Will the Lemonade Stand Era end in renewable fuels, sooner, later, ever?

0
79

A few weeks ago on the Digest’s tiny home island of Key Biscayne, we saw something along our one main boulevard not seen in quite some time: a lemonade stand operated by a trio of young kids. They weren’t selling much.

Some time between this first enterprise and their next, these kids’ll learn about getting the product onto the street before 5:30pm, about setting up shop across from the supermarket and doubling the price, trying to sell a hot-weather refreshment on a cool afternoon. But every kid has one lemonade stand in their past — one commodity they’ve tried to sell at a premium price and struggled.

And if someone doesn’t learn that lesson in childhood, they generally go into the renewable fuels industry and learn the lesson there.

Product premiums are real, green premiums are unicorns

No, Virginia, there isn’t any green premium in renewable fuels, chemicals or materials. Actually, there isn’t any premium available for any product, anywhere, at any time, green or not, if it is distributed as a commodity and into commodity markets. It is the absence of differentiation and uniform pricing that, by definition, makes any market a commodity market. So, it is as foolish to seek green premiums in commodity markets as it is to look for gases in a perfect vacuum.

But that doesn’t mean there are not product premiums.

There are four things you can do to induce adoption of a sustainable product or technology beside the usual commodity inducement of a low price.

1. You can address a scarcity (such as delivering to an island economy).
2. You can deliver a functional advantage.
3. You can change the commodity specification so that it requires a renewable attribute.
4. You can build a brand.

There are excellent examples of each.

Scarcity. Companies like Pacific Biodiesel produce biofuels natively in Hawaii from local crops, and compete against fossil fuels that must be shipped into the island’s ports for refining — there’s a premium available for biofuels, there, because of the logistical advantage.

Functional advantage. You can make polylactic acid with more simplicity from renewables than fossil fuels (which lack the oxygen that PLA contains), and NatureWorks has with its Ingeo line of products shown us a variety of products that can be made using PLA’s functional advantages — for example, soft packaging for juice drinks.

Changing a spec. In the aviation industry, commercial airlines banded together with regulators to develop several new specifications for jet fuel (including HEFA, the ARA Readijet 100% drop-in fuel spec, and ATJ alcohol fuels) that utilize biobased feedstocks and their renewable properties, and several airlines (and the US Navy) have begun to commit to buying fuels based on those specs in large quantities as producers make them available.

Building a brand. Companies like Coca-Cola have found great success in marketing a sustainable image grounded in packaging breakthroughs such as the 30% biobased content Plant Bottle.

Of all of these, building a brand is the hardest and yet the most enduring. Scarcities can be relieved by competitors, functional advantages can be matched, and specs can be revised and re-revised.

The Hard, Lucrative Road of Building a Brand

Because it is the hardest, building a brand is the path least often taken by the renewable fuels and chemicals industry — though, in materials, there has been some attention paid to brand. Not much.

In general, renewable fuels and chemicals companies have taken the opposite tack of the electric vehicle industry — and sometimes gaze in wonder at the inexplicable hold that electric vehicles have achieved in the minds of consumers.

Hard tech, easy adopt vs easy tech, hard adopt

After the failure of the EV-1 and the third wave of electric cars in the 1990s, electric car marketing around the world took a decisive turn (note: the first wave of electrics was in the earliest days of automotive propulsion, when electrics, steam, biofuels as well as petroleum were in vogue — the second wave was a series of niche deployments such as electric golf carts, after World War Two).

No longer did electric car manufacturers tackle the comparatively easy technological hurdles of plug-in electric systems for pioneer products — rather, Toyota tackled the then infinitely-harder technical challenge of developing a hybrid-drive engine. That was the Prius.

It was hard tech, but easy deployment. Consumers could buy at the same dealer, fuel at the same station, and park in the same way at home. They never had to worry about less range, but rather enjoyed more range. With the hybrid electric, Toyota made it easy to buy an electric vehicle and become a potential customer for all-electrics later on, as battery technology improves and fueling infrastructure built out, and grids become greener.

Jesus didn’t take the wheel for EVs, Toyota did.

In the world of liquids, the renewable fuels industry took the path of the EV-1. They used as a platform for their technology a set of very old and proven ideas — veggie oil transesterification into biodiesel, or corn starch fermentation into alcohols. The plants became ruthlessly efficient — but it was easy tech, hard adopt.

The infrastructure needs have been daunting — new pumps, storage tanks, improved engines, fuels have to be blended with fossil fuels and incumbents balk. There are range issues, cost issues. We’ve had tax credits, tariffs, blend-wall debates, food vs fuel, mandates, grants, and so on — all aimed at pushing the acceptance of an easy tech that’s hard to adopt.

These were some of the very problems that plagued the EV-1. Back then, electric had range issues, cost issues, refuel issues, “convenience of maintenance” issues. There were tax credits, grants, concerns about driving the grid, and so on and so on. Also, consumers simply wondered if the manufacturer would be around in a few years to service the car. Concerns that remain today.

What can renewable fuel producers do?

Sigh. Producers of renewable fuels and their supply-chain almost invariably see anything except making a commodity as cheaply as possible and building political support for renewables as “someone else’s job”.  Examples of companies that have built brand, functional or spec premiums for their products are generally dismissed as one-offs, or impossible to replicate in something as gigantic as the energy industry.

Trust me, we’ve heard it. Many renewable fuels executives take the same weird pride in knowing almost nothing about marketing that grandfathers take in knowing almost nothing about social media.

They dismiss Starbucks’ success in changing the way that coffee is priced, or Amazon’s success in changing the way that convenience is priced, or PayPal’s success in changing banking and payment, or Uber’s success, or Apple’s. These examples fall on deaf ears in the renewable fuels industry, who see their product as invisible to consumers. They see lucky, tech-driven companies instead of apex predators with brand marketing heft.

Renewable fuel producers generally see their customers as mandated petroleum refineries which they have controlled access into (to the limited extent they can) through political muscle. Political muscle that is more uncertain and more expensive than ever, these days, we note.

What do renewable fuels have to sell?

Some have the benefits of oxygen and all have the blessings of lower carbon, more or less. There are functional advantages in oxygen that relate to octane, and there are spec advantages in reduced carbon that relate to schemes such as the Renewable Fuel Standard.

But there is the brand opportunity, which goes ignored. After all, what’s so incredibly visible about car insurance? Yet consumers all over the country recognize Geico’s gecko. What’s so incredibly visible to consumers about silicon chips? Yet consumers all over the world recognize Intel Inside. What’s so incredibly visible about air conditioning? Yet, many consumers know that “It’s hard to stop a Trane”.

There’s nothing especially uncommodity-like about telephony signal carriage — in fact, it was sold within a virtual monopoly as a faceless utility, for decades (like electric service, or water). But AT&T is one of the most trusted brands around the world, and many consumers recognize the notion that, with Sprint, you could hear a pin drop.

Beyond the Lemonade Stand

But renewable fuels remain in the lemonade stand era. Most believe that all they need to do is make their particular biobased brew, haul it to the sidewalk, put up some price signage, and look appealingly youthful and virtuous.

When will the industry leave the lemonade stand are behind? When will they start doing what everyone else does to build product acceptance, boost product prices, assure demand for the long-term, and replace political heft with consumer clout?

Probably not soon, perhaps never. But perhaps, one of these days, someone will come along and will do good and do well on a grander scale.