This week’s issue of USDA’s Amber Waves reports that production of next-generation biofuels (which include cellulosic ethanol) will be limited and have a minor impact on feedstock demand in the near term. USDA points out that some companies will use existing streams of forestry waste and municipal solid waste while supply arrangements for crop residues and energy crops are developed.
However, if production of next-generation biofuels “gets on an expansionary path,” agriculture could eventually play a large role, USDA reports. Biomass inventory and other analyses by the U.S. Department of Energy (DOE), USDA and EPA conclude that of all potential sources of biomass, crop residues and energy crops are the most significant. Visit www.ers.usda.gov/AmberWaves/Scripts/print.asp?page=/June10/Features/NGBiofuels.htm. 
One reasons why cellulosic ethanol production will be limited is cost. High production and initial construction costs for untested technologies and processes on a commercial scale make investors shy away from projects. Capital investment costs for cellulosic ethanol plants are estimated at three to four times those for first-generation biofuel plants, reports the USDA. According to 2004 estimates of the DOE’s Energy Information Administration, capital investments for biomass-to-liquid facilities ranged from $650 million to $900 million for a 100-million gallon capacity plant compared to $130 million to $230 million for a similar-sized corn ethanol plant. More recent studies estimate lower capital investment costs to $320 million to $340 million for cellulosic ethanol plants, suggesting that these costs could be trending downward, the USDA adds.
In 2007, USDA estimated cellulosic ethanol production costs at $2.65 per gallon compared to $1.65 for corn-based ethanol. Capital and conversion costs are expected to fall as companies increase production and have more access to low-cost biomass.
Farmers would need to receive $40 to $60 per dry ton to produce enough feedstocks for 12 billion to 20 billion gallons of cellulosic ethanol from agricultural residues and energy crops, according to a 2008 report by the Biomass Research and Development Board. For farmers to shift to dedicated energy crop production, however, farm prices would need to compete with the lowest value crops such as hay, whose price has exceeded $100 per ton since 2007.
The Biomass Crop Assistance Program (www.fsa.usda.gov/FSA/webapp?area=home&subject=ener&topic=bcap ) will help boost farmer incentives and lower feedstock costs for biorefineries. It provides assistance up to $45 per dry ton to producers of eligible biomass.