Future Shock and the war over biofuels

The old joke in cellulosic ethanol is that it is five years away from commercialization…forever.

So when a company in the know, like Novozymes, pushes back its cellulosic ethanol commercialization timelines to 2014 or 2015, it sounds like Deja Vu all over again.

The supporters of cellulosic ethanol say that unlucky timing is the root cause, and not their fault. For sure, the global financial crisis wasn’t modeled in any business plans we saw, biofuels or otherwise, and a capital-intensive investment in first-of-kind technology is at risk in years of tight credit. delays in the E15 decision timeframes, delays in loan guarantees, and uncertainty over the ethanol tax credit haven’t helped, according to Novozymes’ Poul Ruben Anderson.

The technologies are, in many cases, ready to scale. Coskata CEO Bill Roe declared a year ago now that “Coskata is open for business, ready to scale,” but the financiers we have heard about are asking for majority control of various cellulosic ethanol technologies, in return for financing plant number one. The original investors are, in these cases, waiting out the crisis, hoping for better terms.

News from the front

But news from the research front this week raises two points. In one breakthrough, Virginia Tech researchers have discovered an enzyme mixture that works in the presence of the toxic infused liquid biomass (hydrolysate), meaning that the detoxification step is unnecessary, reducing the cost of producing biofuels as well as increasing biofuel yields by avoiding the production of by-products and synthesis of cell mass.

In another advance,  researchers funded by the Energy Biosciences Institute have developed a newly engineered yeast strain, that can simultaneously consume glucose, a six-carbon sugar that is relatively easy to ferment; and xylose, a five-carbon sugar that has been much more difficult to utilize in ethanol production.

“If you do the fermentation by using only cellobiose or xylose, it takes 48 hours,” said postdoctoral researcher and lead author Suk-Jin Ha. “But if you do the co-fermentation with the cellobiose and xylose, double the amount of sugar is consumed in the same amount of time and produces more than double the amount of ethanol. It’s a huge synergistic effect of co-fermentation.” According to the research team, “The new yeast strain is at least 20 percent more efficient at converting xylose to ethanol than other strains, making it the best xylose-fermenting strain reported in any study.”

Well, OK, there are advances in cellulosic ethanol — we’ve heard it all before, so what?

The material advances in research beg the question: how do you commercialize an industry that is innovating so rapidly, when selling a commodity product? In computers and consumer electronics, prices start high for new technologies and come down over time; in fuels, prices must be competitive with fossil fuels from day one.

In the Bioenergy Project of the Future series, we indicated that there are good reasons to think in terms of bolting on new technologies, producing small volumes of advanced products for specialty markets (such as lubricants, adhesives, or intermediate chemicals), while using older technologies to produce fuels for the mass market. As technologies mature, they would scale up for the fuels market.

Innovation and the bigger picture

The news from Virginia Tech and EBI is a reminder that, in advanced biofuels, innovation is all around us. It leads to a form of Future Shock that has invaded the critique of advanced biofuels. For sure, every industry needs a critique – to curb excesses, to advise and to warn. But it was Alvin Toffler who in 1970’s Future Shock warned that “too much change in too short a period of time” could induce a disorientation produced by information overload.

We feel it every day at the Digest, and our readers sometimes struggle with exhaustion, too. So much happening, so much to keep up with. Imagine how it goes with those keeping an eye on biofuels, as just a part of a larger set of concerns that might include the whole of alternative energy, the whole of agriculture, the whole of carbon mitigation, or the whole of world trade.

At the Digest, we have noted on all-too-many-occasions that there is a breakdown between those critiquing biofuels, and those developing them, based on assymmetries in available information, and different views on how the pace of innovation will play out over the 20-40 years through which the bioenergy revolution will take place.

For example, one’s world view changes dramatically if one accepts the Monsanto view that, by 2030, US corn yields will average 300 bushels per acre, up from 160 right now.

In a 160 bushel-per-acre world, many worry about where we are going to find all the land to produce the food and fuel we need. In a 300 bushel-per-acre world, we wonder where we are going to find markets to utilize added production, or what to do with all the spare land.

Another example. One’s world view changes dramatically if one accepts the Brazilian government’s view that there are up to 100 million acres ultimately available, in a sustainable production system for sugarcane, up from about 5 million now.

In a 5 million acre world, many worry about how rising prices for biofuels will trigger a tsunami of global deforestation. In a 100 million acre world (for none of this land is taken from anywhere near the Amazonian rainforest), we wonder again where we will find markets for all the products that could be produced from affordable, sustainable cane.

Cost and the bigger picture

In our current state of future shock, we appear to have become, for example, overly fixated on the current range of oil prices as a bell-weather for biofuels viability. $100 oil, $80 biofuels – biofuels win. $80 oil, $400 biofuels – fossil fuels win.

Instead, we might look for another more enduring metric – which is to say the amount of money an economy can sustainably afford to spend on liquid transportation fuels. There is ample evidence that costs above $30 per barrel of fuel – regardless of source – in constant dollars causes unsustainable shocks within a national economy. It is not entirely unfair to associate the worst US post-war economic crises – 1973, 1979-1982, 1990-1994, and 2008-10, as catastrophies triggered by high oil prices. And to see the two largest US economic booms, in the mid-1980s and the mid-1990s, as the consequences of cheap oil.

There are other systemic weaknesses in national economies. Chiefly, too much borrowing (by national governments and consumers) – and persistently high trade deficits and capital outflows caused by an overvalued US dollar. But these relate back to oil prices just as well. They are a consequence of US economic chiefs worrying more about doubling oil prices – and reducing US economic competitiveness – through a weaker dollar, than they worry about the long term problem of federal deficits and debt, which they believe will be de-toxified by growth and inflation over the long term.

Important to note that, because petroleum is dollarized, devaluing the dollar invariably raises the price of oil in the US (absent action from OPEC), whereas competing economies don’t necessarily face a price increase, because the rising oil price can be offset by a drop in the exchange rate.

$30 per barrel biofuels

We have seen the results of developing a biofuels platform that is – ahem, somewhat competitive with $75 oil. It’s a battle royale over subsidies, mandates, tax credits, incentives, tariffs, indirect land use change, and food vs fuel. Why?

There’s little consumer pressure for biofuels – and considerable push-back from tax groups and customers of cheap corn – when prices are so high that biofuels can only be afforded based on government incentive and the tepid support of a public regularly fed a diet of fear, doubt and uncertainty by the doomsayers at the American Petroleum Institute and the Grocers Manufacturers Association.

But what about $30 biofuels, or $40? Changes the equation – whether it is a drop-in biofuel or ethanol – buyers who love a bargain will be lining up in support. “Everyday low prices” has been a good strategy for Wal-Mart, and it works everywhere else.

The rise of information tribes

Without the compelling price advantage, biofuels producers and supporters are left talking not to the general public but to selected tribes within the body politic. Such as those who rate oil dependency as the greatest threat to national security. Or some of those who value clean air. Or those interested in rural economic development.

But there are other tribes. Those who focus on genetic modification, the corn monoculture, the Dead Zone in the Gulf of Mexico, world trade, the exploitation of Africa, the opportunities in libertarianism, the evil of high taxes and Big Government mandates, and so on and so on.

For those in other tribes, it is nearly impossible to keep up with the flow of innovation in bioenergy. For among the intractable problems of Future Shock are the problem of mindshare, and that of information overload.

Let’s look at some data that Jeff Alan and I first reported in our book Anchoring America: The Changing Face of Network News:

“In 1929, there were an estimated 45.25 billion private messages exchanged in the United States (phone calls, letters and telegrams), or an average of 368, per person per year. By 1999, that number rose to an estimated five trillion private messages(phone calls, emails, faxes, letters and text messages), or an average of 17, 857 per person per year. During that 70-year period, the rate of communication has grown approximately 2.5 times faster than the economy, and that indicates an enormous growth in the complexity of American personal and business life.”

With information growing apace – and who does not these days look at the email inbox from time to time with a sense of exhaustion? – an information and perspective gap has emerged that has converted the debate over biofuels from a healthy critique into the lobbing of grenades between fixed trenches. Stalemates that are caused by static conditions are self-correcting – snow is paralyzing New York this week, but it will melt.

But there are stalemates that are caused by fixed mindsets, and we are in one. On the one side, a belief in a Zero-Sum game where no one wins in biotechnology without someone losing; on the other, a belief that a rising tide of innovation will lift all boats. This type of stalemate is only generally resolved through market shock. Rampant fears over the uses to which computers would be put – which were frequent in movies of the 1950s and 1960s – disappeared with the market shock of cheap microprocessors and telephony. We worried about Big Brother, and instead got WikiLeaks.

For biofuels, the first $70 per barrel drop-in biofuel produced at commercial scale will be a signature event, but if the Western economies are to think in the long term about stability and growth, the target should be in the region of half that.

Advanced biofuels available for $1 per gallon is the kind of price point that will change a game that desperate needs changing.