Facing an uncertain future with biofuels policy under scrutiny, the advanced biofuels industry convened for a three day conference in San Francisco earlier this month. Jointly organized by Green Power Conferences and Biofuels Digest, the Advanced Biofuels Markets conference is one of the few industry events bringing together industry leaders from all shades of advanced biofuel interests – algae, cellulosic biofuels, advanced biodiesel, aviation biofuels, and others – as well as key public-sector stakeholders.
Coming off several years of steady industry growth but facing a difficult 2012, Advanced Biofuels Markets 2011 was tinged with exigency. With deficit reduction at the forefront of policy objectives for Congress, a reexamination of cornerstone policies supporting biofuels growth is expected. At risk of being scrapped altogether, the checkerboard foundation of biofuels policy initiatives spanning EPA, USDA, the Department of Energy (DOE), the Department of Defense, Treasury and others – including RFS2, Title IX programs under the Farm Bill, DOE loan guarantees, VEETC, etc. – may be placed on the chopping block one by one (or in the most dramatic scenario, slashed all at once).
What does this mean for an industry on the cusp of commercialization, but still a few nickels to several dollars shy of price parity with a gallon of petroleum fuel? For the most part, it adds a great deal of uncertainty, making an already difficult financing story even more risky for would-be investors. In the more extreme case, the sentiment among conference panelists was that the industry is now fighting for its future existence in the U.S.
The Lost Years
With an unresolved deficit crisis casting an ominous shadow over 2012, the coming year is shaping up to be challenging for advanced biofuel companies still navigating the funding “valley of death” and facing a particularly daunting scale-up challenge. Just as many advanced ethanol projects are beginning to break ground, a number of incentive and loan programs are likely to be nixed. Energy provisions in the 2012 Farm Bill are of primary concern. Programs, including USDA loan guarantees for biorefinery projects, Biomass Crop Assistance Program (BCAP), and Rural Energy for America Program (REAP), are all critical lifelines for an industry still looking to establish a foothold.
Addressing the so far undelivered promise of cellulosic biofuels – biofuels derived from the lignocellulose portion of plant matter – Alan Shaw, CEO of Codexis, explained that the technology is “late to its own party.” After lobbying for nearly a decade for R&D funding, inclusion in biofuels mandates, and subsidy parity with conventional biofuels, the cellulosic biofuels industry has received a great deal of support over the last couple of years. While not necessarily on equal footing with conventional (corn-based) ethanol, cellulosic biofuels were given a commercialization runway to 16 billion gallon by 2022 under the EPA’s RFS2 mandate. But only a few million gallons of cellulosic biofuels have been produced and the first facilities are still under construction, forcing policymakers to question the viability of the technology in the near-term.
The failure of cellulosic biofuels to capitalize on its opportunity thus far has led to increased attention to technologies such as pyrolysis and thermo-catalytic or advanced sugar fermentation. As a result, cellulosic biofuels – once the priority advanced conversion pathway for the DOE – are now finding it difficult to raise capital to support widespread scale-up. Many panelists at the conference concurred that it’s time to deliver or risk losing priority status among advanced biofuel conversion pathways.
In our Biofuels Markets and Technologies report, we forecast growth rates in the U.S. biofuels industry to lag behind other regions.
“Don’t Mess with the RFS”
Of particular concern among industry stakeholders at the conference is the battle to hold the line on the EPA’s RFS2 biofuels mandate, which aims to boost biofuel production in the United States through 2022. Although RFS2 has proved to be a complex rule to implement, it is one of the few mandates worldwide that carves out specific volume requirements for various biofuel conversion pathways.
While some in the advanced biofuels industry are calling for opening up the mandate to more advanced pathways (such as algae-based biofuels, waste-derived fuels, etc.), most warn that doing so would mean opening up the standard entirely, which could jeopardize its continued existence. In any case, within the broader battle for favorable treatment of advanced biofuels in Washington, RFS2 is seen as the last line of defense for an industry still struggling to gain a foothold.
Key Takeaways
To turn the corner on advanced biofuels commercialization, conference panelists urged producers to remain flexible with respect to feedstock and end-product. With policy up in the air, the ability to shift production to advanced chemicals, aviation biofuels, and ground transportation fuel depending on market forces and prevailing policy sentiment will make projects a far more attractive bet for skittish investors. Partnering, especially with oil majors, multinational chemical and consumer product companies, and other end-market players, is increasingly seen as the way forward in a challenging financing environment.
Mackinnon Lawrence is an analyst at Pike Research with a focus on advanced biofuels and bioenergy.