Is the Biofuels Tank Half-Full or Empty?
By JIM LANE, Editor & Publisher, Biofuels Digest
In Washington, the National Research Council (NRC) released a study on the potential for biofuels production that has ruffled feathers throughout the industry. Last week, BIO’s industrial biotech section czar, Brent Erickson, in a Biofuels Digest column, wrote: “The National Academies report takes a good, hard look at the challenges facing the cellulosic biofuel industry — primarily, the growing and harvesting of sufficient biomass resources and the formation of capital to construct new biorefineries. Unfortunately, it draws the erroneous conclusion that these challenges cannot be overcome. The industry has recognized these challenges from the start.”
The report itself found that: “It is unlikely the United States will meet some specific biofuel mandates under the current Renewable Fuel Standard by 2022 unless innovative technologies are developed or policies change … [and] the standard may be an ineffective policy for reducing global greenhouse gas emissions. Achieving this standard would likely increase federal budget outlays, as well as have mixed economic and environmental effects.”
The committee added that the production of adequate volumes of biofuels is expected to meet consumption mandates for conventional biofuels and biomass-based diesel fuel. However, whether and how the mandate for cellulosic biofuels will be met is uncertain. The committee additionally noted that the renewable fuel mandate for cellulosic biofuels will not be available unless the production process is unexpectedly improved, and technologies are scaled up and undergo several commercial-scale demonstrations in the next few years.
“Only in an economic environment characterized by high oil prices, technological breakthroughs, and a high implicit or actual carbon price would biofuels be cost-competitive with petroleum-based fuels,” the committee concluded.
The best cost estimates of cellulosic biofuels are not economical compared with fossil fuels when crude oil’s price is $111 per barrel. Furthermore, absent major increases in agricultural yields and improved efficiency in converting biomass to fuels, additional cropland will be required for growing cellulosic feedstock. This could create competition among different land uses and, in turn, raise cropland prices.
In addition, achieving the renewable fuel standard would increase the federal budget outlays, mostly as a result of increased spending on grants, loans, loan guarantees, and other payments to support the development of cellulosic biofuels and foregone revenue as a result of biofuel tax credits.
The U.S.-China Conundrum
It can be safely assumed that most of the above was generally known to Congress at the time the Renewable Fuel Standard was passed in 2007, as well as broadly within the industrial biotech community. That is, that the technology and production capacity for 36 billion gallons of biofuels was not yet available, and that the production of the same required both an assertive development program and clear, long-term policy guidance.
So, what exactly has changed? Have U.S. technologies failed to develop in a timely manner, or has the U.S. lost its self-confidence, in the specific case of industrial biotech and perhaps in the broader area of clean-tech?
The telling statistic lies outside the NRC report.
What should be focused on is that China is looking at the same data and accelerating its cellulosic biofuels programs. In Italy, M&G just announced a €250 million investment with TPG in scale-up. In Brazil and the U.S., BP is also significantly investing in scale-up. Why?
At the time that China took a similarly bullish view on solar panel manufacturing, while the U.S. was proceeding much more slowly with scale-up, a number of economists welcomed the collapse of the U.S. solar panel industry — saying that the availability of lower-cost solar panels was the key fact that needed to be focused on, not the geography of production. There was the suggestion that the reduced cost of panels would allow for the faster deployment of new technologies and would free up U.S. capital for other investment purposes, instead of investing in the naive hope that U.S. domestic manufacturing could be revived around clean-tech projects.
The same view may well be taken on cellulosic biofuels — that production will continue to move offshore, focusing the U.S. role on around 20 billion gallons of first-generation fuels, and research and development, leaving advanced biofuels to be deployed elsewhere, where fuel prices are higher or national policy is more aggressive. That the U.S,. to the extent it embraces advanced biofuels at scale, will be importing in large quantities.
The Pace of Innovation
But there’s another view. At some stage, a raft of critics always emerges to say that technologies are not coming along fast enough. Or that unintended consequences are too costly, or ones will emerge that are too costly.
There are those who sail on the Mayflower and those who remain behind, discussing the dire and unintended consequences of establishing colonies in the Americas. Had the Mayflower Pilgrims based their decision to head for a better life in the New World on existing data on how their crops would grow in North American soils, they would certainly not have come.
So, we have the Mayflower Syndrome, or the Mayflower Heads for China Syndrome. Some move forward for reasons they probably can’t quite prove, while some remain behind for reasons that they can’t quite prove either. There’s faith, in science, after all. Faith, it appears, is stronger in China. Italy, too. So, let’s look at the cleavage between the groups. It appears to be related to the problem of “shelf life” in any existing survey of industrial biotech.
Around five years ago, the cost of sequencing a genome stood at around $10 million. Today, it stands at less than $50,000. Around five years ago, the best yields in cellulosic biofuels pilots were in the 80 to 100 gallons per ton range. Today, numerous technologies — from ZeaChem, Coskata and Joule, for example — have come forward with pilots and commercial demonstrations in the 100+ per gallon range.
Around five years ago, it was thought that only platforms such as microalgae could offer yields north of 1,000 gallons per acre. Today, ZeaChem’s data has hybrid poplar pegged at as much as 2,000 gallons per acre. The most recent round of oilseed R&D grants from ARPA-E set as much as 4,000 gallons per acre for the oilseed technologies in the PETRO program. Five years ago, the energy return on energy invested for ethanol stood at 1.3:1. Today, the ratio is over two.
In 1987, POET used 17 gallons of water to produce a gallon of ethanol. Today, that number is under 3 gallons, and is expected to reach 2.33 gallons by 2014. POET has moved the cost of producing cellulosic ethanol from $4.13 per gallon in 2008 to $2.00 per gallon when the POET Project Liberty plant opens in 2013. Enzyme costs were cut in half, capital costs were reduced by 40 percent and energy used in pretreatment was reduced by 50 percent.
The Bottom Line
Industrial biotech is, on many fronts, in a Moore’s Law environment, where key performance indicators are falling by a factor of two every 24 months. How long will the innovation continue at today’s clip? How long will it last? That is the important question. That’s why there is difference of opinion between intelligent people. If costs were to continue to keep coming down and new aggregation technologies were to continue to emerge, in fact as they have in the past four years, cellulosic biofuels would be a slam dunk.
But costs can’t go down forever. Picking the point of inflection is the key.
Simply using today’s data to project out the opportunities for 2022 is safe, but unsound. It would be like projecting the outlook for consumer electronics today, based on Intel’s chips as they stood in 2000. Back then, 1,000 songs in your pocket was about the limit for technology at the time. Today, you can put 100,000 songs there. Back then, there was no ready-to-scale technical path for the iPhone or the iPad. Today, there obviously is.
We have to be cautious about making projections about the pace of technological advance, but we can be overly cautious.
The Problem of ‘Use-By Dates’ in Biofuels Assessments
One way we can be overly cautious is by focusing critical analysis only on good news reports, examining them for signs of hype, but blandly accepting the cautionary reports, instead of looking at them for signs of unwarranted pessimism. Another way we can be overly cautious is to ignore the fact that data, reports, mandates and policies have a shelf life. Some reports rely too heavily on data that is past its “use-by date.”
Stating that the best-case scenario of U.S. cellulosic biofuels production will be at $111 per barrel — $2.64 per gallon — is a pessimistic assessment. Given that companies are routinely coming out (even now) with at-scale costs of $80 per barrel — $1.90 per gallon — based on their projections for feedstock cost, the NRC assumes very little improvement in technology cost and some kind of massive increase in the cost of cellulosic biomass.
The level of pessimism is remarkable, and the change in outlook since 2007 says a lot about what appears to be a loss of confidence in the power of R&D than anything else. It makes the NRC’s recommendation that “more R&D is necessary” appear more self-serving than nation-serving. It probably isn’t, though — these are distinguished scientists, after all. But what we would give for a study from the R&D community that suggested that less R&D is required.
It does beg a two-part question, however: If R&D investments have paid off so poorly, why is “more R&D required” the automatic answer? If R&D is paying off more handsomely than the NRC suggests, why is “more R&D required” the automatic answer?
Copyright 2011; Biofuels Digest