The Mayflower heads for China: pessimists, optimists divide on biofuels future

The NRC says biofuels will not meet US mandates at current rate of progress. Too pessimistic? Stating the obvious? The Digest looks at the pace of development, and the problems of peering into the future.

In Washington, the National Research Council 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 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.

“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 biofuel are not economical compared with fossil fuels when crude oil’s price is $111 per barrel.”

The US-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 same required both an assertive development program and clear, long-term policy guidance.

So, what exactly has changed? Have US technologies failed to develop in a timely manner, or has the US lost its mojo, 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 €250M investment with TPG in scale-up.

In Brazil and the US, BP is significantly investing in scale-up.

Why?

At the time that China took a similarly bullish view on solar panel manufacturing, while the US was proceeding much more slowly with scale-up, a number of economists welcomed the collapse of the US 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 US capital for other investment purposes. Instead of investing in the naive hope that US domestic manufacturing could be revived around clean tech projects.

The same view might well be taken on cellulosic biofuels – that production will continue to move offshore focusing the US role on  around 20 billion gallons of first-generation fuels, and R&D, leaving advanced biofuels to be deployed elsewhere where fuel prices are higher, or national policy is more aggressive. That the US, 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 emerge 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, 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.

Five years ago, the cost of sequencing a genome stood at around $10 million. Today, it stands at less than $50,000.

Five years ago, the best yields in cellulosic biofuels pilots were in the 80-100 gallons per ton range. Today, numerous technologies – ZeaChem, Coskata, Joule – have come forward with pilots and commercial demonstrations in the 100+ per gallon range.

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 2 every 24 months.

How long will the innovation continue at today’s clip?

How long can it last? That is the important question. That’s why there is difference of opinion between intelligent people. If costs continued to keep coming down, and new aggregation technologies emerged, as fast as they have in the past four years, cellulosic biofuels are a slam-dunk.

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, “1000 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.

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, examine 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”.

In stating that the best case scenario is that US 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 is 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 about what appears to be loss of confidence in the power of R&D, than anything else. Which makes the NRC’s recommendation that “more R&D is necessary” appear more self-serving than nation-serving. It probably isn’t – these are distinguished scientists, after all. But, O 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?