The Quest: Energy, Security, and the Remaking of the Modern World

by Daniel Yergin

  By the 1970s Brazil was importing 85 percent of its oil, and its economy was booming. But the 1973 oil crisis abruptly ended what was being called the Brazilian Economic Miracle. Petroleum prices quadrupled, delivering a devastating shock to the economy. The military government responded with what it described as a “wartime economy” to meet the nation’s energy crisis. Brazil, according to the universal consensus, had absolutely no prospects for petroleum. The only energy option was sugar. As part of the “war effort”—and at the strong urging of distraught sugar growers—the government established the national Pro-Alcohol program. It was backed by the slogan “Let’s unite, make alcohol.” As an extra incentive, fuel stations, previously closed on weekends, were granted the right to stay open on Saturdays and Sundays in order to sell ethanol—but not gasoline. Ethanol consumption increased dramatically. Initially ethanol was added to gasoline. But by 1980, in response to the government’s insistence, the Brazilian subsidiaries of the major car companies agreed to manufacture vehicles that ran exclusively on ethanol. In turn, the government made a crucial pledge, both to the companies and consumers, that there would be sufficient ethanol. It was an absolute guarantee. The actual production costs of ethanol in 1980 were three times that of gasoline, but that was hidden from consumers by huge subsidies that were paid for by a tax on gasoline.9

  By 1985, 95 percent of all new cars sold in Brazil ran exclusively on “alcohol.” However, the oil price collapse in the mid-1980s left ethanol wildly overpriced compared with gasoline. Moreover, with sugar prices rising, growers switched from ethanol back to sugar. Ethanol output dropped sharply in the second half of the 1990s. The result was a severe shortage of ethanol. The shortfall infuriated all those now-stranded owners of the new alcohol-only vehicles, devastated ethanol’s credibility, and destroyed confidence in its availability. Despite the absolute promise the government had let them down. As a final act of embarrassment, Brazil had to import ethanol from the United States to help make up for its deficit in supply.

  But from 2000 onward, three things brought “alcohol” back in Brazil. The first was the rising price of oil. Second, thirty years of experience and continuing research dramatically reduced production costs for ethanol.

  The third was the introduction of flex-fuel autos. These are vehicles with onboard computers that can detect by “sniffing”—that is, sensing whether the fuel is gasoline, a mixture of gasoline and ethanol, or mostly ethanol—and then adjust the engine accordingly. Flex-fuel vehicles entered the Brazilian market only in late 2003. José Goldemberg, an esteemed professor at the University of São Paulo, former government official, and one of the fathers of the Brazilian ethanol development, recognized that flex-fuel vehicles were transformative. This was the inexpensive breakthrough that would put confidence back into the minds of motorists. It cost only about $100 to make a car flex-fuel and thus enable drivers not to be reliant solely on ethanol and so eliminate the risk of driving somewhere and not being able to get home. Also, around this time, he did a highly influential analysis—“the Goldemberg Curve”—that demonstrated that Brazilian ethanol with no subsidies was now cheaper than gasoline.

  To say that flex-fuel vehicles “caught on” would be an understatement. In 2003 about 40,000 flex-fuel cars were sold in Brazil. By 2008 this number had surged to just over two million, and flex-fuel constituted about 94 percent of all new cars sold in Brazil. This means that the motorist at the pump can decide what is cheaper on any given day and put that fuel into the engine. With memories fresh from the ethanol shortage of the 1990s, it also means that the car owner could always get around using “old-fashioned” gasoline, even if the price of ethanol shot up again. Though no longer subsidized, Brazilian ethanol is highly competitive both at home and on the world market. Indeed, today sugarcane ethanol in Brazil is generally seen as the world’s only consistently competitive biofuel.10

  Sugar has another cost advantage over corn-based fuel. The bagasse, the leftover waste fiber from the sugarcane, is burned to generate heat and power, eliminating the need for fossil fuels and reducing costs. The sugarcane growers have an added protection, which adds to their incentive to expand output. They are not dependent on a single market, but rather can optimize output between sugar and ethanol, depending on relative prices. Even so, the expansion of the ethanol industry has proved volatile for investors.

  Ethanol is certainly well established once again in Brazil. In fact, gasoline is now the “alternative” fuel, as sales of ethanol, since 2008, have outpaced gasoline. And Brazil has achieved that nirvana of energy independence. Instead of the 85 percent import dependence of the 1970s, the country is now self-sufficient and indeed it is a net exporter of oil.

  Some in the United States ask why it cannot do the same. But the challenge in the two countries is not exactly on the same scale. The entire Brazilian motor fuel market is equivalent to only about 10 percent of the U.S. gasoline market. In fact, the United States currently produces about 75 percent more ethanol than Brazil. For the United States to attain market penetration equivalent to Brazil would require almost five million barrels per day—more output than any OPEC country except Saudi Arabia.

  Moreover, it would be mistaken to assume that Brazil’s energy independence is exclusively because of ethanol. The 1970s expectation that Brazil was virtually devoid of oil resources has turned out to be resoundingly wrong. The growth of its petroleum output is among the fastest in the world. Today the country produces about five times as much oil as it does ethanol.

  With all that said, Brazil’s ethanol industry is positioned for rapid expansion. Much land is available, and it does not require cutting down rain forests. (Sugarcane cannot grow in rain forest–type conditions.) There is potential for much further innovation in the sugarcane itself and in production facilities and logistics. And if the world is willing, Brazil has the potential to take the lead in developing a very large global export market.

  FOOD VERSUS FUEL

  As biofuels came to the fore around the world, a debate erupted over the prospects for conventional ethanol and other biofuels, which could be summed up as “food versus fuel” and “net carbon footprint.” A good deal of energy goes into the production of ethanol. But do you get more, less, or the same amount “coming out” compared with the amount of energy “going in”? The energy balance—that is, how much energy you get for the energy you expend—is controversial and not easy to measure.

  It takes energy to make energy. The energy for conventional ethanol includes the diesel fuel for the tractors that plow the fields, the petrochemicals that go into the fertilizer, the fuel for the vehicles that gather the corn, the heat on which the still operates, and the fuel for the vehicles that move the ethanol from the small towns of the heartland toward the market. Changing the assumptions on all these factors will give different answers. Currently the consensus is that the net energy balance is mildly positive for corn ethanol, although the actual balance depends very much on the fuels and the costs that are incurred to make and transport the ethanol. Moreover, with greater experience in building plants and larger scale, that balance should improve somewhat more. Also, a good part of the energy input is non-oil fuels, like coal and natural gas. Indeed, increasing ethanol production is creating an important new industrial market for natural gas.11

  But are there limits to the growth of land that can be devoted to growing crops for biofuels? Corn is the largest agricultural crop in the United States as measured by acres planted. Such is the boom in corn that it now even outranks wheat as a crop in Kansas, “the wheat state.” But the use of the corn is not what most people would assume. Only about 1 percent of the corn crop is eaten directly by humans as corn. Another portion of the corn crop goes into processed foods, including high-fructose corn syrup. A much bigger share is indirect consumption through livestock, which consume about half the corn. Ethanol’s share of the nation’s corn crop increased sevenfold between 1995 and 2009, from 6 percent in 1995 to 41 percent in 2009. So when
it comes to American corn, the real “food versus fuel” competition is “animal food versus fuel.”12

  Higher corn prices are good news for corn farmers. But they are bad news for livestock growers and dairy farmers, who depend on corn to feed their animals. Higher costs for corn also add to the price of such consumer products as soft drinks and breakfast cereals that use high-fructose corn syrup (and, by encouraging farmers to switch from barley to corn, also to the price of beer). Corn prices, as they feed through to animal feed, flow into rising food prices around the world, contributing to inflation and generating political tensions in many countries.

  Rising prices created a crisis in Mexico, which imports corn from the United States for making tortillas. And with the increase in the price of corn, prices for Mexican corn also went up. As a result, the price of tortillas abruptly jumped in 2007. This created the first political crisis for President Felipe Calderón, who had been elected by a razor-thin majority. “We’re a country that eats tortillas and beans,” said the Mexican energy minister in the midst of the crisis. Seventy thousand people took to the streets in Mexico City to protest the high prices—tortilla prices tripled in some parts of the country—forcing the government to slap price controls on tortillas.13

  Remarkable advances in agronomy have quadrupled the bushel yield per acre since 1950. But even with their increases in productivity, advocates of ethanol see acreage as a limit to corn-based ethanol.

  A backlash against biofuels on environmental grounds has emerged, centered on concerns about the net carbon footprint of first-gene ration biofuels. Although biorefineries in the United States have strong local support in farming communities, opponents complain about the effects on air quality and traffic.

  More broadly, criticism has risen concerning water use and increased greenhouse emissions released from the soil and from additional fertilizer production. The biofuels criticism has been significant in Europe, particularly concerning palm oil imported from Malaysia and Indonesia, where the burning of forestlands to make way for palm oil plantations emits CO2 and disturbs biodiversity. As a result, the EU is trying to implement sustainability safeguards for biofuels, such as “well to wheel” limits on the CO2 content of biofuels and prohibitions on deforestation. The land-use provisions get trickier when it comes to considering what is called indirect land-use change—the “knock-on” effects of land use, an especially hot topic for the European Union. “Indirect” is when, for instance, a biofuel crop displaces a food crop, which in turn, seeking new land for cultivation, leads to deforestation and a potentially large release of carbon. How is this going to be measured? And, by the way, who is doing the measuring?14

  For the United States, conventional ethanol and biodiesel cannot meet the expectations for biofuels. Of the 2.35 million barrels a day of biofuels that is required to be mixed into the country’s motor fuel by 2022, more than half must be advanced—second generation—biofuels. Much of that is supposed to come from something that is now available in laboratories and start-ups but does not exist on a commercial scale: cellulosic ethanol.

  A PROMISING FUNGUS

  During World War II, some of the fiercest fighting took place in the South Pacific. As Allied troops pushed the Japanese back, island by island, they had to contend with the daunting and unexpected travails of jungle warfare. One of the most mysterious and surprising was jungle rot—molds that ate their way through tents, garments, knapsacks, boots, and belts. Samples of these organisms—eventually some 14,000—were collected and dispatched to an army laboratory in Natick, Massachusetts, west of Boston. One of the most promising was a fungus called Trichoderma viride, extracted from a rotted-out cartridge belt brought back from New Guinea. A biologist at Natick, Leo Spano, developed a mutant version of the fungus that he left in a water solution with ground-up leaves. When he came back to it thirty-six hours later, he found that the mutant had worked a kind of magic, turning the leaves into glucose, a type of sugar. As he looked at the sugar, he thought he saw a new future. “I realized that a tiny enzyme could change the world as we know it,” he later said. “If man could direct an enzyme and improve it, the compounds could eat up our poisonous wastes and convert them to useful substances.”

  After the 1973 oil crisis, Spano’s work drew wider attention. At a conference in Natick in 1975, Undersecretary of the Army Norman Augustine proclaimed that “we turn to the lowly fungi” to solve problems of energy, resources, and food. “I was struck,” Augustine later said, “by the possibility of making a quantum leap by adopting a totally new approach that seemed to have a supportable scientific foundation.” Both large companies and start-ups began to experiment with cellulosic ethanol.15

  But in the 1980s as oil prices declined and then collapsed, attention faded away. Funding for long-term R&D disappeared. A few stragglers still continued to play with the technology. A Canadian company, Iogen, founded with great hopes in the 1970s, just managed to stay in business by developing enzymes that, among other things, made feed more digestible for chickens and pigs.

  But by the beginning of the twenty-first century, a conjunction of developments—renewed support and ambitious targets for biofuels, combined with energy security and a growing focus on climate change—created fertile soil for the rebirth of interest in cellulosic ethanol.

  “SWITCH—WHAT?”

  Until 2006 very few Americans had ever even heard of something called switchgrass. But one person who certainly had was David Bransby, a South African–born professor who now taught at Auburn University in Alabama. He had written his Ph.D. on grasslands science and had spent decades working on prairie grasses, one of which was switchgrass, which grows in thick tangles, eight or nine feet high. But he didn’t get much attention outside his discipline. Then Alabama’s Senator Jeff Sessions visited Bransby’s switchgrass field and came away impressed by the grass’s potential as a fuel source, and one potentially superior to corn. At a meeting at the White House, prior to the “addicted to oil” 2006 State of the Union, Sessions made the case for switchgrass. Keen to find something new on energy, the administration listened.

  One can be sure that almost all of the tens of millions of Americans tuned in to the 2006 State of the Union were mystified when President Bush called for the development of “cutting-edge methods of producing ethanol . . . from wood chips and stalks, or switchgrass.” Wood chips, sure. But switchgrass? What was this switchgrass? Professor Bransby from Auburn University had a somewhat different reaction. “I nearly fell off my chair when I was watching it in my living room,” he later said.16

  The “holy grail” is the term sometimes applied to cellulosic ethanol and other advanced biofuels. If achieved, these biofuels could be transformational, dramatically changing the supply balance and, at the same time, significantly reducing greenhouse gas emissions from transportation. Unlike the electric car, they would not require an entirely new infrastructure. To the end user—the motorist or the airline—the change would be essentially invisible. Life would not change. But biofuels would transform the energy system—in terms of how energy is produced, who produces it, and how the revenues flow.

  Much effort now is going into their development. Life sciences have been recruited into the energy business. And also in a way that never happened before, the financial resources are there to back up this undertaking—from governments, entrepreneurs, and venture capital and private equity firms.

  Moreover, the major international oil companies have in the last few years made significant commitments to various kinds of advanced biofuels research, some of them on a very large scale. BP is providing $500 million to the Energy Biosciences Institute, a collaboration between the University of California, Berkeley, the Lawrence Berkeley National Laboratory, and the University of Illinois. ExxonMobil has committed $600 million to work with Synthetic Genomics, a firm founded by Craig Venter, a mapper of the human genome. Chevron, Shell, ConocoPhillips, Total, and Statoil have all formed biofuels-related partnerships. And, of course, Brazil’s
Petrobras is also active in biofuels. Venture capitalists have, meanwhile, funded a number of start-ups.

  While going down many different pathways, these ventures are all trying to get to the same destination: a new source of transportation fuel that is commercial, competitive, available at scale—and does not require a whole new infrastructure.

  The know-how exists today to break down plant materials and agricultural waste and turn them into ethanol. The challenge is to do it in a way that is both economic and large scale. It is a big challenge. “We always knew you could use enzymes to treat fiber and turn wood into sugar,” said the executive of one of the original cellulosic ethanol firms, which has been at it since the 1970s. “That’s not the issue. It’s at what cost and whether it can be done in an industrial-scale environment quickly.”17

  The uncertainty arises from the nature of the problem. The researchers are challenging the anatomy of the plant itself. They are trying to wrest from plants and other materials something these organic materials are not designed to give up easily.

  The basic issue for ethanol is how to release the sugars that can be fermented and then distilled into alcohol fuel. With cane sugar, one is already almost there. Corn needs to be ground down and treated to release the sugars. Cellulosic ethanol is still more complicated. As the name indicates, cellulosic ethanol is derived from the sugars that are embedded in the long complex chains of carbohydrates that comprise cellulose and hemicelluloses. They are still further away from being fuels. They are meant to be tough. After all, they are the walls of the plant. The cellulose and the hemicellulose, along with the lignin, are what give the plant its structural integrity. They are what enables a tree to stand up straight.