus production of sugarcane and molasses are more likelyto have alcohol programs than countries where the agriculturalproduction is oriented towards crops like wheat, corn, coffee,tea, or soybean.

(b) Economic Cost of Biomass raw materials production. Countrieswith surplus and/or low cost biomass materials are attractivecandidates for alcohol programs. Relatively cost efficientsugarcane and cassava producers are also likely to find ethanolproduction for gasoline blend use economic.

(c) Plant Capital Costs: Countries with extensive experience inindustrial plants, large domestic markets for equipment manu-facturing and relatively low labor costs are likely to have muchlower investment costs and therefore more economic alcoholproduction, than countries with infant industrial sectorsthat rely heavily on imported equipment and expatriateassistance in plant construction and operations;

(d) Distribution Costs: Landlocked countries or remote regionswith limited infrastructure, where the economic value of gaso-line substitution is very high, may justify some ethanolproduction even when the raw materials and/or plant costsare high; and

(e) Fuel Source: For ethanol production based on non-sugarcanebiomass, availability of low cost, non-petroleum fuel source(e.g., wood, cheap coal) is important.

xl. Biomass ethanol production can generate a large number of iobs,primarily in the rural areas, at a relatively low cost. For example, it isestimated that the additional direct employment to be created by Brazil'salcohol program between 1980-85 will total about 450,000 at an investmentcost per job created of about US$10,000. While the actual number of new jobsthat can be created by potential alcohol production in most other countrieswould be a fraction of this number and the cost per job would be different,biomass alcohol production does offer an attractive opportunity for increas-ing rural employment.

xli. The possibility of large scale biomass alcohol production has posedthe question of whether, and to what extent, such a development is likely toincrease competition for land and other agricultural resources which wouldotherwise produce food or other products. The issue is complex and sometimeemotional, involving as it does economic, political and social considerations.

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It is most usefully discussed within the context of particular countries.Basic considerations in assessing the extent of future competition for agricul-tural resources are the relative price movements for energy and food. On aglobal basis, a sharper increase in energy prices than in food or most otheragricultural products is plausible, at least over the next decade. Assumingthis occurs, the potential land use conflict between food, export and energycrops will increase as economic forces increasingly tend to draw agriculturalresources into energy production. Biomass energy production would requiredifficult choices and priorities cannot always be determined by stricteconomic criteria. Biomass energy policy also raises important questions ofboth income generation and distribution since it would frequently affect largenumbers of low-income people.

xlii. The potential land use conflict may be more imagined than real incountries where abundant agricultural resources exist and new land can bebrought into production at reasonable cost. Elsewhere, proper governmentpolicies may reduce possible competition between energy cropping and produc-tion of food and other agricultural commodities. These policies shouldattempt to reduce the economic cost/value of the raw material used in biomassenergy production. The soundest long-term approach to deal with the issue ofpotential conflict in land use between energy and food crops is likely to beto promote the use of raw materials, such as wood and cassava, which can begrown on lands not generally suitable for agricultural production. Forexample, in semi-arid areas with high production risk for most commercialcrops, it may be possible to grow cassava as an energy crop. Such effortswill require a carefully focused and sustained research and development effortin individual countries. Support of this type of research, involving bothbiomass production and utilization, should be a part of all developmentprograms for biomass energy.

xliii. Alcohol production from biomass would require close coordinationbetween the industry, agricultural, energy and transportation sectors.Generally, in most countries the petroleum, industry and agricultural sectorswould have somewhat conflicting interests in the fuel alcohol question. Thepetroleum sector, responsible for alcohol blending and distribution, requireshigh quality alcohol, is reluctant to change the refinery mix, prefers equaland assured monthly supplies, and wants a low price for alcohol. The alcoholindustry sector, on the other hand, would want a higher price for alcohol,low alcohol quality to reduce costs, assured alcohol markets and raw materialsupplies, and alcohol shipments that match its short production season toreduce inventory and investment costs. The agricultural sector would preferhigh prices and guaranteed markets for its output, and, over the long term,the right to shift to other crops should changed circumstances make it moreprofitable to do so. Successful alcohol projects will involve a close associa-tion of agricultural systems, alcohol production and assured markets in theenergy sector linked by a reliable raw material collection and alcohol distri-bution network. Alcohol plants, therefore, cannot be viewed in isolation andmust be designed and appraised as part of an integrated alcohol system. Thiswill not only minimize the risks associated with alcohol projects, but wouldalso allow the projects to be designed after considering local or regionalfactors.

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xliv. While promoting alcohol production, strong and complementary govern-ment policies will be essential to accommodate the above mentioned differentand often conflicting needs of various sectors of the economy involved.The main areas needing government policy actions would include: (a) activepromotion of ethanol use for gasoline blend (or other economic applications),through demonstration projects and agreements with the automobile and chemicalindustry; (b) development of energy efficient ethanol plant designs, includingthrough provision of government financing support; (c) promotion of alcoholproduction by guaranteeing offtake and facilitating assured raw materialsupplies; (d) encouraging production of biomass raw materials by offeringappropriate incentives and providing necessary agricultural research, exten-sion and credit facilities, and (e) designing a cohesive pricing system forthe energy/industry/agricultural alcohol system to overcome typical largedistortions in the agricultural and energy pricing, and to provide financialincentives to promote production of alcohol as a petroleum substitute.

xlv. The most appropriate mechanism for arriving at appropriate policydecisions and extending the above incentives would be to develop a comprehen-sive national alcohol program, with adequate representation from all governmentand private sector bodies involved. It is essential that each national alcoholprogram be conceived and evaluated in the context of overall national develop-ment policy and objectives, and that the Bank Group appraise and supportindividual alcohol projects in the context of such overall policies.

xlvi. The Bank can play an important role in assisting the developingcountries in: (a) evaluating the potential, prospects and viability ofalcohol production; (b) developing policies necessary to prudently exploitthis potential where justified; (c) designing national alcohol programs; (d)transferring appropriate technology through financing of these programs; and(e) formulating and strengthening institutions and organizations responsiblefor this activity. Our initial work so far in a number of countries indicatesthat assistance from agencies such as the Bank is urgently needed in thesecrucial areas to allow the developing countries, either with surplus biomassraw materials or with large biomass production potential, to quickly andefficiently develop this renewable energy source.

xlvii. A decision by the Bank at this time actively to support economicallyjustified alcohol programs will help draw attention of policy makers in thedeveloping countries to the potential (and limitations) of alcohol productionfrom biomass. It also could be expected to have a catalytic effect on otherfinancing sources; and even if active Bank support is limited to alcoholprograms in a few selected countries, it may encourage exploitation of thispotential in a larger number of countries. The Bank can also facilitatetransfer of experience with alcohol programs among its member countries.Finally, Bank support of alcohol production programs based on biomass isconsistent with its efforts to promote development of non-conventional andrenewable sources of energy. This new area of activity will complementincreased Bank lending for the development of conventional energy sources suchas petroleum, gas, coal and hydro-power.

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xlviii. Considering the complexity of factors that determine the economicsof alcohol production in individual countries, the difficult economic andsocial trade-offs required and the lack of experience with large-scale alcoholprograms outside of Brazil, a cautious, though constructive, approach isproposed for the Bank's involvement in this new area of activity. It isimportant that while the Bank encourages prudent development of this newenergy source, it should not unduly raise expectations about the potential ofalcohol production. Thus, in its work, the Bank must emphasize both thepotential and limitations of alcohol production from biomass in helping tomeet the liquid energy needs of the developing countries.

ALCOHOL PRODUCTION FROM BIOMASS

POTENTIAL AND PROSPECTS IN THE DEVELOPING COUNTRIES

I. INTRODUCTION

1.01 Alcohol production from biomass has been undertaken by man forat least 2,000 years, when Egyptians produced it for potable purposes. Atthe time of introduction of automobiles on a commercial scale towards the endof the last century, alcohol was initially considered as an obvious fuel.Alcohol from biomass was also a key raw material source for chemical produc-tion well into this century. However, with the large discoveries of petroleumsources and the steady decline in the delivered cost of petroleum productsuntil the beginning of last decade, biomass source alcohol lost markets topetroleum-based products such as gasoline, diesel, naphtha, fuel oil andethylene. However, the ten-fold increase in petroleum prices during the lastdecade and the increasing concerns about the adequacy of future petroleumsupplies have resulted in renewed interest in alcohol production from biomasssources. This renewed interest is based both on economic and strategicreasons.

1.02 Biomass-based alcohol is the major renewable energy source whichoffers immediate prospects of substituting at least partially petroleumproducts, by providing a premium, liquid fuel. By substituting lighterpetroleum products (such as gasoline, diesel and naphtha), alcohol use wouldcomplement efforts to promote coal and hydroelectric power as substitutes toheavier petroleum products (fuel oils) thus permitting, at least theoreti-cally, the replacement of the complete petroleum barrel. The basic technologyfor producing alcohol is well known and can be transferred easily to mostdeveloping countries, though technical improvements are desirable and feasiblein many areas to further enhance its economics. Alcohol production involvesmedium-scale units which need to be located in rural areas and can become amajor source of additional jobs in the rural sector at a relatively low cost.Under certain circumstances, alcohol production could offer markets forsurplus agricultural production and help stabilize rural income. However,economics of alcohol production and consumption even at the current petroleumprices are heavily dependent on the specific situation of the agriculture,industry and energy sectors of individual countries. Large scale alcoholproduction would also involve difficult trade-offs between food and energycrop production in most countries.

1.03 Two different types of alcohol are of main interest, ethyl alcohol(ethanol) and methyl alcohol (methanol), both of which can be produced eitherfrom hydrocarbon (petroleum/gas) products or from biomass. Ethanol can beproduced from a wide variety of biomass material (sugars, starches and cel-luloses), its production technology is proven, widely available and simple, ithas a wide range of potential applications as a chemical feedstock, and itsuse as a gasoline blend or substitute poses no serious technical or environ-mental issues. The technical capability to produce methanol from wood, thoughdemonstrated, is less developed, and from the gasification of other biomassmaterials not yet commercially demonstrated. Methanol also has a more limited

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application as a chemical raw material than ethanol, and it presents sometechnical and environmental problems as an automobile fuel since it is toxic.For these technical reasons and because the biomass raw material base of mostpetroleum-deficit developing countries is likely to be more suitable forethanol production, ethanol is considered as the alcohol of most immediateinterest to the developing countries. This paper, therefore, discussesprimarily the potential and prospects of ethanol production from biomass inthese countries.

1.04 The paper is based on the findings of Bank staff work on thesubject during the past 18 months, which included a review of the BrazilianNational Alcohol Program and a 12-country study carried out by outsideconsultants. The next six chapters (Chapters II-VII) of the report are oftechnical nature and discuss the physical and chemical characteristics ofethanol, its energy content, current and potential uses in the transportation,industry and energy sectors, historic production and consumption pattern,present and potential raw material sources, production technology and expectedcosts of alcohol plants. Chapter VIII discusses the economics of ethanolproduction and use, and identifies key variables which determine economics ofethanol production under plausible cost and price relationships. Chapter IXreviews the prospects of ethanol production in developing countries, andsuggests a tentative profile of countries where economics of ethanol produc-tion appear to be promising enough to justify undertaking further in-depthreviews. The major issues which would need careful consideration whiledesigning National Alcohol Programs in developing countries are brieflydiscussed in Chapter X. Finally, Chapter XI discusses the potential role ofthe Bank Group in promoting prudent development of this renewable energysource.

1.05 Because of the rapidly changing nature of the world petroleumsituation, any analysis of the economics of alternative energy sourcescarries an element of uncertainty. The likelihood of major improvementsin alcohol production technology also cannot be ruled out for the mediumterm. This paper must, therefore, be regarded as of indicative nature.The feasibility of any particular alcohol project at a given time can onlybe determined by a careful country and project specific appraisal.

II. ETHANOL CHARACTERISTICS

A. Physical/Chemical Properties

2.01 Ethanol is an organic chemical, with common uses as a solvent, inmedicine and for drinking purposes. It can also be used as a fuel but isgenerally less efficient than hydrocarbon fuel sources (except as noted inpara 3.05). Main physical and chemical properties of ethanol are comparedwith methanol, gasoline, diesel, and fuel oil in the table on the followingpage:

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Main Physical/Chemical Properties of Ethanol and Hydrocarbon Fuels

Property Ethanol Methanol Gasoline Diesel Fuel Oil

Formula CH3CH2OH CH30H C4 to C12 C14 to C9 C20+

Hydrocarbons Hydrocarbons Hydrocarbons

Molecular weight 46.1 32.0 100-105 avg. 240 avg. -

Composition (weight percent)Carbon 52.2 12.5 85-88 85-88 85-87Hydrocarbon 13.1 12.5 12-15 12-15 10-11Oxygen 34.7 50.0 Neg. Neg. Neg.

Specific gravity 0.79 0.79 0.72-0.78 0.83-0.88 0.88-0.98

Boiling temperature, C 78 65 27-225 240-360 360 +Flash point, C 13 - -43 38 66

Autoignition temperature, C 423 878 F 257 - -

Flammability limits (volume %)Lower 4.3 - 1.4 - -

Higher 19.0 - 7.6 - -

Octane Number (Research) 106-111 106-115 79-98 - NA(Motor) 89-100 82-92 71-90 - NA

Cetane Number 0-5 NA 5-10 45-55 NASolubility in water Infinite Infinite 0 0 0

NA - Not applicable.

Source: American Petroleum Institute (API).

2.02 Ethanol is completely soluble in gasoline, diesel or fuel oil,provided that no water is present in the system. If water is added, thealcohol preferentially absorbs the water and separates into two phases,which makes the mixture useless as automotive fuel. Although anhydrous(99.8% purity) ethanol is completely miscible with gasoline at normal tem-peratures, ethanol is extracted by contact with small amounts of water,separating into an upper gasoline-rich phase and a lower alcohol-rich phase.The alcohol-water phase would stall car engines and is corrosive to normalengine parts. Since gasoline storage systems normally contain some water,"gasohol" blending and distribution require strict quality control to minimizewater introduction and blending as close to final consumer as possible tominimize water separation problems.

2.03 The properties affecting automotive combustion efficiency (calorificvalue, flash point, vapor pressure, autoignition, flammability limits, andoctane rating) are substantially different for ethanol compared to hydro-carbon fuels. Analysis of this subject is complex and has been studied indetail by a number of researchers 1/. In general, ethanol mixes and combusts

1/ Typical references are: (a) API publication No. 4261, July 1976;(b) C. B. Pullman, University of Santa Clara, November 1979; (c) J. L.Keller, Union Oil Company, November 1979; and (d) Brinkman, et al, (vs)Society of Automotive Engineers, February 1975.

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well with gasoline in internal combustion (or otto-cycle) engines. The com-bustion properties of diesel are substantially different from gasoline orethanol, and ethanol cannot be used as a diesel substitute without otheradditives (para 3.11).

B. Energy Content of Ethanol

2.04 Heats of combustion of several common fuels are shown below:

Calorific Values of Common Fuels

Btu/lb kcal/kg kcal/l

Gasoline 18,900 10,500 7,700Diesel 18,500 10,280 8,738Fuel Oil (No. 6) 17,200 9,560 8,795Ethanol 11,500 6,390 5,048Methanol 8,570 4,760 3,790Coal (typical low ash) 8-10,000 4,440-5,550 -

2.05 The economic value of a fuel is a function of (i) the calorificvalue of that fuel; (ii) efficiency of combustion system; and (iii) variousother properties, such as environmental impact and ease of use, that varywith application. The impact of these three factors on ethanol's economicvalue as fuel is different for different applications, as discussed in thenext Chapter.

III. CURRENT AND POTENTIAL USES

3.01 Ethanol currently has three main applications: (i) as a potablealcoholic beverage (e.g., vodka, gin); (ii) as an intermediate chemical (foruse in toiletries, cosmetics, pharmaceuticals, etc.); and (iii) as a feed-stock for the production of other chemical materials (e.g., acetaldehyde).In the last two applications, fermentation (biomass) ethanol had been steadilylosing ground to cheaper petroleum-based substitutes including syntheticethanol (Chapter IV). Until the beginning of this century, ethanol was alsoconsidered as an attractive automobile fuel. With the more than ten-foldincrease in petroleum prices during the last decade, biomass-based ethanolis again being considered for a number of applications it previously yieldedto petroleum products. As a petroleum substitute, biomass-based ethanol hasfour possible major applications as: (a) boiler fuel to substitute for fueloil or other fuels; (b) gasoline substitute; (c) diesel substitute; andchemical product or feedstock. The technical aspects which determine thefeasibility and merits of these applications are discussed below, while theeconomics of these applications, as noted previously, are reviewed in ChapterVIII. Basically, the use of ethanol as boiler fuel does not exploit itspotential as a superior liquid fuel, while as a diesel substitute ethanolsuffers from serious technical drawbacks. On the other hand, its uniquephysical/chemical properties increase ethanol's value, beyond its heatingvalue, as a chemical feedstock and as gasoline substitute.

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A. Ethanol Use as Boiler Fuel

3.02 Ethanol, in a direct combustion use such as boiler fuel, wouldsubstitute for fuel oil in a direct ratio of their calorific values. Thisapplication does not take advantage of its other chemical/physical charac-teristics. Thus, ethanol's energy value as a boiler fuel is about 66% of thefuel oil value by weight or 57% by volume. Boiler combustion efficiency isvirtually 100% with overall thermal efficiency in the range of 75-85%. Thisapplication, while technically the easiest, is unlikely to prove economic inthe near future as discussed later.

B. Ethanol Use as Gasoline Substitute

3.03 Ethanol use as a gasoline blend and/or substitute has drawn the mostattention both because it can directly substitute for a premium petroleumproduct used on a large scale worldwide and because this application can takeadvantage of ethanol's many physical/chemical characteristics. When usedin an internal combustion engine as a gasoline blend or substitute, ethanolsignificantly improves combustion efficiency and octane rating, and alsoresults in changes in other engine performance characteristics such as start-ing, carburetion and emissions. Ethanol can be used as automobile fuel eitheras "gasohol," in which case anhydrous (99.8%) ethanol is mixed with gasolineup to a 20% ratio, or as hydrous or straight alcohol, in which case (94%purity) ethanol is used straight. The economic value of alcohol as gasolinesubstitute is quite different in these two (anhydrous or hydrous) applications,as described below.

3.04 Establishing the economic value of ethanol relative to gasoline asan automobile engine fuel is a complex combination of the physical-chemicalproperties of ethanol compared to gasoline, combustion efficiency, detailedengineering specifications of the engine fleet, road conditions and emissionstandards. Actual mileage performance is difficult to measure for the variousfuels since it is difficult to establish controlled test conditions that atthe same time correspond to a wide variety of vehicles and road conditions inany country, and the large number of variables that need to be evaluated. Thebest compromise technique appears to be laboratory dynamometer tests that giverelative but repeatable results.

3.05 The principal factors affecting fuel efficiency and thereforeeconomic values are octane rating, engine compression ratio and carburetorfuel/air mixtures for combustion. A "normal" gasoline engine utilizing lowoctane gas (87-90 RON 1/) would have a compression ratio (CR) of about 7-8 to1. Older models of this gasoline engine design had been adjusted to run witha fuel-rich mixture to yield quicker ignition and acceleration at the expenseof fuel economy and higher exhaust emission. More recent engine carburetionspecifications in the developed countries call for a lean fuel/air mix toimprove fuel economy but at some loss of performance (e.g., accelerationand cold start characteristics). Mileage tests, principally in Brazil and theUS, indicate that this "normal" engine gives approximately the same fueleconomy with regular 87-90 RON gasoline or a blend of "gasohol" up to a 20%ethanol concentration. Overall engine performance and fuel efficiency,can be substantially improved by increasing compression ratio to 12-15 to 1.

1/ Research octane number.

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However, such a design change requires a much higher octane fuel (about 96-98RON) to avoid uneven combustion (or "pinging") in the cylinder of the engine.Such engine specifications were common in the high performance cars in theUS during the 1960s and to some degree now in Europe.

3.06 Ethanol, which has a much higher octane number, when used in gasoholincreases the octane number of the gasoline blend, depending on the basegasoline octane number (a 20% blend with 87 RON gasoline would increase thegasohol octane number to 94 RON). This octane boosting allows the elimina-tion of the environmentally harmful lead additives from gasoline which areadded to boost octane number by 3-5 points; alternatively it would allowsubstantial energy savings at the refinery operations to the extent lessprocessing is needed to produce a lower octane number gasoline (unleadedgasoline costs 4-5% more than regular gasoline due to this extra processing).However, such savings are relevant mainly in the (developed) countries where(i) the octane rating of gasoline is high; (ii) use of lead additives isconsidered environmentally unacceptable; and/or (iii) gasoline demand as aproportion of total oil products demand is high, requiring extra refineryprocessing.

3.07 Existing internal combustion automobile engines do not require anymodifications to run on gasohol of up to 20% ethanol blend. Tests conductedin many countries and practical experience in Brazil, show that cars obtainsubstantially the same mileage performance (e.g., fuel economy) whether theyare run on alcohol or on regular gasoline; individual test result would dependon different factors (including octane rating, fuel value, car type, thermalefficiency, ambient conditions, etc.) which have an impact on mileage perfor-mance. Thus, the opportunity value of ethanol as gasohol is consideredequivalent to the economic cost of gasoline.

3.08 'Straight ethanol has significantly different combustion propertiesthan straight gasoline. To maximize performance with straight ethanol, theengine design needs to be different (including a higher compression ratio) totake advantage of the higher octane rating (110 RON) and particular physical/chemical characteristics of ethanol. Based on tests by the Brazilian autoindustry, it is estimated that fuel economy of straight ethanol used in 11-12CR engines is 83-85% of that of gasoline used in 7-7.5 CR engines (i.e.,relative ethanol specific consumption of 1.18-1.20 times). The tests, whilenot wholly representative of actual road conditions and not particularlydesigned to optimize gasoline tests while tending to optimize alcohol tests,are nevertheless indicative of the range possible with currently availableengine designs with 11-12 to 1 compression ratio. These values are signific-antly higher than anticipated from its calorific value shown in the table inpara 2.04 because of the improvements in ethanol's combustion efficiency. Therelative values should be used with caution, since some of the data are basedon improved auto engine design for alcohol use, compared to an unimproved autoengine design for gasoline use.

3.09 Several modifications are required to adapt existing cars to runefficiently on straight hydrous ethanol. These modifications are due to(i) the necessity for a higher compression ratio of straight alcohol engines,to take advantage of ethanol's higher octane value and combustion characteris-tics (cylinder heads and carburetor have to be modified); (ii) ethanol'scorrosive nature (the fuel tank has to be protected with anti-corrosive paint

- 7 -

and different materials have to be used for parts of the carburetor, exhaustsystem and intake manifold); and (iii) the need to use gasoline to start theengine in cold weather (a small gasoline tank has to be added).

3.10 The economic value of hydrous ethanol is derived from that ofanhydrous ethanol after adjusting for the following factors: (i) increase incar costs; (ii) loss of fuel efficiency as indicated by lower mileage; (iii)increased ethanol production by volume (due to water volume) from the same rawmaterials; and (iv) savings in hydrous ethanol production costs. The Braziliancar industry estimates that straight (hydrous) alcohol cars will cost about 5%more than existing models. Regarding increased alcohol volume due to addi-tional water content, a distillery will produce, from the same volume of rawmaterials inputs, about 6% more hydrous ethanol than anhydrous ethanol.Finally, the production costs of hydrous alcohol are lower than those ofanhydrous alcohol, which due to its higher purity requires more processing.To produce hydrous ethanol in a conventional distillery, the last (third)distillation column is not used, steam consumption is lower by about 10-20%and no benzene is used. 1/ After considering the added cost of an alcohol car(5% cost penalty) the lower production costs of 94% alcohol (about 5% lower)and higher specific consumption compared with regular gasoline (1.2 times),the opportunity value of straight ethanol corresponds to 80-85% of regulargasoline's economic cost. In the developed countries, the relative valuationwould be somewhat different, since the specific fuel consumption difference isgreater (due to the more efficient gasoline engines) but the use of alcoholwould allow substantial reduction in pollution control equipment and/orsubstitution of unleaded gasoline, as well as possible savings in refineryprocessing costs.

C. Ethanol Use as Diesel Substitute

3.11 Efforts are also being made to use ethanol as a substitute fordiesel, a middle petroleum distillate. Such a substitution, when complementedwith gasoline substitution by ethanol and fuel oil substitution by coal orethanol, would theoretically permit substitution of all major petroleumfractions. Diesel is used mainly as a fuel in compression ignition engines.The potential use of a fuel in compression ignition (diesel cycle) engines isconditioned by two major factors: (i) ignition characteristics (measured byits cetane number "or diesel index"); and (ii) miscibility with normal dieseloils especially in the presence of moisture.

3.12 The ability to auto-ignite and combust uniformly under conditions ofpressures and temperatures developed in diesel engines is very poor in thecase of ethanol fuel, since its cetane number is 0-5, compared to 45-55 fornormal diesel fuel. Alcohols disolve sparingly in non-aromatic hydrocarbonsand the solubility decreases with temperature. Solubility increases withincrease in aromatic content of the base diesel oil. Preliminary research inBrazil reports higher tolerance of ethanol in mixtures to which gasoline isadded, probably due to increase in aromaticity by gasoline addition, butincrease in aromaticity tends to reduce the diesel index. Addition of higheralcohols (amyl and octyl alcohol in concentration of 1.25-2.00%) increasesethanol solubility to 7-10%, but with an increase in specific fuel consumption.

1/ Benzene is normally added before the final distillation step to estimatethe azeotrope or constant boiling mixture at 95% ethanol concentration.

-8-

Solubility of ethanol in hydrocarbons decreases in presence of even traces ofwater. Straight ethanol is, therefore, unsuitable as fuel in diesel engines.

3.13 The initial cetane number and chemical composition of the basediesel oil, and ambient temperatures, determine the limits of blending ofdiesel fuel with ethanol (blends must have a minimum diesel index of 45).Such limit may be in the range of up to 5%, which could be improved to around10% by addition of higher alcohols. Brazilian automobile industry and Govern-ment institutes have recently intensified their research efforts and reportthat mixtures of various vegetable oils and ethanol (with or without gasolineblends) can be used as fuel in diesel cycle engines. While they are confidentof identifying technically satisfactory solutions in the near future, consider-able doubts remain whether ethanol can economically replace diesel fuel in theimmediate future, since most preliminary test results indicate specificethanol consumption of between 1.6-1.8 times that of diesel.

D. Ethanol Use in Chemical Industry

3.14 Before the recent interest in ethanol as a gasoline substitute,the main use of ethanol was in the chemical industry; chemical applicationsare still the largest use of ethanol worldwide, except in the case of Brazil(Chapter IV). Ethanol is a versatile speciality chemical, which technicallycan be used for a wide variety of applications both as an intermediatechemical and as a raw materials for the production of other chemical products.It is in this latter use that ethanol has, until recently, been steadilysubstituted by the cheaper petroleum-based derivatives, such as ethylene.For the former use, ethanol has actually been also produced from petroleumderivatives (synthetic ethanol).

3.15 Direct Uses: The main direct use of ethanol (apart from beverageuse) is as a solvent. The major commercial applications of ethanol as asolvent are in the production of toiletries and cosmetics, detergents anddisinfectants, food and drugs processing, surface coating, and pharmaceuticals.Fermentation ethanol is preferred over synthetic ethanol, particularly inEurope, for applications involving human consumption (or body use) suchas in pharmaceuticals, toiletries and cosmetics. As a result, fermentationethanol normally commands some price premium over synthetic ethanol.

3.16 Chemical Raw Material: Production of many small volume chemicalproducts from petroleum products (e.g., naphtha, ethane gas) by conventionalprocesses involves first production of ethylene, then its conversion intoethanol and finally production of the chemical product from ethanol either bydehydrogenation or by oxidation. Most of the current synthetic ethanolproduction is for its use as feedstock for the production of acetaldehyde andother acetyl derivatives, glycol ethers, glycol amines, acrylic and aceticesters, and other organic intermediates. Ethanol itself can also be convertedinto ethylene by the dehydration process. Since ethylene is the single mostimportant intermediate product in the petrochemical industry, for the produc-tion of most large volume petrochemical products (such as polyethylenes,PVC, ethylene oxide, etc.) ethanol is technically a potential raw materialfor a large number of chemical products. The chart on the following pageindicates the variety of chemical products which can be produced from ethanolby using one of the three major processes: (a) dehydration, (b) dehydroge-nation, and (c) oxidation.

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ALCOHOL PRODUCTION FROM BIOMASSPRODUCTION OF CHEMICALS FROM ETHANOL BY MAJOR PROCESS ROUTES

INTERMEDIATES END PRODUCTS

BY DEHYDRATION PROCESS

1 I | ~ ~~~~~ +H 20ETHANOL ETHYLENE _ > ETHYLENE OXIDE ETHYLENE CLYCOLS

SYNTHETIC FIBERSANTI-FREEZE

ETHANOL-AMINESSURFACTANTS

GAS SCRUBBING

GLYCOL ETHERSI+ALCOHOL) PAINTS

VARNISHESTEXTI LES

- FIPES AND TUBESSHOE SOLESELECTRICAL

+ CHLORINE

CHLORINATED - CLEANINGSOLVENtS 7~ DEGREASING

P E. Hd LP grodes

BY DEHYDROGENATION PROCESS

ETHANOL ACETALDEHYDE ALDOL BUTAMEDIOL POLYESTERS

' CROTOHALDEYOE FLASTICIZERSHYDROGEN -ETHANOL iDIEUTYL PHTALATE)

SOLVENTS

BUTYRALDEHYDE BUTYLENE ~ DIOL\ BUTYRALDEHY F POLYESTERS

FIBERS

ETHYL HEXANAL A2ETHYL PLASTICIZERSIDIBUTAL) OCTYL ACETATE

FPAINTS AND VARNISH)

BY OXYDATION PROCESS ACETATES-AETHYL

-BUTYLDEHYDE ACETIC ~~~~~~- OCTYL

| ACID -ETHYLGLYCOL(PAINT SOLVENTS

KETENE COATINGS- .1

DIRECT I ACETIC CELLULOSE ACETATE

OXIDATION ANHYDRIDE (TEXTILE YARNS.CIGARETTE FILTERSI

25%:

POLYVINYL ACETATESL. _ VINYL ACETATE ~~~~~LATICES

75 MORESINS

SOURCE: GIRA, RHONE POULENCWorld Senk -21346

lnd.smrial Projecrs DeparmentFebroorv 1980

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3.17 In general, fermentation ethanol use would be economically rela-tively more attractive for products involving oxidation and dehydrogenation(since they do not involve ethanol conversion into ethylene and thus giveethanol a higher value than ethylene) than for those products involvingproduction of ethylene by dehydration of ethanol first (since this wouldnecessarily lead to ethanol having a value lower than ethylene as it wouldeffectively replace naphtha or ethane gas as the feedstock for ethyleneproduction). However, all three ethanol conversion processes are currentlydesigned for small-scale production, compared to the modern ethylene-basedprocesses which involve very large plant sizes to take full advantage ofeconomies of scale. There may, therefore, be special circumstances (such ascountries with small end-product markets where the economic price of importsis high) under which ethanol derivatives by dehydration process may be justi-fied. Since ethylene is the basic building block in the petrochemicalindustry, any large-scale substitution of petroleum products in the industryby fermentation ethanol is dependent on ethanol derived ethylene becomingcompetitive with naphtha or ethane derived ethylene. The economics of suchsubstitution are discussed in Chapter VIII.

IV. HISTORIC PRODUCTION AND CONSUMPTION OF ETHANOL

4.01 Modern industrial processes for alcohol production have been developedduring the last 150 years. Ethanol is now produced by two major routes, byfermentation of sugars by yeast (called fermentation ethanol), as discussed indetail in Chapter VI, and by synthesis of petroleum feedstocks, mainly ethylene(called synthetic ethanol). In most countries, fermentation ethanol has beenused for beverage and speciality chemical uses, though in some countries suchas Brazil and India fermentation ethanol continues to be used for industrialpurposes also. Synthetic ethanol is used for large-scale industrial applica-tions, due to the greater tolerance of these uses to small chemical impuritiesand the historic lower cost of production of synthetic alcohol compared tofermentation ethanol. Current production patterns of ethanol by raw materialsources and countries, and consumption patterns by end-uses in major consumingcountries are briefly discussed below.

A. World Ethanol Production

4.02 World ethanol production in 1977 totalled 3 million tons (1.0 bil-lion gallons), of which 1.4 million tons (48%) was synthetic ethanol and1.6 million tons (52%) was fermentation ethanol. Production by major pro-ducing countries is shown below.

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WORLD: Estimated Ethanol Production in 1977(in '000 tons)

Proportion ofSynthetic toFermentation

Country/Region Synthetic Fermentation Total Ethanol

USA 588 42 630 93/7Canada 168 Neg. 168 near 100U.K. 215 39 254 85/15France 95 226 321 30/70F.R. of Germany 101 82 183 55/45Other EEC N.A. 214 214 N.A.(Total EEC) (411) (561) (972) (42/58)Japan 80 110 190 42/58India 4 340 344 1/99Brazil Neg. 525 525 near zeroEastern Europe 85 N.A. 85 N.A.Others 100 N.A. 100 N.A.

Total 1,436 1,578 3,014 48/52

Source: SRI (U.S.A.), MITI (Japan) and EEC.

4.03 The actual production of fermentation ethanol is most likely muchhigher than indicated above, since considerable quantities of such productionare not reported in international statistics. Historically, production ofsynthetic ethanol has been declining since the early 1960s, though reportedcapacity increases, mainly in the EEC and Asia, would raise world syntheticethanol capacity to about 2.5 million tons in 1983, compared to 1.9 millontons in 1978. World production of fermentation ethanol is expected toincrease sharply between 1977 and 1985, mainly due to the renewed interest infuel alcohol worldwide and in particular as a result of the five-fold increaseplanned in Brazil and large increases expected in the US during this period.

B. Historical Ethanol Consumption

4.04 It is difficult to reconstruct the world ethanol consumption patterndue to lack of consistent data for non-OECD countries, particularly for fer-mentation ethanol. This section, therefore, briefly discusses historicethanol consumption pattern in five major markets--US, EEC, Japan, Braziland India--which in 1977 accounted for almost 90% of estimated world ethanolproduction.

4.05 US. In 1978, the US denatured alcohol consumption totalled 613,000tons (205 million gallons), of which 335,000 tons (55%) were used as asolvent and 260,000 tons as a chemical raw material. Total ethanol consump-tion peaked in 1965 at 912,000 tons and thereafter steadily declined until1975 when it reached 600,000 tons. This absolute decline was due to the sharpdecrease in its use as a chemical raw material, which declined from 623,000tons in 1965 to 292,000 tons in 1975 (and 260,000 tons in 1978). Ethanol

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use as a solvent has at the same time increased both in absolute and relativeterms, as shown below:

USA: Ethanol Consumption 1955-83(in '000 tons)

Solvent Chemical Raw Material Others Total

1955 184 525 4 7131960 197 627 5 8291965 283 623 6 9121970 366 428 8 8021975 302 292 6 6001978 336 260 17 6131983 (proj.) 374 314 - 688

Source: Stanford Research Institute (SRI).

4.06 Use of ethanol as chemical feedstock has been declining in theUS due, until recently, to the competition from lower cost petroleum-derivedfeedstocks. No major chemical end-use had developed during the period tocompensate for losses in ethanol usage in the acetyl-derivatives sector, butthe limits of substitution by hydrocarbon feedstocks now appear to have beenreached. In the US, the negative growth rate of 4.2% per year during theperiod 1968-78 is expected to be reversed and future total ethanol consump-tion is expected to grow at the rate of 3% per year from about 613,000 tons(205 million gallons) in 1978 to 688,000 tons (230 million gallons) in1983.

4.07 EEC. The consumption of industrial ethanol in Western Europe wasaround 868,000 tons (290 million gallons) in 1977. The primary end-use ofethanol is as a solvent and only 126,000 tons (42 million gallons) accountedfor use in chemicals. Ethanol consumption by country and end-uses issummarized below:

EEC: Malor Ethanol Uses in 1977(in '000 tons)

BeverageConsumption Vinegar Pharmaceuticals Toiletries Others Total

Belgium 3 1 1 2 13 20Denmark 8 1 4 1 11 25Germany 57 9 5 9 113 193France 85 6 10 28 113 242Italy 46 - 12 13 48 119Netherlands 25 1 1 2 18 47UK 40 2 2 22 148 214Others 1 - - - 7 8

Total EEC 265 20 35 77 471 868

4.08 Compared to the US, the relative share of fermentation ethanol intotal ethanol production and consumption is much higher in Western Europe.

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In 1977, total EEC consumption of fermentation ethanol was 468,000 tons or55% of total; of this 264,000 tons (56%) were for beverage consumption,20,000 tons (4%) for vinegar, 30,000 tons (7%) for pharmaceuticals, 53,000tons (11%) for toiletries and the remaining 103,000 tons (22%) for otheruses. Total EEC consumption of synthetic ethanol, in the same year, was397,000 tons or 45% of total. Of this, only 29,000 tons (7%) was forvinegar, pharmaceuticals and toiletries production, while the remaining368,000 tons (93%) was used for industrial purposes.

4.09 Japan. Ethyl alcohol consumption in Japan between 1974-78 ispresented in the table below. During this period, consumption grew at anannual rate of 7.1%, from 83,000 tons in 1974 to 109,000 tons in 1978. Thisgrowth has been particularly significant for the vinegar and food preservativesmarket, which has grown at 14.9% a year. The solvent and chemical marketsgrew at 6.3% and 1.8%, respectively, during the same period.

Japan: Ethanol Consumption Pattern 1974-78(in '000 tons)

Solvent Vinegar and Other Chemical Raw Material Total

1974 39 28 16 831975 44 34 18 961976 47 37 18 1021977 48 41 18 1071978 50 42 17 109

4.10 India. About one-third of India's 1978 production of ethanol of340,000 tons was used for potable purposes, and the bulk of the remainder(about 87%) for manufacture of organic chemicals. The entire Indian produc-tion of acetaldehyde, acetic acid, acetic anhydride, DDT, a large part ofproduction of organic acetates, butanol acetone and a small but significantportion of the total production of LDPE, PVC, acetone and styrene are basedon ethanol. Since the discontinuation of use of fuel alcohol in automobileengines from mid-1950s, there has been no deliberate move towards reintro-duction of alcohol usage as motive power fuel.

4.11 Brazil. So far production of ethanol is intended essentially foruse as fuel and only a small fraction is being used as chemical feedstock.Of the total production of 525,000 tons in 1977, only 63,000 tons were used inthe chemical sector, and of the estimated 1979 production of 2 million tons(2.5 billion liters), ethanol consumption for chemical production is estimatedat 76,200 tons only. Products derived from ethanol are acetaldehyde, aceticacid, butanol, octanol, chlorinated ethylenes, glycols and polyethylene.However, a 230,000 tons/year LDPE plant and a 50,000 tons/year vinyl acetate/acetic acid unit, which discontinued operations in 1971, are now beingreopened. Also, a 33,000 tons/year synthetic rubber plant, which also dis-continued operation some years ago, is being converted to produce ethylene.Furthermore, new units for manufacture of styrene and vinyl acetate have beenslated for production in 1982. On the basis of established ethanol-basedchemical plant capacities, those under revival and those slated for operationsin 1982, ethanol requirements as chemical feedstock are estimated to increaseto 450,000-500,000 tons/year.

4.12 With regard to the use of ethanol as fuel, only Brazil has so farundertaken the development thereof as a national policy, though significant

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efforts have recently been made in the US to promote the use of ethanol as ablend with gasoline (gasohol) for automobile fuel. In 1979, Brazil achieveda nationwide average of about 19% alcohol in mixture with gasoline for use inunconverted engines. Current efforts in Brazil are directed towards conver-sion of part of the existing fleet of automobiles to use straight-ethanolfuel and commencing in 1980 to produce automobiles specially designed to useethanol as the optimal fuel. Retro-fitting and conversion of existingvehicles to use all-ethanol fuel has commenced in government and public fleets.The objective of the national efforts is to maintain future consumption ofgasoline at the same level as in 1973. As noted earlier, substitution ofdiesel fuel by ethanol is also being investigated. By 1985, Brazil plans toexpand its ethanol production to 10.5 billion liters or 8.4 million tons/year,equivalent to about half of its projected gasoline demand in that year. Ifachieved, this would make the Brazilian alcohol program, which is expected torequire investments totalling US$5.0 billion between 1980-85, by far thelargest program of its kind anywhere.

C. Recent Ethanol Prices

4.13 Since neither synthetic ethanol nor fermentation ethanol are tradedinternationally in any significant amounts, their prices depend more ondomestic production cost and market factors than on international tradefactors. As a result, prices of ethanol vary substantially amongst themajor consuming countries. Anhydrous ethanol prices (mid-1979) in WesternEurope, the US and Japan are given below:

Anhydrous Ethanol Prices in mid-1979

USi/ton US$/gallon

Western Europe 830 2.50United States a/ 415 1.25Japan b/ 300 0.91

a/ For hydrated ethanol. Price for anhydrous ethanol is not available.b/ For hydrated fermentation alcohol, the price was US$294/ton, or

US$0.88/gallon.

It is, thus, difficult to establish a single international price for ethanol,though in general it appears that both in the US and Western Europe, ethanolprices were 30-50% higher than the retail price of regular gasoline and about60% higher than the ethylene price. 1/

V. BIOMASS RAW MATERIALS FOR ETHANOL PRODUCTION

5.01 Ethanol can be produced from three main types of biomass rawmaterials: (a) sugar bearing materials (such as sugarcane, molasses, sweet-sorghum, etc.) which contain carbohydrates in sugar form; (b) starches (suchas cassava, corn, babassu mesocarp, potatoes, etc.), which contain carbo-hydrates in starch form; and (c) celluloses (such as wood, agricultural

1/ In mid-1980, ethylene price in Europe was about US$700/ton and in theUS US$540/ton.

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residues, etc.) for which the carbohydrate molecular form is more complex.Production of ethanol from these materials includes first (except in the caseof sugars) conversion of carbohydrates into water soluble sugars (since yeastcan ferment only simpler - 6 or 12 carbon - sugars), then fermentation ofthese sugars into ethanol, and finally separation of ethanol from water andother fermentation products by distillation (Chapter VI).

5.02 The main attraction of sugar-bearing raw materials for alcoholproduction lies in the fact that their carbohydrate content is already in thefermentable, simpler sugar form such as glucose or fructose. Starchescontain carbohydrates of greater molecular complexity, which have to bebroken down to simpler sugars by a saccharification process, which addsanother process step and increases capital and operating costs. Carbohydratesin the cellulosic materials have an even greater molecular complexity and haveto be converted to fermentable sugars by acid hydrolysis. However, some ofthe sugars so produced are not fermentable to alcohol by yeast, reducing theoverall carbohydrate-to-alcohol conversion efficiency. 1/

5.03 The table below shows ethanol yield per ton of the major potentialbiomass raw materials, as well as estimated ethanol yield per hectare ofland for average developing country situation.

Ethanol Yields of Main Biomass Raw Materials

a!Ethanol Yield Raw Material Yield-/ Ethanol Yield

Raw Material (liters/ton) (ton/ha ) (Liters/ha/yr.)

Sugarcane 70 50.0 3,500Molasses 280 N.A. N.A.Cassava 180 12.0 2,160

(20.0) b/ (3,600) b/Sweet Sorghum 86 35.0 c/ 3,010 c/Sweet Potatoes 125 15.0 1,875Babassu 80 2.5 200Corn 370 6.0 2,220Wood 160 20.0 3,200

Source: STI, Brasilia; Bank staff.

a/ Based on current average yields in Brazil, except for corn which isbased on the US average.

b/ Potential with improved production technology.c/ Tons of stalks/ha/crop. Two crops per year may be possible in some

locations.

A. Sugars

5.04 Sugarcane is technically among the most attractive biomass rawmaterials, since it not only involves the simplest conversion process butalso generates its own fuel source, bagasse, which provides more than ade-quate energy for generating the steam and power needed for crushing, fermenta-tion and the distillation process. A ton of sugarcane, with an average sugar

1/ This description is partly based on the US Department of AgriculturePublication, "Industrial Alcohol."

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content of 12.5%, gives about 70 liters of ethanol through direct fermentationof the juice. As shown above, sugarcane gives one of the highest ethanolyields per hectare of crop land. It is also an established crop on whichconsiderable agriculture research work has been conducted and which isgrown in a large number of countries on a commercial scale. However, sugar-cane production is currently devoted largely to sugar production for domesticand export markets and is mostly undertaken on rich agricultural land which isalso ideally suited for food production. Thus, any future large-scaleproduction of alcohol from this attractive biomass raw material would, in thecase of most countries: (a) require a choice between export of sugar andconversion of the cane to substitute for (imported) petroleum products; and(b) raise serious questions about competition for land between food andenergy crops; perhaps only the use of grains for alcohol production raisesmore serious concerns in this respect. (This issue concerning competition forland is discussed further in Chapter X.) It is, therefore, considered unlikelythat, except in the case of a few countries such as Brazil with considerableamount of underutilized agriculturally rich land, many developing countriescan allocate substantial land areas to sugarcane production for alcoholproduction.

5.05 Cane molasses, also known as blackstrap molasses, has been themost common biomass raw material for ethanol production. Molasses is aby-product obtained during sugar production from cane; every ton of sugarproduced gives approximately 190 liters of molasses. It contains between50-55% fermentable sugar (mainly sucrose, glucose and fructose) and yieldsabout 280 liters of ethanol per ton of molasses.

5.06 Molasses is mainly used as animal feed and for ethanol production,but it also has some industrial applications and in some developing countriesis used for human consumption. However, most of the molasses production is indeveloping countries, often in remote locations, while the animal feed marketsare primarily in the developed countries (mainly the US and Western Europe).Due to the remote location of many sugar mills and the lack of adequatetransport infrastructure to economically ship the bulky, relatively low valueby-product molasses to ports for export, substantial quantities of molassesremain unutilized and in fact often cause disposal problems.

5.07 It is estimated that in 1978/9 total world production of (cane andbeet) molasses was 33.5 million tons, of which about 22 million tons wereconsumed in the countries of origin and another 6.6 million tons entered worldtrade mainly for use as animal feed. This leaves 5 million tons (15% oftotal) unaccounted for, most of which was most probably disposed of as value-less waste. To the extent this quantity currently has no alternative use, hasnegligible (or even negative) economic value, and is produced at sugar millswith a readily available surplus plant energy source (para 6.15), it couldprovide an economically attractive source for producing ethanol. Thisattraction is enhanced further if the surplus molasses is available in an areawhere the economic cost of gasoline is high due to high distribution costs(e.g., land locked countries with small gasoline markets).

5.08 World molasses production is directly related to the world sugaroutput, which is projected to grow only at a moderate (2-4%) rate in thefuture. The estimated current world surplus molasses of 5 million tons ifconverted, would yield 1.35 billion liters of ethanol. And, if the totalmolasses production of 33.5 million tons were diverted to ethanol production,

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it would be equivalent to 9 billion liters or 1% of 1978 world and 9% develop-ing countries gasoline demand. Thus, while molasses conversion to ethanol islikely to lead to only marginal substitution of gasoline on a worldwide basis,it may lead to significant savings in petroleum product imports of individualcountries.

5.09 Sweet sorghum, which contains a mixture of sucrose and glucose, isincreasingly considered as another attractive biomass material for alcoholproduction. Its stalk not only contains substantial quantities of easilyfermentable sugar but also provides "bagasse" needed for alcohol plant energyneeds. Sweet sorghum has a short growing season of 3-4 months, and thereforemight be grown on sugarcane land when the land remains fallow between the lastharvest and the next planting. Additional sweet sorghum harvests can beraised as rotation crops on adjacent land. The availability of another sugarmaterial during the period when cane is not available would allow extension ofthe alcohol production season and reduce the capital charges per unit ofalcohol produced. A hectare of land devoted to sweet sorghum can annuallyyield as much as 4,000 liters of alcohol (assuming two crops per year), givingone of the higher alcohol yields of any crop. However, sweet sorghum is a newcrop for most developing countries and considerable further agriculturalresearch and extension effort is required before this crop can be consideredas a major energy source.

5.10 Other sugar materials, from which ethanol production is technicallyfeasible, include sugar beets, citrus molasses and fruits. In Europe, partic-ularly France, sugar beet has been an important source of ethanol production;one ton of sugar beet yields about 86 liters of ethanol. However, consideringthe small quantity of production of these materials in developing countriesand their relatively high economic cost, these materials are not likely to bean important and economic source of fuel alcohol production in most membercountries.

1. Starches

5.11 The main starch materials of interest as ethanol source are cassava(mandioca) and corn. Other starch materials, which have been used for alco-hol production, include wheat, barley, grain sorghum, rye, oats, rice, andIrish and sweet potatoes. However, the use of the latter group is restrictedto beverage-alcohol production due to the relatively high cost of these rawmaterials as foodstuff.

5.12 Cassava is a root crop grown extensively as a subsistence crop ina large number of developing countries 1/. Its main attractions as an ethanolsource are: (i) it is one of the most efficient convertors of solar energyinto biomass, and offers the potential of yielding a high volume of alcoholper hectare of land; (ii) cassava can be grown on marginal land, is a sturdyplant which can withstand adverse weather conditions, and requires laborintensive (and relatively low commercial energy input) agricultural practices;and (iii) it is mostly grown by low-income farmers, thereby offering distribu-tional benefits from expanded production. Provided appropriate plant varietiesand agricultural practices are utilized, annual cassava yield can exceed 20ton/hectare. One ton of cassava yields about 180 liters of ethanol. Cassavacan also be harvested throughout most of the year, and alcohol plants based on

1/ For a detailed discussion of the development potential of cassava andother root crops, see Staff Working Paper No. 324 entitled "TropicalRoot Crops and Rural Development" dated April 1979.

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it could operate 250-300 days/year, reducing their capital costs per annualliter capacity below those of sugarcane-based plants. A major drawback ofcassava is that it produces no residual energy source for use in distillation.

5.13 However, despite its importance in the diet of a large number ofthe poor in developing countries, until recently cassava had been a relativelyneglected crop as far as agricultural research is concerned. Efforts arenow underway to develop higher yield and more disease-resistant varieties ofcassava. Before cassava can be considered a major source of energy, theseefforts would have to be further intensified. If sharply higher yields wererealized, this subsistence crop could be converted into an important sourceof energy on a commercial scale, without any significant adverse impact onits current role as a major source of calories for the rural poor.

5.14 Corn was a small source of industrial alcohol earlier in the US.Historically, its principal fermentation use was in the production of whisky.In the last few years, there has been an increasing interest in the US in theproduction of ethanol from corn for use as a gasoline blend. The US Depart-ment of Energy is currently actively promoting this use, partly to prevent adrop in corn prices.

5.15 One bushel of corn yields approximately 9.8 liters of ethanol andthe US national average corn yields are in the range of 225 bushels/ha (6tons/ha). Unlike sugarcane and sweet sorghum, corn does not produce its ownsource of fuel (bagasse), and corn-based alcohol plants require outsidecommercial fuel purchases. As discussed in para 6.23, this results in anegative energy balance in corn-based alcohol plants and diminishes theireconomic attractiveness compared to plants based on molasses, sugarcane orsweet sorghum. Ethanol from corn is likely to be economically attractive onlywhen its economic value is low and/or costs of processing fuel are low. Cornis a basic animal feed in the developed countries and an important food inmany developing countries. It requires fertile, well-watered land. Any majordiversion of corn fit for human or livestock consumption to alcohol produc-tion would directly reduce food supplies. Thus, from the technical, economicand social point of view, alcohol production from corn is not likely to bevery attractive, unless based on substandard (or temporarily surplus) cornwithout alternative uses and on a low-cost (non-petroleum) energy source.

C. Celluloses

5.16 The cellulosic materials of main interest for ethanol productionare wood and agricultural crop residues. In general, processes involved inalcohol production from them are more complex and larger scale than thosefrom sugars and starches. There are also no demonstrated processes availableyet for commercial scale plants in developing countries. However, consider-able development work is underway in many countries and it is possiblethat during the next decade cellulosic materials can become an importantbiomass source of alcohol. Continued R & D in this area is required torealize this potential.

5.17 Wood. The production of ethanol from wood involves two main steps:(a) hydrolysis of the cellulose to simpler sugars, and (b) the fermentation ofthese sugars to alcohol by yeast as in the case of other materials.l/ There are

1/ Methanol, also known as wood alcohol, can also be derived from woodthrough known technology. The economics of large-scale biomass methanolproductions have yet to be demonstrated.

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several known processes for carrying out the hydrolysis either with lowconcentration acids at high temperature, or with concentrated acids at lowtemperature. Alcohol production from wood wastes was practiced in Europe,before Wiorld War II, since wood waste was more economically available thangrain or molasses. However, all West European plants have either been dis-mantled or closed. Only in Russia a few wood-based ethanol plants arereportedly in production, although their major objective appears to be theproduction of protein feed for livestock rather than alcohol.

5.18 The relative value of wood as a source of alcohol depends on theraw material and processing costs, and on the potential for economic utiliza-tion of the lignin and other byproducts. Some of the sugars (principallypentoses) formed in the hydrolysis, but not decomposed into alcohol by theyeast, can be utilized for the production of chemicals, food yeast oranimal food ingredients.

5.19 Crop residues could be used in lieu of wood for alcohol production,since such residues consist essentially of cellulose, pentosans and lignin.The total carbohydrate content of crop residues is about the same as that ofwood (65-70%), but crop residues contain relatively less cellulose butconsiderably more pentosans. Consequently, the yield of alcohol-yieldingsugar (dextrose) from these residues is less than from wood. The relativelylow cellulose and high pentosan content of agricultural residues may not be aliability, since several useful products can be provided alternatively fromthese pentosans (e.g. butyl alcohol, acetone and fodder yeast).

5.20 The major difficulty in the utilization of agricultural cropresidues for ethanol production is likely to be their high cost of collectionand transportation to alcohol plants. The most attractive use of agricul-tural residues as an energy source may be in the production of biogas insmall generators located on individual farms. However, before agriculturalresidues are utilized on a large scale for energy production, the impact oftheir removal from the fields on the agriculture crop yields must be care-fully considered.

VI. ETHANOL PRODUCTION TECHNOLOGY

A. Current Technology

6.01 Flow diagram for ethanol production from cassava (manioc), which isone of the more common agricultural raw materials for conversion to ethanol,is shown on the following page. Any sugar or starch, respectively, would beprocessed in a similar way. Ethanol production from cellulose (wood), whichis not commercially proven and is not discussed here, is also a potentialsource. Material and utility balances for sugarcane (based on existingplants) and cassava (based on design parameters) are shown on page 21.

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ALCOHOL PRODUCTION FROM BIOMASSPROCESS FLOW DIAGRAM FOR CASSAVA BASED PLANT

CASSAVA RECEPTION i r PASTE PREPARATION 1 MASH PREPARATION 1AND STORAGE

I WATER ENZYMES I v ENZYMESr _

r "s" /-\ vAFOR LiGUEFACTION AND A

o o / \K o FLASH SACHARIZATIF T I

SOURCE PETROBRAS ERAZIPL

INns;nsIril Frolects DeoartrneoC

WorIo Banrk 21344Fehr>ars 1980

- 21 -

Material and Utility Balance for Ethanol ProductionFrom Sugarcane and Cassava

(for 1,000 liter anhydrous alcohol)

a! bSugarcane Cassava-

Unit Quantity Unit Quantity

Material Balance

Sugarcane tons 15Cassava - - tons 6.8

Chemicals kg 46 kg 55Enzymes - - kg 5

Fusel Oil kg 5 kg 5Stillage tons 12.5 tons 10.5Co2 kg 760 kg 760Bagasse tons 3.8 --

Waste Fibers - - tons 0.4

Utility Balance

Steam tons 6.5 tons 6.2Electricity - c/ kfh 450Water M 200 M 43Fuel - c/ tons 1.7 d/

a/ Data based on existing plants in Brazil.b/ Data based on design parameters developed by an engineering company,

but no plants are yet constructed on this basis.c/ Generated internally from bagasse.d/ On basis of wood.

Source: Centro de Tecnologia Promon, Brazil.

1. Sugar-Based Plants

6.02 Sugarcane, now the most common raw material for fermentationethanol worldwide, contains cellulose fiber intermixed with sugar in thesugarcane stalk. The cane is washed and crushed, and filtered to separatethe cellulose ("bagasse") from sugar juice. Bagasse is dried and burned togenerate steam and power to supply all the plant's utility requirements. Thesugar juice is concentrated and sterilized and then fermented in a batchfermentation system with yeast. The yeast is removed by centrifuging, treated(to grow additional yeast) and recycled to the fermentation step. Conventionalalcohol technology uses batch fermentation with common strains of yeast toproduce an 8-10% alcohol solution, after 24-72 hours of fermenting. The yeastis gradually rendered ineffective (due to the increasing alcohol concentration)and 8-10% ethanol is the maximum practical concentration attainable in batchsystems. The fermented mash is sent to a stripping column to separate ethanol(plus some water) from the fermentation solids and the bulk of the water inthe 8-10% alcohol solution. The waste stream, called stillage, contains about10% solids, including 1-2% fertilizer nutrients, which must be disposed of

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properly to avoid potential environmental problems (para 6.11). The streamcontaining ethanol is then distilled in a multistage distillation column to aconcentration of about 94% ethanol. (Water and ethanol form on azeotrope orconstant boiling mixture, at 95% ethanol.) Anhydrous ethanol is produced in athird distillation column by adding benzene 1/ (which eliminates the constantboiling mix at 95% ethanol) and then further distillation permits productionof anhydrous alcohol (99.8% purity). Benzene is separated from anhydrousalcohol and is recycled. Anhydrous alcohol is sent to storage and subsequentlyblended with gasoline or to other end-uses. When all of the stillage isreturned to the sugarcane land, the need for chemical fertilizer is reducedthough not eliminated and the sugarcane alcohol production offers a morebalanced ecosystem.

6.03 If hydrous or straight alcohol (94% ethanol) is the desired product,processing simply eliminates the third distillation column with a resultantreduction in steam requirements and elimination of benzene requirements;lower steam requirements may also allow economies in the boiler costs.

6.04 The basic process for other sugar materials would be the same,though the sizing of the fermentation and distillation units may be somewhatdifferent depending on material balances and the raw material. Fermentationof molasses to 8-10% alcohol solution normally takes 4-5 times longer than inthe case of sugarcane. Thus, to produce the same volume of alcohol, molasses-based plants require a much larger number of fermentation tanks. This dif-ference does not, however, lead to any significant increase in the plant costssince such tanks represent a relatively small proportion of total costs.

2. Starch-Based Plants

6.05 Starch based plants are similar in design. Cassava roots, whichcontain 25-30% starch, are washed, peeled and liquefied in a cooker. Theliquefied starch is broken down into fermentable sugar by addition ofenzymes, -amalyse, and gluco-amalyse. Once the fermentable sugar is formed,processing is identical to the above described steps for sugarcane beginningwith fermentation. Since cassava roots contain virtually no cellulose, thereis no "bagasse" formed and the energy requirements of a cassava-basedalcohol plant, which are slightly higher than for a sugarcane-based plant,must be supplied from external sources; the utility and material balancetable in para 6.01, shows less steam requirements for the cassava-based plantdata which is assumed to be based on a more efficient heat recovery designthan the sugarcane design. Other starch bearing materials require essentiallythe same processing equipment, although the plant front-end facilities must bedesigned to meet requirements of particular crops.

B. Technology Development

6.06 Until recently, alcohol production from biomass (mainly molassesand some sugarcane and corn) was based on old technology since the demand forethanol for potable and chemical uses was not very sensitive to processingcosts. Therefore, process and equipment design have not benefited from therecent advances in the design and engineering of other chemical plants. How-ever, with the increasing interest in ethanol as a fuel, a large number ofmajor engineering companies, equipment manufacturers and other parties haveinitiated efforts to improve the technology base and design of alcohol plants

1/ Other chemicals can also be used to eliminate the azeotrope.

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to improve their efficiency. Most of these efforts have focused on fourmajor areas.

6.07 Recent technical work has developed continuous fermentation techno-logy (although not fully commercially demonstrated) to yield up to 12% alco-hol content liquor. Additional microbiological research and development workis underway on improving the yeast strains to yield even higher alcoholconcentration in the fermentation step. This improved technology shouldultimately result in substantial reductions in energy requirements for ethanolproduction, since it could yield up to 50% saving in the energy used indistillation and at the same time decrease stillage volume by half at sub-stantially the same (or lower) capital costs than for conventional plants.Another area being investigated is vacuum fermentation which, by mutation oftemperature-insensitive organisms, will allow continuous withdrawal of alcoholin vapor form thereby reducing equipment and energy requirements.

6.08 It is also possible to improve the energy efficiency of ethanolproduction through more efficient distillation and heat recovery design,using engineering concepts commercially proven in other chemical engineeringindustries. In addition, ethanol concentration could be increased throughabsorption, vapor recompression, and/or multiple effect evaporators, butthese techniques would require considerably more R&D efforts to develop intocommercial practice. These latter improvements would be generally at theexpense of added capital costs. Other methods of separation being investi-gated include crystallization, use of molecular sieves and reverse osmosis allof which will have advantages of reduced energy requirements.

6.09 A third area of future technology development would be utilizationof agricultural wastes for feedstock and/or fuel purposes, and development ofadditional (and/or improved) crops as raw material. A major constraint incassava and corn utilizations is the need for an external fuel source. Agri-cultural waste products could be used for fuel in modified boiler designs.The boiler modifications would be relatively simple (the steam system itselfis simple with low pressure, low capacity) but gathering and drying of mostagricultural wastes, which will be labor intensive, would require low costlabor and an organization system similar to sugarcane harvesting. Presumablyair drying would be required in most cases (as is often done for cassava).

6.10 Alternative energy crops is a promising area for future developmentsof alcohol production from biomass. Typical crops would be sweet sorghum,wood, babassu and other crops which produce a high yield of starch or sugarper hectare and also produce a usable cellulose component for fuel. In addi-tion to considerable industrial development and demonstration work necessary,significant technology development effort is also needed in the agriculturalarea to improve yields of both food and energy crops, develop optimum croprotation patterns and convert some existing subsistence crops (e.g., cassava,babassu) into commercial energy crops.

C. Environmental Impact

6.11 During the fermentation and distillation of ethanol, a number ofby-products are produced. These are (i) carbon dioxide, which is producedduring fermentation; (ii) fusel oils, which are collected in the rectificationcolumn and consist mainly of amyl and isoamyl alcohols and glycerol, and(iii) stillage. Due to high recuperation costs, carbon dioxide is usually

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not collected for sale and is normally discharged into the atmosphere. Fuseloils (about 5 kg/1,000 liters of ethanol) can be collected for sale or blendedinto ethanol as fuel denaturant. 1/

6.12 Stillage is the liquid effluent from the distillation system andits disposal can be a major problem. As mentioned, it is produced in largequantities, about 10-13 times the volume of the alcohol produced. Stillagecontains about 10% of solid material, including 2-3% of fertilizer nutrients.The two main potential uses for stillage are: (i) animal feed, and (ii)fertilizer. Stillage can be evaporated to about 50% solids and mixed withfeed concentrates, but the evaporation costs are relatively high and theattractiveness of stillage as animal feed depends on the relative cost ofalternative feeds. In those developing countries where the market foranimal feed is small, this end-use is not likely to be attractive in mostsituations. In the US, Europe and developing countries, where a strong animalfeed demand exists, the reverse is likely to be true.

6.13 Stillage as fertilizer can be applied directly on the soil bytrucks or through an irrigation system. Since stillage is very dilute (1%nitrogen, 0.2% phosphate and 1.5% potash) the volume to be transported islarge and use as fertilizer is likely to be viable only in agriculturalfields close to the distillery. During field visits in Brazil, a numberof distilleries indicated that stillage disposal as fertilizer is not anunsurmountable problem. In many plantations, stillage is pumped to the topof neighboring hills and gravity fed to irrigation systems for surroundingfields. Surplus steam from bagasse is used to power the pumps. Plantoperators believe that it is economical to use such a system in a radius ofabout 3 km around the distillery. Excess stillage was trucked to fieldsfurther away and sprayed on the ground. Apart from the trucks, this systemdid not require any supplementary equipment. Cane yields appear to beincreased substantially on this land, due to both the fertilizing and irri-gation effects. There has been no conclusive study of the long-term effect,on soils and cane fields, of recycling stillage as fertilizer.

6.14 Neither of the above two approaches is likely to be a universalsolution and additional technical development is necessary to arrive at anoptimum disposal technique in each case to minimize environmental problems.

D. Surplus Bagasse

6.15 Steam and power for conventional sugarcane-based distilleriesare generated from bagasse (typically containing about 50% moisture).Independent conventional distilleries (unattached to sugar mills) based onsugarcane require only about 70% of the available bagasse; conventionaldistilleries attached to sugar mills only have 10% excess bagasse. 2/ The

1/ Denaturant is an additive to alcohol which is difficult to separate andmakes the mixture unfit for human consumption.

2/ The actual quantity of bagasse required is a function of the energyefficiency of the alcohol plant and moisture content of the bagasse. Theabove rates are based on typical Brazilian data, but wide variations arepossible in other alcohol plants. Supplementary drying of the bagasse,using boiler heat ordinarily vented to the atmosphere would increasesignificantly the energy content of this material.

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surplus bagasse could generate electric power for outside users. While thisuse may be viable in some rural areas, the small amounts involved and theseasonal nature of availability (5-7 months per year) may preclude developmentof surplus bagasse as a stable source of power. Bagasse may also be used asfiber for paper production and in some cases this use could be furtherdeveloped. One of the most promising uses of bagasse, however, appears to beas a fuel resource to expand alcohol production by increasing operating daysper year through the addition of multiple agricultural crops which do notgenerate their own fuel source (e.g., cassava conversion along with sugarcane).This development could increase operating days from about 160-200 to more than250 days per year, with minimal increases in capital cost for the industrialplant, thus reducing the capital charges per unit of alcohol produced. Use ofmultiple crops is being explored in Brazil and Thailand, but has not beencommercially demonstrated as yet.

E. Energy Balance for Ethanol Production

6.16 The principal rationale for ethanol from biomass is to substitutefor imported petroleum. Thus the type, cost and amount of energy inputs toproduce the alcohol are critical to fuel ethanol's economic viability. Thisviability depends not only on the physical energy balance (in engineeringterms commonly referred to as the net energy balance) but also on the relativeeconomic values of various forms of energy inputs and outputs. Thus, while ingeneral plant designs and raw materials which offer better energy balances(efficiency) are more desirable, some cases where energy balances are eithermarginal or even negative may be economically acceptable if a relatively lowcost form of energy input is converted into a premium energy form.

6.17 The engineering analysis is based on the net energy consumptionratio or net energy consumed (NER) as follows: 1/

NER = Total energy consumed less by-product energy creditenergy in ethanol

The energy balance is positive if the NER is below 1.0 and vice-versa.Energy is defined as energy component (direct and indirect) of all pricedinputs and outputs; thus solar energy to produce a crop is excluded. Theenergy value of a crop used for ethanol production is the energy content offuel plus chemicals (farm inputs) consumed in growing the crop, not the heatof combustion of that crop. The energy content of ethanol is its heat ofcombustion. Alcohol as a motor fuel has a higher value due to higher com-bustion efficiency when using alcohol or alcohol/gasoline blend, but thisvalue changes with alcohol end use and is not counted in the NER. The energyvalue of a by-product is, likewise, the energy consumed to produce an equiva-lent amount of alternative by-product--either animal feed or recycled fertilizernutrient. Such NER analysis is made purely on calorific value considerationsand does not necessarily correlate with overall combustion efficiency oreconomic viability.

6.18 Four crops are currently of main interest for conversion to fuelethanol: (i) sugarcane (or molasses); (ii) sweet sorghum, both of whichare sugars; (iii) corn; and (iv) cassava, both of the latter being starches.

1/ This approach is also taken by: (1) American Petroleum Institute (APIPublication No. 4312, November 1979) and (2) Centro de Tecnologia Promon,a Brazilian engineering company.

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As mentioned, the process flowsheets for the four materials are basicallysimilar. The two starch materials require one more processing step (toconvert starch into fermentable sugar) which requires slightly more energy.The major difference among the four is the source of energy consumed primarilyin distillation. Sugarcane and sweet sorghum, offer a byproduct--bagasse thatis separated while extracting the sugar juice and can be burned as a fuel toprovide all steam and electricity required for ethanol production. Corn andcassava also generate a cellulose material (stalks and leaves) that isnormally separated from the product in the field. Collecting and drying costshave generally been considered prohibitive (but this conclusion may wellchange with rising petroleum prices). The typical fuel choices would be fastgrowing tree plantations for cassava in most tropical countries 1/. Thechoice for corn (principally in the U.S.) would typically be coal or possiblycorn stalks.

6.19 A second major variable in determining the energy balance is dis-posal of the liquid effluent (stillage). In Brazil, a growing practicefor sugarcane is to recycle the stillage for fertilizer/irrigation purposes,to nearby cultivated sugarcane fields. The system works reasonably wellwith highly organized plantations in close proximity to the alcohol plant butis obviously not a universal solution. There has been no actual experienceon recycling cassava stillage. In the Brazil case in the table on the follow-ing page, stillage is assumed to be treated as recycled fertilizer. 2/ Thealternative is to convert stillage, by drying, into animal feed, whichrequires additional energy. In the U.S., most studies indicate conversion toanimal feed as the preferred choice. Thus, in the U.S. case below, the energybalance is based on stillage as animal feed. The two cases (U.S. and Brazil)show the possible range of solutions. Applying the analysis to specificsystems in other countries could result in any combination of the two alter-natives. The wide variation in energy efficiency shown in the table is also afunction of the assumptions regarding best recovery technique, in additionto the sources of raw materials.

6.20 The comparison of agricultural systems shows that the US agricul-tural system is considerably more energy intensive than that of Brazil due tohigher rates of fertilization and higher degree of mechanization. The Brazilsituation is probably more representative of most developing countries, butsince the energy consumed in the farm system is practically all petroleumrelated, it warrants further study in developing a comprehensive biomassenergy program.

6.21 Sugar cane (or sweet sorghum) shows a net positive energy balance(ratio less than one), generating 3-8 times as much energy as it consumes.This positive impact is derived wholly from the availability of bagasse.Converting stillage to animal feed causes the better (lower) ratio, so from anenergy point of view animal feed generally is not efficient, if recycling asfertilizer is feasible. Overall, converting sugar cane to fuel ethanol is aneffective means to reduce a country's petroleum requirements.

1/ Combination of cassava with sugar cane, to take advantage of excessbagasse, holds promise in several situations. This combination wouldresult in a substantial improvement in the net energy ratio and emphasizesthe need for further improvements in sugarcane technology regardingenergy efficiency.

2/ Promon, Brazil has developed systems for further treatment ofstillage, but detailed data is not available.

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Net Energy Analysis for Ethanol(keal/kcal in ethanol)

MOLASSESU. S. CASEA/ BRAZIL CASEb-/ CASE

Corn

Energy Cassava CassavaSugar Tradi- Conser- Sugard Without withCane tional vation Cane-l Tree Farm 'Tree Farm

FARM SYSTEM

Fuel 0.26 0.19 0.19 0.07 0.07 0.10 0.07Fert./Chemicals 0.11 0.26 0.26 0.04 0.01 0.02 0.01

Sub-Total 0.37 0.45 0.45 0.11 0.08 0.12 0.08

ALCOHOL PLANT

Coal 0 1.39 0.62 0 0 0 0Wood 0 0 0 0 0.77 0.77 0Electricity 0 0 0 0 0.07 0.07 0.01Bagasse 1.93_/ 0 0 1.2 6d/ 0 0 0.54C/Chemicals N.C. N.C. N.C. 0.01 0.01 0.01 0.01

Stillage Disposal 0.34 0.48 0.24 N.C. N.C. N.C. N.C.

Sub-Total AlcoholPlant 2.27 1.87 0.86 1.27 0.85 0.85 0,56

Total Energy Con-sumed 2.64 2.32 1.31 1.3R 0.93 0.97 0,64

BY-PRODUCT ENERGYBagasse /Wood 2.27 0 0 1.26 0 0.84 0.55Fertilizer Recycle N.C. N.C. N.C. N.C. 0 0 0Animal Feed 0.04 0.11 0.11 [0.041 N.C. N.C. N.C.

NET ENERGY RATIO

Animal Feed Option 0.33 2.21 1.20 [0.42] - - 0Recycle Fert.Option [0.12] [1.84] [1.08] 0.12 0.93 0.13 0.09

a/ Taken largely from API data.b/ Taken largely from Promon data.c/ Bagasse consumption based on bagasse boiler efficiency of 0.8 times wood boiler

efficiency in cassava system. Based on data from a U.S. Engineering Co.d/ Assumptions and bases of calculations are not the same for the two cases, so

comparative numbers between the cases should be taken as indicative only.

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6.22 The conventional sugarcane design consumes more energy per unit ofproduct (1.93 ratio in the preceding table) than a traditional corn basedplant (1.39 ratio), since in case of sugarcane plants bagasse was free anddesign was concentrated on achieving least capital costs. There is littleincentive to improve the energy balance for sugarcane alcohol until an alter-native economic use for excess bagasse is found (such as external powergeneration and/or use of multiple feedstocks in the alcohol plant). Withrising energy costs, these options, which could increase somewhat the alcoholplant's capital costs, are becoming increasingly more viable. The data formolasses in the table in para 6.01, which were derived from an energy-efficient design, illustrate that substantial reductions in energy require-ments can be achieved.

6.23 The conclusion for cassava and corn is less clear and would dependmore on specific circumstances. The Brazil case shows that ethanol fromcassava has a modest positive energy balance (ratio is slightly less than1.0), based on recycling stillage as fertilizer, and assuming purchased wood(or coal). If a wood plantation is included in the agricultural system, thenet energy ratio improves substantially, to produce about eight times theamount of energy consumed. Most U.S. data shows that ethanol from corn has anegative energy balance (ratio greater than 1.0) even if an "energy conserva-tion" design is employed. Under U.S. conditions, coal is assumed to be themost probable fuel. Although not as attractive a proposition as in the caseof sugarcane, corn could still be viable as a means of reducing petroleumrequirements, since virtually all of the energy consumed can be coal 1/ and ifthe energy conservation design is employed. The NER ratio for corn or cassavawould improve substantially if waste agricultural products were used as fuelsources.

6.24 From an energy conservation viewpoint, ethanol production is desir-able only if the fuel source is also biomass (or low value coal). Energybalance considerations are only important however to the extent that thebiomass energy source and feedstock are available at economic costs necessaryto make the overall alcohol investment program economically viable. Theeconomics of ethanol production from various biomass materials are discussedin the Chapter VIII.

VII. CAPITAL COSTS OF ALCOHOL PLANTS

7.01 Practically all existing biomass-based alcohol plants are relativelysmall in size (60-120,000 liters/day) and are based on old plant designs whichare not very efficient, particularly in their energy balance. Except in thecase of Brazil, there is also lack of actual experience with the constructionof a large number of plants of different sizes and at different locations.As a result, there is more than usual variation in the cost estimates preparedby different sources outside of Brazil. The uncertainty is even greater in

1/ In actuality, most existing fermentation alcohol plants in the USuse natural gas or fuel oil. Thus the data indicate that, currently,ethanol production for gasohol production in the U.S. has actuallyincreased petroleum imports. The "gasohol" policy for the U.S. (e.g.production incentives through sales tax relief) should equally addressthe alcohol plant fuel source and net energy ratio as well as feedstocksource.

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the cost of plants based on raw materials other than sugarcane, since thereis practically no industrial scale experience with such plants anywhere. Bankstaff have reviewed data submitted by a number of engineering firms, contrac-tors and consultants for planned or potential projects in the US, Africa, Asiaand Latin America. However, the analysis presented in this Chapter reliesheavily on the information collected by a recent Bank mission to Brazil; datacollected from other sources and Bank staff experience in the chemical projectswere used to make extrapolations. Considering the uncertainties involved inthe preparation of estimates on such a basis, the data presented in thisChapter should be used as indicative only.

A. Sugarcane-Based Plants

7.02 Capital costs (excluding taxes, price escalation, working capital,and interest during construction) for sugarcane-based alcohol distilleries inBrazil are shown below for a capacity range of 20,000-240,000 liters/day:

Brazil - Capital Costs of Alcohol Plants(late 1979 prices, in '000 US$)

CapacityCapacity liters/day 20,000 120,000 240,000Capacity US gallons/day 5,300 31,700 63,400

Engineering 135 400 680Process Equipment 950 3,950 6,800Utilities 220 925 1,620Freight 60 225 300Civil Works and Land 270 750 1,250Erection 135 400 500

Sub-Total 1,770 6,650 11,150Contingency 230 950 1,350Installed Cost 2.000 7,600 12,500

These cost figures are for a conventional design (in which little attentionis being paid to energy efficiency) developed for producing alcohol forpotable and chemical purposes and are based on detailed data obtained fromBrazilian equipment suppliers and a spot-check of the actual prices paid bysome recent buyers.

7.03 The Brazilian alcohol industry, which has built over 300 distilleries,has developed into an efficient, competitive supplier of conventional sugar-cane alcohol technology. While no exact comparative data are available,indications are that the Brazilian industry is very competitive with Europeanand US suppliers. However, only a few developing countries with a welldeveloped, efficient domestic manufacturing sector are likely to build plantsat the cost levels achieved in Brazil. Most other developing countries,without the benefit of Brazil's extensive experience, could expect costs of25-100% higher than those in the above tables. Factors, such as availabilityof local equipment and engineering, local construction and implementationcapabilities, need for expatriate assistance, and location will have anappreciable effect on capital costs of plants in individual countries. Wehave, therefore, estimated capital costs for three general groups of countries:(i) low cost countries, which would match plant costs in Brazil; (ii) mediumcost countries, such as Thailand, which would have costs about 25% higher thanBrazil; and (iii) high cost countries, such as Sudan where costs could be 50%higher than the medium cost countries or about 1.9 times those in Brazil.

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Based on these assumptions, installed cost of a 'standard' 120,000 liters/daysugarcane-based alcohol plant, in late 1979 prices, is estimated as below:

Estimated Installed Cost of Sugarcane-Based120,000 Liters/Day Plant(in late 1979 US$ million)

Country Grouping Low Cost Medium Cost High Cost

Installed Cost 7.6 9.5 14.3

7.04 In addition to the above installed plant costs, alcohol projectswould also have substantial working capital requirements. The two majorcomponents of the working capital for an alcohol distillery are the finishedproduct inventory and accounts receivables. Since sugarcane distilleriesnormally operate between 160 and 180 days per year, ethanol will have to bestored for deliveries in the off-season. It can be assumed then that on ayearly basis finished product inventory will average around 90 days ofproduction and accounts receivables about one month of sales. Sugarcaneand other raw material inventories are very small and approximately offset byaccounts payables. At an ethanol prices of US$1.0/gallon (US$0.27/liter),working capital requirements of a 120,000 liters/day plant are estimated atabout US$1.7 million.

B. Molasses-Based Plants

7.05 Alcohol plants based on molasses would normally be adjacent to sugarmills, and would take advantage of existing steam and power generation facil-ities as well as administrative buildings. The use of molasses as raw materialalso eliminates the cane crushing and separation steps with a resultantcapital cost savings. Overall, molasses-based alcohol plants should cost atleast 20% less than sugarcane-based alcohol plants; working capital require-ments can be assumed to be similar to sugarcane plants as long as the distilleryoperates only during the sugar production season. Accordingly, installedcosts of a 120,000 liters/day molasses-based distillery, in late 1979 prices,are estimated as below:

Estimated Installed Cost of Molasses-Based120,000 Liters/Day Plant(in late 1979 US$ million)

Country Grouping Low Cost Medium Cost High Cost

Installed Cost 6.1 7.6 11.4

C. Cassava/Corn-Based Plants

7.06 Cassava or other starch-based alcohol plants are similar to sugar-cane-based plants, except that at the front-end they would require additionalequipment for the saccharification of the starches into sugar. It is roughlyestimated that due to these physical additions cassava/corn-basedalcohol plants will cost between 10-20% more than similar sugarcane-basedplants (no actual cost data is available, since the only existing large scalecassava plant in Brazil is an experimental/demonstration plant and needsfurther design changes). To the extent future plants based on such starchyraw materials should also incorporate more energy efficient designs (these

- 31 -

plants would use purchased energy inputs for steam and power generation), itis roughly estimated that they would cost about 20% more than what is requiredfor the conventional sugarcane design 1/. The estimated installed cost ofcassava (or corn) plants in which better heat recovery and energy efficiencyhas been incorporated are shown below:

Estimated Installed Cost of Cassava/Corn-Based120,000 Liters/Day Plant

(in late 1979 US$ million)

Country Grouping Low Cost Medium Cost High Cost

Installed Cost 9.1 11.4 17.2

D. Economies of Scale

7.07 Based on information supplied by the Brazilian Government institutesand equipment manufacturers, cost estimates have been developed for sugarcane-based alcohol plants up to a capacity of about 360,000 liters/day. In therange of 20,000-300,000 liters/day there are significant economies of scale.Additional data, also from Brazilian sources (not shown), indicate that theeconomies of scale diminish rapidly above 300,000 liters/day; this conclusionis consistent with the work done for the US Department of Energy. There areno reliable cost data for plants below 20,000 liters/day. The cost dataindicate that, from the production cost viewpont, in any given situation thelargest practical unit should be built, after consideration of market size,raw material/ fuel availability, transport circumstances and local technologyavailability. Other factors, such as operational efficiency, yields, energyefficiency, all of which require highly skilled technical management, wouldtend to promote a larger size operation to afford reasonable salary levels andhigher capital costs required for improved energy efficiency.

7.08 However, examination of the overall economic viability of alcoholproduction shows that capital costs are relatively less critical than rawmaterial and fuel consumption, and operating days per year (which indirectlycorresponds to capital costs). These factors, which are more dependent on theagricultural system than on the industrial unit, will tend to control theoptimum size distillery for a particular situation. Considering all factors,the optimum size range for most developing countries is likely to be 60,000-120,000 liters/day for cassava and 120,000-240,000 liters/day for sugarcane/molasses-based alcohol plants. In some circumstances where isolation and hightransport costs result in very high-cost petroleum products, smaller scalealcohol plants may be viable. The Brazilian government through its nationalagricultural research program is doing R&D on this matter. The graph on thefollowing page shows the installed costs of alcohol plants of different sizes,based on the four raw materials of major interest.

1/ Energy efficiency is relative. The data applies to improved distillationand better heat exchange design. Multiple effect evaporators and/oruse of vapor recompression designs would further improve heat recovery,but at additional capital costs.

- 32 -

ALCOHOL PRODUCTION FROM BIOMASSESTIMATED CAPITAL COSTS OF ETHANOL PLANTS

(IN LATE 1979 PRICES)

25

20

-i 15 A

0~~~~~~~~~~~~~~

0~~~~~~~~~~~~~~

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PLAT APAI Y '00 LITERSPERDAY, A SEIur Po4 -

February, 1980 World Bank-21343

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0 40 80~~ 12 10I0024 20 2

PLNCPCIY(00LIESPRDA,AHRUSEHNLFebuay,190 Vord an 234

- 33 -

VIII. ECONOMICS OF ETHANOL PRODUCTION AND USE

A. General Approach

8.01 The economic analysis of fermentation ethanol production and use, asis normal with most new products and technologies, involves consideration ofa number of complex factors, some of which are difficult to quantify. Thesefactors include: (a) ethanol can potentially be produced by a large number ofbiomass materials, most of which have not yet been tried on a commercial scalefor ethanol production; (b) economic cost of biomass materials is very countryspecific, depending on their supply/demand balance, land availability andquality, agricultural practices and productivity, labor costs, etc.; (c)existing ethanol production technology was developed for applications wherecost of production and energy consumption were less important than today, andefforts to develop technology particularly suitable for large scale ethanolproduction have only recently started; (d) limited practical experience isavailable outside of Brazil on ethanol plant construction and operation; (e)ethanol production costs depend on the specific plant location, size andtechnology, all of which are country specific; (f) economic value of ethanolvaries substantialy between various applications and only limited data isavailable on large scale ethanol use; (g) future economic prices of gasolineand ethylene (the two major petroleum products ethanol can substitute) inindividual countries will depend not only on future petroleum prices, whichare uncertain, but also on domestic refining and chemical industry chracter-istics; and (h) most countries consider substitution of imported petroleumenergy by domestic resources to have substantial strategic value, which whilea legitimate factor, is difficult to quantify in economic terms.

8.02 Economics of ethanol production and use, therefore, are to a largeextent country and project specific. Conceptually, the economic analysis of apotential Alcohol Program of a country should be done on an aggregate level, bycomparing the economic cost of alcohol production (raw material production,processing, distribution and consumption) with its economic benefits (as asubstitute for gasoline, diesel and other petroleum derivatives). For such ananalysis, detailed information is necessary on (i) the exact mix of size,location, raw material base, etc. of the alcohol plants that would be neededfor the program; (ii) the location, likely productivity and other factors thataffect the cost of raw material production at the plantations associated withthe Program, (iii) exact infrastructure needs; and (iv) specific end uses forwhich ethanol would be employed. Such information however, can not be avail-able without a detailed country by country analysis of these aspects. Thisreport therefore analyzes the economics of alcohol production in 'standardized'plants operating under parameters that simulate the conditions expected toprevail in different countries. While this analysis can not substitute forthe country (and project) specific analyses, which must be undertaken todetermine merits of ethanol production in individual countries, it has iden-tified broad parameters which can be used to identify countries and situationswhere further in-depth reviews appear justified.

8.03 As discussed in Chapter II, the two potential ethanol applicationsof most interest are its use as gasoline blend in "gasohol" and in thechemical industry. Ethanol use as boiler fuel and diesel substitute islikely to be economically and technically less attractive than these twoapplications (paras 3.13 and 3.17). While straight ethanol use as automobilefuel is feasible, it is not discussed in detail because this application is

- 34 -

unlikely to be of major interest to most developing countries and because ineconomic terms ethanol value in gasohol use is 15-20% greater than when usedstraight (para 3.10). In the chemical industry, the most attractive use ofethanol is as a solvent or for the production of chemicals by oxidationand dehydrogenation processes; however, any large scale ethanol use in theindustry will involve its conversion into ethylene (para 3.17). Therefore,the analysis covers the use of ethanol as a gasoline blend, as a solvent andin the production of ethylene. Since its use as a gasoline blend is economi-cally more attractive, this is the reference point in any subsequent discus-sion of ethanol economics in this report.

8.04 The analysis concerns production of ethanol from the four biomassmaterials of immediate interest (sugarcane, molasses, cassava and corn) byusing fuel sources considered most likely for each biomass material. Reliabledata on wood ethanol is not available yet to permit meaningful analysis. Thestaff is preparing a study to review the wood alcohol potential.

B. Economics of Ethanol as Gasoline Blend

8.05 The base case analysis concerns a 120,000 liters per day distillery,based on sugarcane and operating for 180 days per year, to yield 21.6 millionliters or about 17,000 tons ethanol per year. This size is considered,standard' in Brazil and many ethanol plants planned in the developingcountries have a size close to this.

8.06 In calculating economic revenues, it is assumed that anhydrous(99.8% purity) ethanol would substitute regular gasoline on a 1:1 ratio basis(by volume), when used as a gasoline blend (para 3.07). The ex-distilleryprice of ethanol would be equal to the ex-refinery cost of regular gasoline incountries like Brazil which have large domestic refineries and where averagedistribution distance (and hence cost) for ethanol and gasoline is about thesame. However, for countries with relatively small gasoline markets spreadover a large area gasoline distribution costs, particularly for remote areas,may be very high. In such cases if ethanol is produced close to the consump-tion area, the distribution costs of ethanol may be much lower than those ofgasoline, making the economic ex-distillery value of ethanol substantiallyhigher than the ex-refinery or CIF import cost of gasoline. Smaller scaledistilleries may be economically attractive in these circumstances.

8.07 It is also difficult to arrive at a universal relationship between areference crude-oil price and gasoline price, since ex-refinery gasoline costsalso vary with a number of country specific factors, including the crudequality and source, refinery size and configuration, domestic petroleumproducts demand pattern, gasoline quality, etc. The economic analysis pre-sented here, therefore, calculates the economics of ethanol production atdifferent regular gasoline prices, which are assumed to prevail around theethanol distillery location. These gasoline prices can be related to inter-national crude oil prices after the domestic refinery (or gasoline import) andgasoline distribution costs are determined for each individual country andregion. A rough indication of gasoline value/oil price relationships is,however, presented below but it should be treated with caution.

- 35 -

Rough Relationships Between Ex-refinery Gasoline Values and Oil Prices

Ex-refinery gasoline value (US$/liter) 0.20 0.25 0.27 0.30 0.35

Ex-refinery gasoline value (US$/gln) 0.76 0.95 1.02 1.14 1.32

Oil price delivered atrefinery (US$/bbl) a/ 24 31 33 37 46

Oil price fob Arabian Gulf (US$/bbl) 22 29 31 35 43

a/ Including international freight, port handling, storage and localtransport costs.

In accordance with estimates of the Commodities and Export ProjectionsDivision, oil prices have been assumed to increase after 1980 at 3.0% p.a. inreal terms for the foreseeable future. Since some components of gasoline costshould not directly increase with oil prices, gasoline value in real terms hasbeen assumed to increase at 2.5% p.a. The analysis calculates the economicsof ethanol production at the indicated gasoline values at the start of projectimplementation, i.e., about two years after the investment decision for anethanol plant is made.

8.08 The economic cost of ethanol production is calculated by usingcapital costs given in Chapter VII for different plant sizes, country locationsand raw materials. Based on the Brazilian experience, it is assumed that anethanol plant would take two years to complete and operate at 60% of dailyrated capacity in the first year after start-up, 90% in the second year and100% thereafter. It is assumed that sugar and molasses based plants wouldoperate 180 days/year. Plant life of 20 years is assumed, which is consideredreasonable since the plants involve low temperatures and stationary equipmentoperating at atmospheric pressure. Operating cost estimates, excluding rawmaterial costs, were derived at on the basis of actual operating data obtainedfrom Brazilian sources and estimates prepared by a number of internationalengineering firms, consultants and contractors.

8.09 The economic viability of alcohol production is of course also sensi-tive to the economic (or opportunity) cost of biomass raw materials. If theseraw materials can profitably be exported, their economic value will be deter-mined by international prices. In cases where agricultural raw materials areprimarily traded domestically, their economic value should be determined by themarginal cost of production taking into account the economic opportunity costof the resources employed. The two main cases to analyze, therefore, are (i)where the agricultural feedstock is internationally traded and is diverted toethanol production and (ii) where new crops can be grown for energy production.

8.10 Sizeable expenses on the agricultural side are incurred during thedistilleries' construction period--land preparation, purchase of agriculturalequipment, planting and fertilizing of the crops. These investment costsshould be considered along with annual production costs to calculate theeconomic cost of supplying the agricultural feedstock to the distilleries.The total alcohol production system--agricultural and industrial--would thenbe analyzed on a discounted cash flow basis. Such an approach requiresdetailed information on future economic production costs for each particularcountry and each particular crop and would be employed in the analysis ofspecific projects. This report, based on less detailed information, analyzes

- 36 -

the economics of alcohol production for different assumed economic costs ofbiomass raw materials, to indicate conditions under which an Alcohol Programwould be economically justified.

8.11 The results of the analysis are illustrated in some 15 charts. Thebase case charts for the standard sized (120,000 liters/day) distilleries forsugarcane, molasses, cassava and corn are shown on the following pages, whilethe charts illustrate sensitivity of their economics to different sizes,locations, operating days per year and fuel sources are included as Annex.The results for the individual raw materials are briefly discussed below.

1. Sugarcane

8.12 The economics of ethanol production, for gasohol application, underdifferent gasoline and sugarcane prices, in the low, medium and high capitalcost countries (as discussed in para. 7.03), are shown in the table below:

Ethanol Production from SugarcaneEstimated Economic Rate of Return (%)

Wholesale Gasoline Medium Cost Countries Low Cost Countries High Cost CountriesPrice: Cents/liter 25 27 30 35 25 27 30 35 25 27 30 35

(Cents/US gallon) (95)(102)(113) (132) (95)(102)(113)(132) (95)(102) (113)(132)

Base Case at DifferentEx-Distillery Sugarcane Costs

US$ 8/ton 20 23 28 36 25 29 35 44 12 14 18 24US$10/ton 15 19 24 32 19 23 29 39 8 11 15 21US$12/ton 10 14 19 27 14 18 24 33 4 7 11 18US$14/ton 5 9 15 23 8 12 19 28 - 3 8 15US$16/ton - 4 10 18 2 7 13 23 - - 4 11

Sensitivity Analysis(Sugarcane at $12/ton)

Future Oil Price Growth5% p.a. 18 21 26 34

Future Oil Price Growth0% p.a. - 4 11 20Annual Operating Days:160 8 12 16 24Annual Operating Days:210 13 17 23 32Plant Size: 20,000 (Lpd) 3 6 10 16Plant Size: 240,000 (Lpd) 13 17 23 32

8.13 In the medium cost countries, sugarcane based ethanol production islikely to be economic at the present oil price levels of about US$30/bbl FOBArabian Gulf (roughly equivalent to ex-refinery crude price of US$32/bbl anda gasoline price of about US$0.27/liter or US$1.02/US gallon) provided theeconomic cost of sugarcane at the factory gate is less than about US$14/ton. 1/Sugarcane production costs in many relatively efficient sugar producing

1/ All prices and costs discussed in this Chapter, unless otherwise stated,are in late-1979 Dollars terms.

ETHANOL FROM SUGARCANE

Economic 120,000 LITER PER DAY DISTILLERYRate of MIDDLE COST COUNTRY

Return (%) 180 DAYS OF OPERATION PER YEAR

60-_

50-

40 -

30 0f= C4

1 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1

8 10 12 14 16

Sugarcane Cost(US $/on)

- 38 -

countries (such as Brazil, South Africa, and the Philippines) are consideredto be below this level. In reasonably efficient sugar producing systems, aneconomic ex-factory cost of cane of US$17/ton is roughly equivalent to an FOBdelivered price of about US$0.16/lb, which is the Bank's present long-termprojection of world prices for sugar; at this sugarcane price ethanol produc-tion would have an economic return of 10% or more at gasoline value aboveUS$0.32/liter, which is roughly 18% above the current level and is likely tobe reached in the mid-1980s according to current Bank oil-price forecasts.In economic terms, for small sugar producers and/or countries which can exportadditional quantities of sugar without affecting prices the economic cost ofsugarcane used for alcohol production would be equal to its net-back valuefrom sugar exports. For countries such as Brazil, whose sugar exports alreadyaccount for a significant part of world sugar markets and which can producelarge additional quantities of sugarcane that cannot be exported as sugareconomically, the economic value of sugarcane for alcohol would be the fulleconomic cost of production.

8.14 The return is most sensitive to the assumptions about the economicprice of gasoline and its future increases. A 10% increase in the gasolinevalue increases the return by almost 5 percentage points and at an economicgasoline price of US$0.30 liter (US$1.13/US gallon), the return would exceed10% up to sugarcane cost of US$16/ton. In case the future increase in gasolineprices, in real terms, is assumed to be 5% p.a. then the economic return wouldbe between 7-10 percentage points higher, compared to the returns calculatedwith the 2.5% p.a. gasoline price increase assumed in the base case. On theother hand, in case the gasoline prices do not increase in real terms after thestartup of ethanol production, the economic return would be 7-10 points lower.

8.15 The economics of ethanol production from sugarcane are also sensi-tive to the capital cost of ethanol capacity, which is determined by (a) theinstalled plant costs, (b) number of operating days per year, and (c) economiesof scale. Compared to the base medium cost countries, the economic returnsare 4-6 percentage points higher for the low cost countries (assumed to have25% lower capital costs), while they are 3-7 percentage points lower for thehigher cost countries (with 50% higher capital costs). Similarly, the returnchanges by 3-5 percentage points in case the distillery annually operates30 days extra (or less) than the 180 days assumed in the base case. Whileincreasing the distillery size from 120,000 liters/day to 240,000 liters/dayincreases the return between 3-5 points, its reduction to 20,000 liters/dayinvolves substantial cost penalties and reduces the return by as much as 7-11points. Therefore, ethanol plants below about 120,000 liters/day should beconsidered only if the economic value of their output is also substantiallyhigher due to locational reasons.

2. MIolasses

8.16 The economics of molasses-based ethanol production, with bagasseas the fuel source, are illustrated in the graph on the following page. Itindicates that ethanol production in a medium cost country would be economicat the present petroleum prices in case the economic value of molasses is lessthan US$60/ton at the plant. This molasses price is substantially higher thanthe international molasses prices prevailing until early 1979. However, currentmolasses prices are around US$100/ton fob New Orleans, which after deductingocean and domestic transportation charges would lead to an ex-sugarmillmolasses price level slightly higher than US$60/ton (except for mills located

ETHANOL FROM MOLASSES

Economic 120,000 LITERS PER DAY DISTILLERY

Rate of MIDDLE COST COUNTRYReturn (%) FUELED BY BAGASSE

70-

60 -

30

20-

0 20 40 60 80 100

Molasses Cost(US $/ton)

- 40 -

in remote areas where it could be substantially lower or even approach zero ifeconomic market outlets are not available). However, since molasses pricesare expected to fall below the current high levels, ethanol production frommolasses should be worth consideration in most countries. Considering thatthe economic value of molasses is very location specific, in the sensitivityanalysis molasses prices are assumed to vary between zero and US$100/tonex-plant.

8.17 However, in case fuel-oil (or some other high value fuel) is usedin the distillery instead of bagasse, the economics of ethanol productionfor molasses become significantly less attractive. In such plants in mediumcost countries, the economic return is calculated at less than 10% if themolasses value exceeds US$30/ton. In the case of high cost countries, suchas Sudan, the ex-mill molasses value may have to be close to zero to justifyethanol production based on fuel-oil use (unless the economic cost of gasolinethere is also very high).

3. Cassava

8.18 Compared to sugarcane, the economics of cassava-based ethanol plantsare less attractive due to their need to purchase an outside source of energyand their slightly higher capital cost. To compensate for these drawbacks,these plants must obtain their raw materials at a relatively low economiccost. Even when assuming that new cassava plant designs would be more energysufficient without a significant cost penalty (para 7.06) compared to theexisting sugar-based plants, the economic return of cassava plants will exceed10% at the current petroleum prices (US$30/bbl FOB) only if the delivered costof cassava (fresh roots) is below US$13/ton; the market price of cassava inurban areas of Brazil in late-1979 was reported between US$25-30/ton thoughthis price possibly included a significant transportation and wastage chargefor the middle-men and also reflected relatively low yields of cassava inBrazil. However, if the energy cost of these plants can be cut in half forthe same capital costs, which is conceivable, such plants would be able to payup to US$25/ton of cassava at the present oil prices. It should also be pos-sible to reduce cassava production and collection costs to reduce its factory-gate price below the Brazilian level. Therefore, to be competitive, cassava-based ethanol plants would need (a) to have more energy efficient designs; (b)non-petroleum fuel sources, such as wood and coal, with low economic cost; and(c) substantial increases in cassava yields to reduce the cost of production.

4. Corn

8.19 Capital and operating costs of a corn-based plant are similar tothose of a cassava-based plant. Compared to cassava, the economics of corn-based ethanol plants are however less attractive due to the high opportunityvalue of corn. At US$2.5/bushel (about US$100/ton) price of corn, a corn-based ethanol plant would not exhibit positive economic rates of returnbefore gasoline value reaches US$0.50/liter. However, if the economic costof corn were to drop to US$1.00/bushel, a corn-based ethanol plant would beeconomic at gasoline values of about US$0.30/liter. Even assuming that theenergy cost of these plants can be cut to one fourth of the conventionalplants, without any significant increase in capital cost, the economic returnof corn plants would exceed 10% at current petroleum prices only if thedelivered cost of corn is below US$1.80/bushel; the world market price of cornin late 1979 was US$3.0/ bushel. It thus appears that corn-based ethanol

- 41 -

plants would be competitive (i) when the factory gate economic value of cornis US$1.5/bushel or below, and oil prices reach US$35-40/bbl (in late 1979prices), and (ii) they can obtain low cost non-petroleum fuel sources, suchas wood and coal.

8.20 Overall, the analysis indicates that: (i) ethanol economics aremost sensitive to the economic price of gasoline; (ii) agricultural feedstockcost is a major determinant of the economic viability of ethanol productionand to analyze the economic viability of ethanol production, it is important toestablish economic feedstock cost under local conditions; (iii) plant operatingcosts, excluding agricultural feedstock costs, are relatively less critical forsugarcane and molasses-based plants, which are energy self sufficient and usesurplus bagasse to fuel boilers and generate power; (iv) for distilleries basedon cassava and corn, which have to rely on external energy sources, productioncosts are substantially higher and fuel accounts for about 70% of variableproduction costs excluding feedstock. Energy efficient designs for distilleriesare a significant factor in determining the economics of alcohol production fromsuch biomass; and (v) while capital costs are less critical in determiningethanol economics than the gasoline price, cost of agricultural feedstock andfuel source, they still remain a significant factor.

C. Economics of Ethanol for Chemical Applications

8.21 The difference between the economics of biomass ethanol use as gasolineblend and for chemical applications arises due to the differences in economicvalue of ethanol in these uses. To the extent fermentation (and synthetic)ethanol already commands a substantial premium over the ex-refinery price ofregular gasoline in the European and the US markets, biomass ethanol use assolvent should be economic at petroleum prices substantially lower than thoseneeded for gasoline substitution. Actually, since in mid-1979 ethanol prices onthese markets ranged between US$1.25-2.50/US gallon or US$0.33-0.66/liter (para4.16), biomass ethanol production for use as a solvent should already be economicin most countries. However, most of the current ethanol consumption for thisapplication is in the developed countries and this application offers a limitedscope for substitution of petroleum derivatives by biomass ethanol in thedeveloping countries.

8.22 The economic value of ethanol use for the production of ethylene andits derivatives are very different, as discussed in paras 3.14-3.17. Whileproduction of some chemical derivative which can be obtained directly fromethanol is likely to become economic at currently anticipated petroleumprices, production of ethylene from ethanol is not economic. At the tech-nologies available currently, ethylene production from biomass ethanol isunlikely to be competitive with petroleum derivative ethylene until thecrude-oil price reaches US$40-45/bbl (assuming economic cost of sugarcane atUS$10-12/ton). It is therefore unlikely that large scale substitution ofpetroleum derivatives (e.g., naphtha or ethane) for the production of petro-chemical products based on ethylene as an intermediate, can be justified oneconomic grounds in the immediate future. This conclusion could change incase petroleum prices rise much faster than now projected by Bank staff or newtechnologies and catalysts are developed to reduce the cost of ethyleneproduction from ethanol. Many chemical engineering firms are working on thelatter and it is possible that ethanol use in the chemical industry wouldbecome economic in the next 5-10 years.

ETHANOL FROM CORNEconomic 120,000 LITERS PER DAY DISTILLERY

Rate of MIDDLE COST COUNTRYReturn (%)

70 -

60-

50-

40-

1.0 1.5 2.0 2.5 3.0 3.5Corn Cost(US $/Bu)

da

G~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~ol 8ank-21413 lo'

- 43 -

D. Employment Impact

8.23 Biomass ethanol production can generate substantial rural employment,at a relatively low employment cost. For example, it is estimated that theadditional number of direct jobs to be created by the Brazilian NlationalProgram between 1980-85 would total about 450,000 at an investment cost perjob created of about US$10,000. While the actual number of new jobs that canbe created by potential alcohol production in most other countries would be afraction of this number and the cost per job would be different, biomassalcohol production does offer an attractive opportunity for increasing ruralemployment. If the biomass originated in poorly endowed agricultural areas,important regional benefits may accrue as well.

IX. PROSPECTS FOR ALCOHOL PRODUCTION IN DEVELOPING COUNTRIES

9.01 Biomass ethanol is the major renewable energy source which offersimmediate prospects of providing a premium liquid fuel based on domesticresources to partially substitute for petroleum products. Forestry productsand hydroelectric power, other renewable energy sources with immediate pros-pects, are most suited to produce other non-liquid forms of energy. Ethanoluse as a substitute for the lighter petroleum products (such as gasoline,diesel and naphtha) would complement efforts to promote coal, wood and hydro-electric power as substitutes to heavier petroleum products (fuel oils) thuspermitting the theoretical replacement of the major parts of the petroleumbarrel. As discussed, the basic technology for producing ethanol from sugarsand starches is well known and is appropriate for easy transfer to most develop-ing countries, even though many technical improvements are currently beingdeveloped to enhance its economics. Ethanol production requires medium scaleindustrial units located in rural areas and can become an important additionalsource of permanent rural employment at a relatively low cost. In addition,alcohol production can offer markets for surplus agricultural production,stabilize rural incomes, and help stem the migration of rural population tothe urban centers.

9.02 However, despite these attractions, biomass ethanol productioncannot offer more than a very partial solution to the energy problems of thedeveloping countries. In the immediate future, practical difficulties increating successful agro-industry-energy systems are likely to limit theproduction of alcohol production on a large scale, to a few countries such asBrazil. More importantly, over the medium term the lack of sufficient fertileland would limit any large substitution of petroleum on a worldwide scale.Even if the entire world production of molasses, sugarcane, corn and sweetsorghum, for which commercially proven fermentation technology is available,were converted today, the total ethanol production would substitute for onlyabout 20% of total gasoline consumption. These prospects would improve ifthe yields of energy crops are substantially increased and new technologiesare developed for the economic conversion of cellulosic materials, but thesedevelopments are unlikely to have any major impact on the developing countries'situation during the next 5-15 years. Still, ethanol production in individualcountries, particularly those with a substantial agricultural base, could leadto significant savings in their petroleum product imports.

9.03 The justification of biomass ethanol production in individual coun-tries, even at current and forecast petroleum prices, is heavily dependent

- 44 -

on the circumstances of the agricultural, industry and energy sectors in thecountries concerned. Large scale alcohol production would almost alwaysrequire difficult economic, social and strategic tradeoffs. Although thechoices involved are complex and most usefully discussed within the context ofparticular countries, a few generalizations are possible. The general economicprospects for alcohol production from biomass in the developing countries cantentatively be assessed by first identifying the countries which offer anagriculture/ energy balance that would favor a biomass energy program, and thendetermining among them those countries that offer the economic parameters whichare likely to make alcohol production economically attractive.

A. Agricultural/Energy Self-Sufficiency

9.04 The possibility of large-scale production of alcohol from biomassand the behavior of relative food and energy prices within particular coun-tries will be determined in part by agricultural resource endowments andenergy availability. On a global basis, a sharper increase in energy pricesthan in food or most other agricultural products is plausible, at least overthe next decade. This implies growing competition among agricultural resourcesusable in producing fuel or other products (food or export crops). In thoserelatively rare circumstances where local energy supplies are readily avail-able and agricultural resources scarce or poorly developed, domestic agricul-tural prices may rise more rapidly than prices for energy. As shown inthe frame on the following page, which illustrates agricultural and energytrade balance of selected countries, several country situations can beenvisaged: 1/

Situation 1. Countries characterized as having surplus agricul-tural production but being net importers of energy. Governmentpolicies there will tend to support domestic energy productionand conservation. As energy prices rise relative to food,biomass energy production will be increasingly favored.

Situation 2. Countries in this group are surplus producers ofboth agricultural products and energy. Biomass energyprograms may be undertaken but would not normally be givenhigh priority by government and would generally have todemonstrate strong economic viability.

Situation 3. Countries in this group are in deficit, both inagricultural production and energy. These countries,including both developed and developing, would normallypursue policies to support agriculture and may encouragebiomass energy programs, even if these programs must besubsidized. Biomass energy programs would tend to utilizeraw materials with low economic value (molasses, processingwastes, etc.).

Situation 4. These countries, relatively few in numbers, arecharacterized by agricultural deficits and energy surpluses.

1/ This discussion is based on a paper by Dr. Norman Rask, "Using Agri-cultural Resources to Produce Food or Fuel--Policy Intervention or MarketChoice," presented to the First Inter-American Conference on RenewableSources of Energy, New Orleans, LA., November 1979, mimeograph, 29 pp.The agricultural self-sufficiency is defined as the total value ofagricultural production divided by the value of agricultural productionconsumed in the country.

- 45 -

ALCOHOL PRODUCTION FROM BIOMASSENERGY AND AGRICULTURAL SELF SUFFICIENCY

RATIOS FOR SELECTED COUNTRIES - 1976 a/

I I I I III I , I ' I , I , Australia

1.8

S_ Brazil0.

v) 1.6Argentina

a Thailand

o ~~~~~~~~~~~South Clmi8 1.4 Colombia

- ~~~~~~~~~~Africa0 Philippines * United

States

1.2 Sudan Canada

Turkey 0 Burma

co 1.0 France Pakistan Peru India Mexico1.0 Pr

00 0 ~~~~~~~~~~Zaire Nigeria 4< Spain . Bangladesh Poland USSR

SKorea Egypt- .8

Japan Venezuela4

X ~~~ * ~Italy

a .6 - West Germany

UnitedKingdom

.4

.2

l l I I , I , I I.2 .4 .6 .8 1.0 1.2 1.4 1.6 1.8

Energy Deficit Energy Surplus

Energy Self Sufficiency

Worl d Ba nk -2141 1Source: (Developed by Dr. N. Rask from FAO and World Bank Data)

a/ These results indicate country situations where biomass energy programs may befeasible. The underlying analysis is being refined by taking into account averagesfor several years and focussing directly on food as compared to agricultural self-sufficiency measure used in this frame.

- 46 -

Government intervention is likely to take the form of foodproduction incentives. Biomass energy production will begiven low priority, except possibly when it utilizes wasteproducts.

9.05 The developing countries in Situation 1 are likely to have thestrongest will to develop large biomass energy programs to reduce theirdependence on imported energy, and most of the countries with viable alcoholprograms are likely to belong to this group. Using this criteria, countrieswith high potential for utilizing this renewable energy source may includeBrazil, Thailand and the Philippines.

9.06 Some of the large and populous developing countries (e.g., Bangladesh,Pakistan), however, fall into Situation 3, since they are net importers ofboth agricultural products and energy. For countries such as these a basicquestion is how to make the best (economic and social) use of their agriculturalresources for food needs as well as export and/or biomass energy programs;this critical land use issue is discussed further in paras 10.02 to 10.05.The lack of adequate agricultural production is normally related to scarcityof agricultural resources and would therefore be reflected in higher economiccost of biomass raw materials. In most of these countries, ethanol productionis likely to be attractive only if based on surplus biomass material such asmolasses and agricultural crop residues (or sugarcane during periods of worldsugar surpluses).

B. Economic Parameters

9.07 The relative merits of alcohol production in the potential countriesidentified in the above global analysis would vary depending on the specificeconomic parameters of their agricultural, industry and energy sectors. Themost critical parameters include:

(a) Cropping pattern: Countries with existing large scale and/orsurplus production of sugarcane and molasses are more likelyto have viable alcohol programs than countries where the positiveagricultural balance is due to the export of crops like coffee,tea, soybean or wheat;

(b) Economic Cost of biomass: Countries with surplus or low costbiomass materials (e.g., molasses in Sudan, cassava in Thailand,sugarcane in Brazil) are attractive candidates for alcoholprograms. Relatively cost efficient sugarcane producers such asBrazil, the Philippines and South Africa, where sugarcaneproduction costs are believed to be below US$10-16/ton are alsolikely to find ethanol production for gasoline blend use economic.But countries with higher cane production costs are less likelyto find sugarcane ethanol production economic at crude oilprices projected for the near term;

(c) Plant Capital Costs: Countries such as Brazil and India withextensive experience in industrial plants, large domesticmarkets for equipment manufacturing and relatively low laborcosts are likely to have much lower investment costs andtherefore more economic alcohol production, than countriessuch as Sudan and Mali with infant industrial sectors thatrely heavily on imported equipment and expatriate assistancein plant construction and operations;

- 47 -

(d) Distribution Costs: Land locked countries (e.g., Mali) orremote regions with limited infrastructure where the economicvalue of gasoline substitution is very high (over US$0.30-0.35/liter or US$1.10-1.30/US gallon) may find some ethanol productioneconomically justified even when the raw materials and/or plantcosts are high;

(e) Fuel Source: For ethanol production based on non-sugarcanebiomass, availability of low cost, non-petroleum fuel source(e.g., wood, cheap coal) is important.

C. Potential Countries

9.08 Based on the above criteria, two categories of countries can beconsidered as potential candidates for viable ethanol production programs.The first category would include countries which have surplus biomass, suchas molasses, which can be converted into alcohol without any noticeableimpact on the country's food balance. The analysis of alcohol productionin these countries would be based primarily on economic parameters. Thesecond category would include countries with a favorable agricultural resourcebase and a large biomass production potential, where it may be justified bothon economic and social grounds to devote some agricultural resources to energycrop production. Further detailed review of ethanol production prospectsappears justified in the following partial list of energy deficit developingcountries in these two categories:

CATEGORY I CATEGORY II

Countries with Surplus Biomass Countries with Large Biomass Potential(e.g. Molasses) (e.g. Sugarcane, Cassava, Wood)

Colombia ArgentinaDominican Republic BrazilEcuador Papua New GuineaEgypt PhilippinesCuatemala SudanIndia ThailandIvory CoastJamaicaKenyaMaliPeruSri LankaSwazilandOther Central American and Caribbean Countries

It must be emphasized, however, that further studies may lead to additionsand/or deletions to this tentative list.

X. POLICY ISSUES RELATED TO ALCOHOL PRODUCTIONIN THE DEVELOPING COUNTRIES

10.01 Apart from purely economic considerations, large-scale alcoholproduction from biomass in the developing countries raises some othersocial, financial and strategic issues.

- 48 -

A. Competition between Food and Energy Crops

10.02 The possibility of large-scale biomass alcohol production hasposed the question of whether, and to what extent, such a development islikely to compete for land and other agricultural resources which wouldotherwise produce food or other products. The issue is complex andsometimes emotional, involving as it does economic, political and socialconsiderations. Basic considerations in assessing the extent of future com-petition for agricultural resources are the relative price movements for energyand food. As noted, on a global basis, a sharper increase in energy pricesthan in food or most other agricultural products is plausible, at least overthe next decade. Assuming this occurs, the potential land use conflict betweenfood, export and energy crops will increase as economic forces increasinglydraw agricultural resources into energy production.

10.03 Biomass energy production will, thus, often require difficultchoices and priorities can not always be determined by strict economiccriteria. Biomass production also raises important questions of both incomegeneration and distribution since it would frequently affect large numbers oflow-income people. Economic criteria alone may not adequately recognize thedistributional consequences of a particular policy action. In general, majordirect users of a biomass energy program designed to produce liquid fuels tosubstitute for gasoline fuel for automobiles typically are the middle- andupper-income groups, though by substituting for imported energy it wouldrelease scarce foreign exchange for priority development projects, which canindirectly also help those lower income groups. Heavy taxation of automobilefuels, as practiced in Europe and many developing countries, can also generatesubstantial budgetary resources for development projects. In addition,significant benefits to the farmers and rural workers also result fromproduction and processing raw materials. As noted the Brazilian alcoholproduction program, for example, is expected to provide in 1980-85 as many as450,000 jobs in rural areas at per capita investment costs of about USS$10,000.Where the biomass energy program results in reduced food availability andhigher food prices, the net distribution of benefits is likely to beunfavorable since increases in the price of basic foods impact much moreadversely on the poor than on other consumers. Where potential competition inland use exists, the basic objective should be to pursue land use policieswhich maximize the per-hectare net benefits in "social" terms--taking intoaccount traditional measures of opportunity costs of the raw materials andeconomic efficiency criteria -- as well as concerns with income distribution,impact on the environment, etc. These considerations should be part of allappraisal work for Bank Group supported biomass alcohol projects.

10.04 The potential land use conflict may be more imagined than realin those countries where abundant agricultural resources exist and newlands can be brought into production at reasonable cost. Elsewhere, propergovernment policies may reduce possible competition between energy croppingand production of food and other agricultural commodities, through appropriateprice relationships between various food and energy crops, land cropallocations etc. The basic thrust of these policies should be to reduce theeconomic cost/value of the raw material used in bio-mass energy production.Several possibilities exist:

- 49 -

(i) Increased per-hectare yields of the traditional energycrops is usually possible, thereby reducing the overallland requirement for biomass energy. Research, technologyand extension efforts in all of agriculture are needed tominimize the food price impact of an alcohol program.

(ii) Energy crops other than sugarcane (e.g., sweet sorghum, wood)may increase alcohol production per hectare and thereby reducethe planted area for biomass production. Alcohol productionper hectare per year from sweet sorghum, for example, may beas much as 50% greater than that from sugarcane;

(iii) Production of raw materials which grow on lands marginalfor agriculture should be encouraged. Cassava grows onlands generally not suited to sustained food or other annualcrop production, but yield increases are required in mostcountries if cassava is to be an important energy crop.Forest products could become important sources of ethanol(and methanol) if cellulose conversion technology can beimproved and utilized on a commercial scale. The globalland area under timber on lands with limited agriculturalpotential greatly exceeds land available for sustainedagricultural biomass production.

10.05 The soundest long-term approach to deal with the issue of potentialconflict in land use between energy and food crops is likely to be to promotethe use of raw materials such as cassava and wood which can be grown on landsnot generally suitable for food production. This requires a carefully focusedand sustained research and development effort in individual countries.Support of this type of research, involving both biomass production andutilization, should be a part of all development programs for biomass energy.

B. Need for Integrated Alcohol Systems

10.06 Generally, in most countries the petroleum, industry and agriculturalsectors would have somewhat conflicting interests in the fuel alcohol question(even if the petroleum and sugar/alcohol industries are government-owned).The petroleum sector, responsible for alcohol blending and distributionrequires high quality alcohol (higher operating cost), must adjust to achanging refinery mix (because of lower gasoline demand), must participate inthe road-use demonstration program of alcohol/gasoline blend in cars, prefersequal and assured monthly supplies, and of course, wants a low price foralcohol (without disturbing the petroleum pricing/profit situation in thecountry). The industry sector, on the other hand, would want a higher pricefor alcohol, low alcohol quality (low production costs), assured alcoholmarkets and raw material supplies (to reduce long-term risks) and alcoholshipments that match its short production season (to reduce inventory andinvestment costs). The agricultural sector would prefer high prices andguaranteed markets for its output (but no penalties in case production fluc-tuates because of unforeseen circumstances), and, over the long term, theright to shift to other crops should changed circumstances make it moreprofitable to do so. Alcohol production from biomass would, therefore,require close coordination between the industry, agricultural, energy andtransportation sectors.

- 50 -

10.07 Successful alcohol projects will involve a close association ofagricultural systems, alcohol plants and assured markets in the energy sectorlinked by a reliable raw material collection and alcohol distribution network.Alcohol plants can not be viewed in isolation and must be designed and appraisedas part of an integrated systems. This would not only minimize the risks asso-ciated with alcohol projects, but would also allow the projects to be designedafter considering local or regional factors. The size of the ethanol plantsmay vary with the location after considering the volume of biomass raw material(or mix of raw materials) likely to be reliably available, the local alcoholmarket size and the cost of competing fuels.

C. Need for National Alcohol Program Policies

10.08 While promoting alcohol production, governments will need toaccommodate the different and often conflicting needs of various sectorsof the economy involved. For this purpose strong and complementary govern-ment policies in different sectors of the economy will be essential.

10.09 The main areas needing government policy actions would include:(a) active promotion of ethanol use for gasoline blend (or other economicapplications), through demonstration projects and agreements with the auto-mobile and chemical industry; (b) development of energy efficient ethanolplant designs, including through government financing of such research anddevelopment effort; (c) promotion of alcohol production by guaranteeingofftake and facilitating assured raw material supplies; (d) encouragingproduction of biomass raw materials by offering appropriate incentives andproviding necessary agricultural research, extension and credit facilities,and (e) designing a cohesive pricing system for the energy/industry/agricultural alcohol system to overcome typical large distortions in theagricultural and energy pricing and to provide financial incentives to promoteproduction of alcohol as a petroleum substitute.

10.10 Perhaps the most appropriate mechanism for arriving at appropriatepolicy decisions and extending the above incentives would be to develop acomprehensive national alcohol program, with adequate representation from allgovernment and private sector bodies involved. One model to follow, whiledeveloping and implementing such a program, might be the Brazilian NationalAlcohol Program. The overall objectives of the program have been set by thegovernment, which is undertaking the necessary policy measures mentioned aboveand is also providing most of the financing required for the investmentsapproved under the program. The actual implementation of the agro-industrialprojects is primarily the responsibility of the private entrepreneurs, whilealcohol distribution is being handled by the state-owned petroleum company.Whatever the actual mechanism chosen, it is essential that the nationalalcohol program be conceived and evaluated in the context of overall nationaldevelopment policy and objectives, and that the Bank Group appraise andsupport individual alcohol projects in the context of such overall policies.

XI. PROPOSED BANK ROLE

11.01 As discussed, alcohol produced from biomass is the major renewableenergy source with immediate prospects of providing a liquid fuel substitutefor petroleum products to selected developing countries. Biomass alcoholproduction can also create significant rural employment at a relatively low

- 51 -

investment cost per job, and at the same time stabilize farm incomes. Whilethe basic alcohol production and use technology is available, and alcoholproduction on a small scale has been undertaken for centuries, little practical

experience with large-scale alcohol production and use exists in the world,except in Brazil and to a lesser degree in the US, EEC and India. Consideringthe complexities involved in determining the economics of alcohol productionand consumption, the merits of large-scale alcohol production in individualcountries must be carefully appraised (Chapter VIII). The design of nationalalcohol programs must also take into account a number of important social,economic, human and strategic issues, including those mentioned in the previouschapter.

11.02 The Bank can play an important role in assisting the developingcountries in: (a) evaluating the potential, prospects and viability ofalcohol production; (b) developing policies necessary to prudently exploitthis potential where justified; (c) designing national alcohol programs; (d)transferring appropriate technology through financing of these programs; and(e) formulating and strengthening institutions and organizations responsiblefor this activity. Our initial work so far in a number of countries indicatesthat assistance from agencies such as the Bank is urgently needed in thesecrucial areas to allow the developing countries, either with surplus biomassraw materials or with large biomass production potential, to develop thisrenewable energy source quickly and efficiently.

11.03 A decision by the Bank at this time actively to support economicallyjustified alcohol programs will help draw attention of policy makers in thedeveloping countries to the potential (and limitations) of alcohol productionfrom biomass. It also could be expected to have a catalytic effect on otherfinancing sources and even if active Bank support is limited to alcoholprograms in a few selected countries, it may encourage exploitation of thispotential in a larger number of countries. The Bank can also facilitatetransfer of experience with alcohol programs between its member countries.

11.04 Finally, Bank support of alcohol production programs based onbiomass is consistent with its efforts to support development of non-conventional and renewable sources of energy. This new area of activity willcomplement increased Bank lending for the development of conventional energysources such as petroleum, gas, coal and hydro-power.

11.05 Given the topical nature of the subject and the increasing concernsabout future energy supplies and prices, there is mounting interest to supportalcohol production from biomass. Some of this interest is based on erroneousinformation and is misplaced. As pointed out throughout the report, whilebiomass alcohol production does offer potential in certain circumstances,it is neither a major solution to the current energy crisis nor is its economicviability usually clear cut. The justification of alcohol production willdepend greatly on the specific circumstances of the agricultural, industry,energy and transportation sectors of each country. Therefore, Bank Groupsupport for alcohol projects will be based on a careful evaluation of allfactors (and these are complex) that influence their viability. In mostcases, such evaluations can be made only after detailed country reviews.

Industrial Projects DepartmentJune 4, 1980

Economic ETHANOL FROM SUGARCANERate of 20,000 LITERS PER DAY DISTILLERY

Return (%) LOW COST COUNTRY

6o-

40-

30-

210-

Sugarcane Cost 3US $USon C

te,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~tt

0 -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

8 10 1 2 14 1 6~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'

Economic ETHANOL FROM SUGARCANERate of 20,000 LITERS PER DAY DISTILLERY

Return 1°) MIDDLE COST COUNTRY

60X

40-

30-

20-

8 10 12 14 16

Sugarcane Cost(US $/ton)

0

ETHANOL FROM SUGARCANEEconomic 120,000 LITERS PER DAY DISTILLERY

Return o LOW COST COUNTRY

60

40 1 4

10~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1

Sugarcane Cost

lu s /ton)

0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Economic ETHANOL FROM SUGARCANERate of 120,000 LITERS PER DAY DISTILLERY

Return 1%) HIGH COST COUNTRY

50-XI

40-

30-

20 X _ Gaoln v. 5a

8 10 12 14 16

Sugarcane Cost

(US S/ton)

0

It,

ETHANOL FROM SUGARCANE

Economic 120,000 LITERS PER DAY DISTILLERYRate of MIDDLE COST COUNTRY

Return (%) 160 DAYS OF OPERATION PER YEAR

60-

50-

40-

8 10 12 14 16

Sugarcane Cost (US S/ton) X

G"oho I/~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~U

21 us Cp~~~~~~~~~~~~~~~~~~

ETHANOL FROM SUGARCANE

Economic 120,000 LITERS PER DAY DISTILLERY

Rate of MIDDLE COST COUNTRYReturn (%) 210 DAYS OF OPERATION PER YEAR

60-

50-

08 10 12 14 16

Sugarcane Cost(us $/ton)

3~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 Z

r,1

C~~~~~~~~~ pe~~~~~~~~~~~~

G 1/,/Ue~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

ETHANOL FROM SUGARCANEEconomic 240 LITERS PER DAY DISTILLERY

Rate of LOW COST COUNTRYR eturn ( ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

00 6

Gso

4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

0~~~~~~~~0

301

8~~~~ ~~~ 10 1?2 1 4 1 6Sugarcane Cost

(US $Aon) eo t2

0

Economic ETHANOL FROM SUGARCANERate of 240,000 LITERS PER DAY DISTILLERY

Return (O) MIDDLE COST COUNTRY

60-

40

20 2r OS Ce

0-8 10 12 14 16

Sugarcane Cost(US $/ton)

0o

i-

r-"

ETHANOL FROM CASSAVA

Economic 120.000 LITERS PER DAY DISTILLERYRate of MIDDLE COST COUNTRY

Return (%) FUELED BY FUEL OIL

Se-

40-

30-

GasCasav Cot 8(/c

20-

102025303

Cassava Cost

(us $/ton)

0

ETHANOL FROM CASSAVA

Ecornomic 120,000 LITERS PER DAY DISTILLERY

Rate of MIDDLE COST COUNTRYReturn (%) LOW ENERGY INPUT COST

70- 1 2

60

40

20 1 20 25 30 35

cassava Cost(US $/ton) p

CD~~~~~~~~~~~~~~~~~~~~~

c:3~~~~~~~~~~~~~~~~~~~~~~

ETHANOL FROM MOLASSES120,000 LITERS PER DAY DISTILLERY

Rate of MIDDLE COST COUNTRYReturn (%) FUELED BY FUEL OIL

7-

60-

se-

50-

0 20 40 60 80 100

Molasses Cost(US S/ton)

0HIx

F-

ETHANOL FROM CORN120,000 LITERS PER DAY DISTILLERY

Economic MIDDLE COST COUNTRYRate of LOW ENERGY INPUT COST

Retu rn %/c)

70-

60

50-

1 0 1.5 20 2.5 30 35

Corn Cost(US5/18u) WVorld Bank 21412

It I-'

n m