"When oil prices dropped, it killed that push to ethanol – and you could have that happen again," says Chad Hart, an agricultural economist at Iowa State University. But there is a safety net this time, he and others agree: the US Renewable Fuel Standard (RFS). Today the US produces 9 billion gallons of ethanol from corn but under RFS is mandated to make 36 billion gallons by 2022.
That demand, most of which must by law come from cellulosic ethanol and advanced biofuels, is aimed at reducing greenhouse gas emissions and improving US energy security. The RFS currently pays gasoline blenders a hefty 51-cents-per-gallon subsidy for every gallon of ethanol they use.
"Things are fundamentally different than they were in the 1980s, especially with respect to fuels policy," says Bob Dinneen, president of the Renewable Fuels Association. "We now have the RFS in place. So no matter what happens, we have a foundation, a safety net."
To meet RFS requirements, investors must pour billions into cellulosic ethanol plants. How eager they will be to do so is a question. Today, about 30 cellulosic projects are in various stages of development nationwide. Investors are wary. Among six large DOE-sponsored projects, two big investors have recently pulled out.
The Energy Department's target is to bring cellulosic ethanol costs down to about $1 per gallon so it can compete with corn ethanol. That's the equivalent of $40 to $50 a barrel – a rough target for venture capitalists, too.
At a recent conference on algae-based biofuels, a noted venture capitalist set $50 a barrel for oil as the base line his investments must beat, says Nathanael Greene, senior biofuels policy analyst for the Natural Resources Defense Council, who attended the conference.
When the RFS was put in place, cellulosic ethanol investors thought $70 to $80 per barrel was the price threshold at which to jump in, says Paul Winters, a spokesman for the Biotechnology Industry Organization (BIO), which represents cellulosic ethanol producers. "Now that those investors have jumped in and oil prices are falling, they're not sure what the base number is going to be."
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