Business Outlook Survey: Bioenergy Industry Is Optimistic

The results of the latest Biofuels Digest/BIO Quarterly Business Outlook Survey show that 85 percent of bioenergy industry executives say they are more optimistic than 12 months ago both about their organization’s prospects for growth and industry growth. Biofuels Digest drew comparisons to the previous two Business Outlook Surveys, conducted in September 2010 and December 2010.

Nearly 20 percent of respondents predicted that their organization’s revenue would increase 11 to 24 percent in the coming year, while an additional 17 percent predicted more modest growth in the 5 to 10 percent range. Likewise, more than 40 percent of respondents projected industry revenue growth in the 5 to 10 percent range.

The biggest drivers of growth for organizations, each identified by more than 40 percent of respondents, were rising demand for alternative fuels, new technology or intellectual property, and partnering in R&D, production and marketing.

The survey received responses from more than 700 executives in the bioenergy sector.

Pacific Rim Summit — Biobutanol: Overcoming the Barriers

The biobutanol panel at the 2009 Pacific Rim Summit on Industrial Biotechnology and Bioenergy had three dynamic speakers from the biobutanol industry: Pat Gruber, CEO of Gevo, Inc.; Jay Kouba, CEO of Tetravitae Bioscience and Rick Wilson, CEO of Cobalt Technologies. Besides the individual company presentations the conversation concentrated on technology, risk, barriers and financing on the path to commercialization.

Jay Kouba related to the audience that the business plan with the best technology is often not the one that makes it to commercialization; the path to commercialization is often paved by the plans with the lowest barriers to commercialization.

Pat Gruber of Gevo started the session off by giving background on his company, Gevo Inc., founded in 2005. Gevo’s biobutanol plans center around retrofitting corn ethanol plants to produce isobutanol. The main thing Gevo is concerned with is access to cheap feedstock, they will make their fuel out of whatever is most economically viable, currently sugarcane and grain, but eventually cellulosic feedstocks will be used. Gevo has a 1 million gallon demonstration plant in St. Joseph, Mo. Gevo also has business plans for renewable gasoline, jet fuel and isobutylene for use in such products as rubbers and plastics. These molecules will serve as building blocks for the chemical industry and they are beneficial, because the chemical industry already knows what to do with them. Gevo plans to have a commercial plant (20-50 million gallons per year) operating in 2011.

Tetravitae will be focusing on the chemical industry for their butanol to take advantage of what they see as a weak point in the petrochemical web. They are focusing on finding a low capital route that they can get to market quickly and follow up with improvements, and they see many opportunities with biobutanol for chemicals. Tetravitae will be using a similar business plan to Gevo in retrofitting corn dry mill plants for production. Tetravitae has partnered with the University of Illinois to develop the organism they are using. Mr. Kouba said that their process is already cost competitive and they are planning on having a demonstration facility operating in 2010 and a commercial facility up and running in 2011.

Rick Wilson’s company, Cobalt Technologies, is focusing on commercializing their cellulosic butanol for fuels and chemicals business. The big question for them was, “What’s going to make the biggest difference and be the most cost effective cellulosic biofuel on the market?” The answer was biobutanol. According to Mr. Wilson, the advantage of this renewable fuel is that 15 billion gallons is mandated by the Renewable Fuel Standard, it has an estimated 70 to 90 percent reduction in lifecycle assessment in greenhouse gases versus petroleum, increases fuel efficiency, lowers tailpipe emissions and is compatible with existing fuel infrastructure. Cobalt Technologies is interested in a venture with high margins that requires low capital investments. Rick made the observation that the most important cost for them is the price of the feedstock. Cobalt currently has pilot plants constructed in Colorado and California with a 200,000 gallon per year facility planned for operation in 2011 and a 15 million gallon per year facility planned for 2013.

All of the speakers agreed that access to capital is a barrier to commercialization, and education for the public, the regulatory community and opinion leaders such as Members of Congress on the benefits and technological attributes of biobutanol is a priority. Lively discussion and debate followed during the question and answer portion of the session. Stay tuned as biobutanol moves forward into commercialization for fuels and chemicals.

Data Also Disproves Food v. Fuel Claims

The Wall Street Journal’s Scott Kilman reported earlier this week on a letter sent by General Mills, the Grocery Manufacturers Association and Kraft Foods to Ag. Sec. Tom Vilsack, asking for reduction of trade tariffs on sugar. From Kilman’s article and the letter, it’s clear that grocery manufacturers are once again trying to distract public attention from their price increases by pointing a finger of blame at biofuels.

Last year, you may recall, Roll Call exposed the Grocery Manufacturers Association’s plan to use the food vs. fuel debate to cover their industry’s price increases.

Kilman writes:

Prices are up because the world is consuming more sugar than farmers are producing. One big factor: The world’s largest sugar producer, Brazil, is diverting huge amounts of its cane crop to making ethanol fuel. Likewise, the food industry has complained bitterly in recent years about the U.S. ethanol industry’s ravenous appetite for corn, which helped push up prices for that key ingredient too.”

Sugarcaneblog provides the real explanation for current, temporary sugar price increases – rain has slowed the pace of harvesting – even while Brazil’s sugar production is up 15 percent this year.

Reuters reporter Brad Dorfman provides much more thorough, clearer analysis on the claims made by the grocery manufacturers:

Food industry analysts say inflation should be contained for an industry that sharply increased prices in the past year as costs for commodities such as vegetable oil, wheat and corn surged.
“Many commodity prices have retreated, and manufacturers are trying to defend the price increases as consumers and retailers try to rein in costs in a weak economy.”

The Consumer Price Index shows that food prices have actually declined a percentage point over the first half of this year, after rapid increases in the past two years. The data also show that the increases in the past year were out of proportion to inflation in other categories.

CPI Percent increase/decrease

2002

2003

2004

2005

2006

2007

2008

2009

Food

1.5

3.6

2.7

2.3

2.1

4.9

5.9

-1.1

Energy

10.7

6.9

16.6

17.1

2.9

17.4

-21.3

14.8

Other Goods

1.9

1.1

2.2

2.2

2.6

2.4

1.8

2.3

Source: Bureau of Labor Statistics.

Neither biofuels nor energy provide a good explanation for increases in food prices.

Increases in food price inflation do not correlate well to either biofuel production or energy price data.

Increases in food price inflation do not correlate well to either biofuel production or energy price data.

Even a Congressional Budget Office study requested by Members of Congress who wanted to make a case that biofuels’ were raising the cost of government food programs could only find a 10 percent to 15 percent impact on food prices from biofuels. That study showed that nearly two-thirds of the price increases could not be explained by either biofuels or energy prices.

Of the 5.1 percent CPI increase for food between April 2007 and April 2008, energy had a larger effect than biofuels. But even together, they account for a fraction of food price inflation:

Biofuels

0.5 to 0.8

10 to 16%

Energy

1.1

22%

Other Causes

3.2 to 3.5

62 to 68%

Source: Congressional Budget Office, “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions,” April 2009

So why is GMA resurrecting its campaign to blame biofuels for food price increases? (See also their letter to Sen. Boxer from a few weeks ago.) Likely because it was a very profitable strategy for them last year and it continues to work, at least with half the time.

Land O’Lakes

16%

Kraft Foods

21%

Sara Lee

55%

General Mills

61%

Kellogg Co.

9%

Source: 2020 Project, FoodPriceTruth.org.

Global Sustainable Bioenergy Initiative Discussed at World Congress

Professor Lee Lynd of Dartmouth, who is also the CSO of Mascoma, addressed a plenary session the 2009 BIO World Congress on Industrial Biotechnology. He gave additional insight on the article he coauthored with David Tilman et al in a recent issue of Science and discussed the initiative that led to the article.

According to Lynd, it has been suggessted that we should forego the biofuel option, but before we do we should ask three questions: What are the alternatives? What benefits do we miss if we forego biofuels? and Can biofuel land use challenges be resolved gracefully.

Lynd says the new initiative starts from the premise that very large scale biofuel production — enough to meet 25 percent of world demand, which is the threshhold for making a significant contribution to oil replacement and environmental benefits — can be reconciled with food production and land use.

Lynd outlined the choice as either planning for a world of 10 billion people who have access to modern energy services or accepting a world of poverty.

Comparing Energy Sources

Stanford University Professor Mark Z. Jacobson recently published a new paper in the journal Energy & Environmental Science, “Review of solutions to global warming, air pollution, and energy security.” According to Stanford News Writer Louis Bergeron,

Jacobson has conducted the first quantitative, scientific evaluation of the proposed, major, energy-related solutions by assessing not only their potential for delivering energy for electricity and vehicles, but also their impacts on global warming, human health, energy security, water supply, space requirements, wildlife, water pollution, reliability and sustainability.”

The paper claims to demonstrate that wind and solar power are preferable options to nuclear power and biofuels. Of course, Professor Jacobson makes all the best-case assumptions in favor of wind and solar power and all the worst-case assumptions about biofuels and nuclear power, saying, for example, that there is a limit of 30 percent market share for biofuels but no limit to other technologies. In his words, wind and solar power “could theoretically power the entire US onroad vehicle fleet.” He takes this assumption despite the significant hurdle and cost to consumers of replacing that entire internal combustion fleet with electric vehicles.

The comparison of fuels is skewed, to say the least.

More interesting though is Jacobson’s views on how costs and benefits should be weighed when considering investment in technology to address climate change. His views are relevant to the discussion of discount rates that the EPA is currently considering in its ANPR on Regulating Greenhouse Gas Reductions Under the Clean Air Act and the delayed NOPR on the Renewable Fuel Standard. (See earlier post on the growing debate of discount rates.)

Jacobson offers reasoning that makes a case against the application of a discount rate in the NOPR:

Costs are not examined since policy decisions should be based on the ability of a technology to address a problem rather than costs (e.g., the U.S. Clean Air Act Amendments of 1970 prohibit the use of cost as a basis for determining regulations required to meet air pollution standards) and because costs of new technologies will change over time, particularly as they are used on a large scale. Similarly, costs of existing fossil fuels are generally increasing, making it difficult to estimate the competitiveness of new technologies in the short or long term.”

In other words, the benefits of implementing a technology now should not be discounted because its costs can be expected to fall while oil’s costs rise. Further on, he makes a statement that seemingly belies his analysis that solar and wind for electric vehicles are preferred to biofuels:

The investment in an energy technology with a long time between planning and operation increases carbon dioxide and air pollutant emissions relative to a technology with a short time between planning and operation. This occurs because the delay permits the longer operation of higher-carbon emitting existing power generation, such as natural gas peaker plants or coal-fired power plants, until their replacement occurs. In other words, the delay results in an opportunity cost in terms of climate- and air-pollution-relevant emissions. In the future, the power mix will likely become cleaner; thus, the opportunity-cost emissions will probably decrease over the long term.”

Biofuels are available today and can immediately reduce greenhouse gas emissions from fossil fuels. Solar- and wind-fueled electric vehicles will take time to implement, representing what Jacobson clearly considers an opportunity cost.

According to the EPA’s arguments, a positive discount rate should be applied to greenhouse gas reduction technologies, such as biofuels, because investing in them today represents an opportunity cost to save that money and invest in cleaner technologies at a later date. Further, because there will be only small benefits today compared to increased benefits in the future, their value to the current generation is less.

It will be interesting to see how the incoming Obama administration treats the discount rate issue. Clearly they accept that greenhouse gas emissions are an immediate challenge requiring a variety of technologies, each representing part of the solution. That should say that it is inappropriate to discount the value of any technology that can be implemented immediately.

Setting the Record Straight

I was pleased to read AP reporter Deborah Jian Lee’s story on Jan. 12, saying that the food and fuel debate has “receded to a murmur, and even the Grocers Manufacturers Association, one of the most vocal biofuel critics, seems to be backing off a bit.” Biofuel producers will likely remember that last May the Capitol Hill newspaper Roll Call revealed that the Grocery Manufacturers Association had launched a public relations effort to blame biofuels for rising food prices. I asked the question then whether the press would set the record straight, as noted economists and BIO have tried to do throughout the year.
It was interesting to note the comments of the GMA’s Scott Faber, who apparently said ethanol production is “just one in seven sources of commodity price inflation.”

Midnight Rule

The EPA apparently missed the statutory deadline (Dec. 19) to publish the Notice of Proposed Rulemaking for the Renewable Fuel Standard. The Bush administration last summer announced that it would not promulgate new rules during its final 30 days, in order to stay away from “midnight rulemaking.” That self-imposed deadline (Dec. 20) also passed.

The rule is said to be a victim of lobbying on the part of the biofuel industry and environmental groups. Marianne Lavelle, a former reporter with U.S. News & World Report now with The Center for Public Integrity, analyzes the activities of both sides, saying, “In the waning days of the Bush administration, a lobbying frenzy is now underway over the indirect impact this homegrown energy solution may have on land use around the world.” Lavelle reports that the dispute is over how to properly measure the theoretical impact of U.S.-produced biofuels on land use around the world. As she summarizes it, “‘Previous accountings of emissions for biofuels haven’t adequately considered that land is a scarce resource,’ said Jeremy Martin, of the Union of Concerned Scientists, one of the experts who met with OMB.”

According to TIME magazine’s Michael Grunwald, the dispute is over whether the EPA will use a “strong” or a “weak” test: “The EPA is now devising a “life-cycle” test designed to measure whether various biofuels really reduce overall carbon emissions from the field to the tank; the farm lobby is already pushing for a weak test, because a strict one could halt the biofuel revolution.” Grunwald, of course, is already convinced that biofuels are worse for the environment that gasoline. (See earlier post here.)

Grunwald’s article represents the problem with the EPA’s announcement of numerical calculations: neither the industry nor the environmental groups would be willing to accept them as accurate. Many environmental groups would like to convince the American public that biofuels are either worse than gasoline or that the reduction of greenhouse gas emissions is so small that it wouldn’t be worth it. That task might not be very difficult in the current economic climate.

With daily drops in the price of oil, biofuels now are assumed to be unable to compete on price with gasoline. Susan Wilson, a writer at Tech.Blorge, poses the question “Are biofuels still economically feasible?” She writes:

While the abundance of fuel and decrease in gas prices has been a welcome relief to most people in this awful economy, it has also lowered the perceived need for immediate fossil fuel replacements.
“Improving our air quality is a marvelous goal as long as it doesn’t inconvenience people too badly or cost too much. When gas prices were high, switching to cleaner cars and fuels was not only seen as good for the environment but patriotic. Now, it costs too much for people reeling from the collapse of our economy, massive job losses, and uncertainty over what lies ahead.”

If Americans are really wondering why this year’s recession occurred, the first place to look would be the $100-a-barrel swing in oil prices. Perhaps TIME should have considered the barrel of oil for its Man of the Year.