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Cleantech Conservative: 10 New Realities, Priorities for Biofuels in 2013

| December 17, 2012

By Douglas Faulkner, “The Cleantech Conservative”

The International Energy Agency recently issued its World Energy Outlook 2012 with much press attention (and some misreporting), because of its dramatic projections about the emergence of new global energy landscape. Its main highlight: The U.S. could become, in less than a decade, the largest oil producer in the world, and all but self-sufficient in total energy needs through both fossil and renewable energy plus energy efficiency gains.

Meanwhile, Frankenstorm Sandy this fall slammed the population centers in New Jersey and around New York City. We were confronted with unbelievable pictures of the interminable gasoline lines – - the disaster clearly highlighted the soft underbelly of our transportation fuel system and its symbiosis with the electricity industry, diverting attentions in the final days before our national elections.

As the sun rose November 7, we all saw the election results: the American people voted for not much change after all. But, that does not mean federal policies will (or should) simply continue on auto-pilot. Throughout his campaign President Obama proclaimed himself an oil and gas supporter even while talking about federal “investments” in green energy. And, while much ink has already been spilled in this publication about this or that elected pro-biofuel Member of Congress, the House is still controlled by those friendly to the fossil fuels lobby and smarting over Romney’s loss.

What does all of this tell me about new realities for the leaders of the emerging bioenergy industries? Overall, your world is getting more complicated, not less, and winning large and lasting market shares will take longer. The silver (perhaps gold) lining though is the potential for huge returns for those who can survive the short term challenges.

Predictions

My predictions and strategic advice to industry leaders from reading the tea leaves:

1. Yes, federal green energy budgets will be safer under President Obama and a Democratic Senate, but fiscal pressures remain severe as the White House and Congress dance along the edge of the fiscal cliff seeking acceptable budgetary deals. This limits potential growth in federal spending to promote biofuels – - and may hasten the day of reckoning for bioenergy as budget cutters labor to reform taxes and entitlements. The industry needs to reach consensus soon on its priority “asks” because it is highly unlikely the past will be prologue for our suite of related programs. Farm Bill Title IX is my best example: I would argue biomass research and development is a top priority, followed by bioenergy crop assistance. Both could benefit from some fine-tuning and updating.

2. The next two years before the 2014 Congressional mid-term elections may be the best time for reforming the Renewable Fuels Standard (RFS), under the bioenergy industry’s terms. To exploit current political alignments for maximum benefits within this optimal window, the industry should keep in mind two questions: 1. Are the 2022 RFS targets be likely to be hit? 2. What are the implications for any successor RFS regime that looks to later in the 2020’s or even the 2030’s, if those targets are missed?

3. The long-term balance of power in our federal system for promoting bioenergy is still slowly shifting from Washington to the state capitals. Some states will be more important than others. Look especially to the southeast, including Virginia and North Carolina and areas along the Mississippi River Delta, as well as other right-to-work states for politically-hospitable, business-friendly and resource-rich territories. States following California’s lead on low-carbon fuels offer second and third generation fuels new opportunities for market penetration. Take advantage of growing competition between these states as they seek the ripples of economic development new production and other facilities promise.

4. Technological linkages and strategic partnerships with the more prominent oil and gas industries will be even more important. Similarly, biofuels leaders should think deeply about the implications of the new fuel efficiency standards issued this year by the President for the implementation of the RFS. The biofuels industry should consider reaching out to the auto industry to smooth out the coming collision between their two mandates which otherwise are pushing for bigger shares for biofuels in a declining total fuel pie. Who really believes the oil and gas industries will sit idly by while the government whittles away their markets through both supply and demand regulations? The American Petroleum Institute has already hardened its position, post-election, on the RFS from “reform” to “repeal.”

5. Industry itself should consider funding “grand analyses”, bringing together for the first time top energy, agricultural and transportation experts to dig into overall trends in supply and demand and look for future opportunities for bioenergy in our rapidly changing fuels, chemicals and vehicle markets. Following the IEA’s assessment that global oil use for heavy trucks – - primarily diesel fuel – - is increasing faster than passenger vehicles, the industry should factor that into its longer-term calculations. Energy markets are rapidly and substantively changing faster than policymakers’ perceptions and assumptions, which has an obvious impact on securing the appropriate legislation, regulations and policies. The private sector can move faster and more efficiently to start to get answers to these critical questions than the public sector.

6.  The industry should think more and more creatively about basic science priorities. These will garner bipartisan support in the long-running budget wars, especially from conservatives. Industry leaders will need to advocate for more efficient federal solicitations – - and support and celebrate them when they are provided. They must search for, even sponsor, new pathways to link states, national laboratories and higher education together in this endeavor. The private sector should consider collectively advocating for key nominations to the federal Biomass Research and Development Technical Advisory Committee to help drive mutual scientific and technical agendas.

7.  Your focus should be centered on building business for the long-term for attracting private sector money rather than on chasing federal dollars with the politically-connected. As David Brooks so pithily put it in recent column in the New York Times: “he who lives by the subsidy, die by the subsidy.” If we can bring ourselves to look beyond the RFS target year of 2022 to the more feasible and important following ten years and stay the course, the plentiful money parked anxiously on the sidelines will jump toward sound investments for the long play.

8. Entrepreneurship is “in”: Let fly your creative animal spirits. Yes, there are economic shoals ahead to steer through even as global markets start moving off of the ones now scraping our collective hulls. But, those positioned to weather the coming consolidations and possible retrenchments will prosper coming out on the other side.

9. Don’t shy away from but seek to embrace foreign partners, technologies, money and markets as part of your strategic planning to find the best opportunities wherever they may lie. Keep in mind new priorities for improving agricultural economies in the developing world and ignore outdated and politicized arguments about food versus fuel. Sustainability will only grow as a critically important concept for insuring political and social support for biofuels development. The Global BioEnergy Partnership (GBEP) and its broadly accepted metrics and indicators are the best game in town and should be required reading for every globally-aspiring bioenergy CEO.

10. Transportation fuel markets, maybe especially in the USA, will need more flexibility, redundancy and availability, in the face of unpredictable and disruptive weather and geopolitical disasters. Private and possibly even some public funding will be attracted to new, innovative infrastructure improvements, from shipping to selling fuels, since the Persian A-bomb is still a live fuse and the Arab spring has turned dark and chilly.

The old era of relying mainly on Uncle Sam is fading while only delayed somewhat with recent Democratic electoral victories. The new, more complicated era of corporate self-reliance and state government prominence is beginning which is not only good for industry, but to each of us as a consumer and taxpayer as well. Despite all of the ballyhooed bad news and obstacles to success, and with a much longer time horizon than we thought five, ten or fifteen years ago, color me still an optimist about bioenergy.

Agree/Disagree? Your reactions and perspective can be expressed via our LinkedIn group site, here - where we conduct a lively discussion about the proper scope and role of government in the next few years of industrial biotech’s ascent.

“The Cleantech Conservative” is written by Douglas L. Faulkner, who in the Bush Administration served as Deputy Under Secretary of Agriculture, Acting Under Secretary of Agriculture, where he led negotiations on the Energy Title in the Farm Bill; and as Acting Assistant Secretary of Energy for Energy Efficiency and Renewable Energy, where he led the development of the National Biofuels Action Plan. He now serves as president of Leatherstocking LLC, a clean-technology advisory firm.

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