Voices from Europe, on Europe and renewable fuels

May 25, 2015 |

WBLF-1The EU is changing its ambitions on biofuels — some say, “with every passing fad”, others say that EU biofuels have “not met the sustainability goals many hoped for it.” Why use biofuels at all, in terms of carbon goals?

How does the European renewable fuels industry look at itself? Too focused on survival instead of growth? Too focused on sector competition instead of the transparency on carbon that leads to policy stability? Not focused enough on presenting solid, positive evidence that the industry delivers on carbon?

At the World Bioenergy Leadership Forum in Seville, five leaders look at progress, barriers and response, opportunity, and adaptations in the face of changing oil prices and changing views on biofuels and carbon.

WBLF-2

“Right now we have a European Commission that still believes that perfect policy is their goal. If they announce a 20-year policy and then in year 2 find a better way to do it, they’ll redo it, and that kind of instability is fatal to their own aspirations.”

Eric Sievers, CEO, Ethanol Europe

In the EU, there’s no passion because no crisis. We have made something like $8B in investments, and we face a lot of risks, lightning, policy, strikes — and  crisis is a response to risk. But look at the behavior, there’s no allocation of resources, or rather something like .0001% of the asset value on addressing this crisis. So, it’s cheap to call something a crisis, but the best measurement is in not in words but deeds. We’re the 5th largest company in the EU and I don’t know the CEO of the 1st, 2nd, 3rd or 4th; I never see them at an ePure meeting. It’s cheap to complain, but these were entirely avoidable situations, and we won’t have a strong industry unless we put resources behind it.

If you look at our path forward in the EU there’s no assurance of growth or same amount of production. If we are an industry that isn’t investing, we’re just a zombie. At Ethanol Europe, we’re bringing 200 million liters online this year – and since 2009 every single liter of growth in Europe has been from our company. We are an industry that hasn’t invested in a decade. It is difficult to mobilize support if we who know it best aren’t investing.

For survival, we’re fine. We have a functioning trade association which we didn’t have before, and at first we had to create core messages around jobs and organize what we think about in terms of our value-add. But survival and investment are two entirely different things, and the people sitting round the table are never going to invest in the bioeconomy again, under any circumstances.

So the the creation of a bankable investment environment [for growth, like second-generation fuels], well you never see an insurance companies or pension fund talk about investing and the EU isn’t going to do it, and the companies don’t have the 50B Euros. So it’s all very convenient for the EU to talk about 50B euro investments. But there are pretty basic established economic rules, including a kind of commitment to regulatory stability. Right now we have a European Commission that still believes that perfect policy is their goal. If they announce a 20-year policy and then in year 2 find a better way to do it, they’ll redo it, and that kind of instability is fatal to their own aspirations.

In terms of our investment in next-gen biofuels, which is what everyone wants, I can assure you that all of ours is going straight  to California and none into the EU.

Keep it in the ground, that’s the guardians phrase for petroleum. That what we can use to unite all the first and second generation. It’s so simple and so attractive, a couple of us said we wouldn’t give a talk in the next year we without mentioning that.

“We talk about ethanol as a commodity but in fact it is a public product which produces a public benefit.”

Carlo Hamelinck, Managing Consultant, Ecofys

Greenhouse gas emissions are the single most important reason for biofuels. Yes, there are broader sustainability concerns and other aspects such as energy security and jobs, but GHG performance is the reason for existence. There’s a big misunderstanding by industry. It could be very good news I suspect if we were willing to be transparent, because direct emissions from biofuels are going down and with fossil fuels they are going nowhere but up because the new oil is increasingly more difficult. But industry is quite secretive about the feedstock it uses, and we have to use default values from the Commission.

Indirect emissions or ILUC – also go down by nature, because ILUC pays back after 20 years. A biofuel introduced in 2010 is ILUC free -by 2030, and overall there is going to be a drop. Plus, newly added biofuels can be ILUC free or low depending on the methods used. I believe that at least 70% emission reduction is a reality in 2030 and 2040 and there’s a strong story line.

When it comes to oil, I remember a meeting a few years back and the oil guys were saying, we all know its unsustainable, so it’s not our product we have to measure, it’s your product we have to measure.

But how do you really standardize and compare sustainability. You can only measure certain aspects of it. The simple reality with airlines, for example, is that their fuel supply chain includes sources from groups like Islamic State, how do you compare the sustainability of terror with the sustainability of palm oil?  How do you compare, when shell is calling for drilling in the arctic, how do you compare that with ethanol? We have got to think about those things.

We have been in denial too long on emissions. The criticism of the biofuels industry that is here today —  the rhetoric is annoying, but it is more of an opportunity than a threat. But the kind of panel discussing this opportunity today is a distorted cross-section of the industry. Abengoa’s biofuels far exceeds one’s expectations but the bulk of our industry not ready to take the fundamental premise that the issues are those defined by society as opposed to what we define. Things like ILUC. Opposing it or denying the issue is counter-productive.

You see, we talk about ethanol as a commodity but in fact it is a public product which produces a public benefit. In measuring that benefit, the first line of defense is the feedstock and here we have to estimate. A sector that is so criticized on sustainability performance and so associated with exotic impacts from products such as palm oil — why not show it on a map? 75% comes from Europe we think, but this sector is very secretive. I have asked ePure for the data many times, and what always comes back is fear of competition . And it is all very good to fear the competition, but you need to show performance on greenhouse gas.

We know that GHGs can be gamed by the same forces that invented fuel vs food, and ILUC is out of the bottle and we won’t get it back in. maybe you won;t hear of it for a while, but don;t be fooled, you’ll see it again.

As far as the “keep it in the ground” divestment campaign, the fossil fuel divestment movement, the problem is that people think that electrification, drops in driving, vehicle efficiency and fossil fuel divestment is enough. So we have to resolve the conflict between the individual interest and the collective and stop the fight amongst each other for a share of the pie, and work together for a bigger pie.

In Paris, there’s a new round of climate talks and I don;t see much from the bioindustry. There’s a completely new european Parliament, and  all the people that were so difficult to persuade are gone. I’m not saying the new people are better, but they are different. This European Commission is different, more political, they need a story.

And you show people how nice your pie is. If you show them a discussion about the ingredients and they will run out of the shop before you are finished.

I’m feeling ambivalent on second-gen fuels. It really should be about performance not the technology, and next-gen generally perform better but it is not not guaranteed. We need better performing biofuels, but we need it all, and we should not be all about waiting for second-gen until it can replace it. Policymakers talk about 5-7%, but what we should be talking about is how much fossil fuel we allow and that should be reduced to zero. Electrics are suitable and first gen and you need it all. Subsidies are not going to help because they don’t create a market, and there needs to be a market, and the market will only come if the sector regains the trust of the public.

“We have so many positive stories to tell, why not tell them instead internalizing the very messages of the enemies?”

Thomas Gameson, VP of Institutional Affairs Europe, Abengoa Bioenergy

The legislation in place now calls on 28 members to make mind up on what to do to 2020, but we need to think beyond that. We need to understand which biofuels they will want to choose, because we have a dieselized market – 2/3 is diesel, and therefore the oil industry has a big problem with oversupply of gasoline and they are dead-set against ethanol, see it as just a competitor. The ethanol industry is always the junior opposite side with biodiesel and the oil industry.

On next-gen, we are working on two different sets of feedstock, urban waste on the one hand, and agriculture residue and possibly energy crops. It’s too early to say, but colleagues seem very comfortable with urban waste but I am not sure that really addresses the conversation about transport fuels. It is about solving other sustainability and environmental concerns but I am not sure it is all that pertinent for achieving renewable energy targets.

We have a great starting point, and a great technical innovation underway, but a lot of it depends on the kind of political support we will get or not get.

How did we lose our grip on the story? We have so many positive positive stories to tell, why not tell them instead internalizing the very messages of the enemies? It’s not about food vs fuel, its about how could you allow companies whose only contribution to society is to push has browns onto your plate at breakfast to take control of a discussion about food or fuel. Why is there so much bowing down to bullying?

Yes, there are ideologues and bureaucrats and some of those bureaucrats  say they are far more worried about the NGOs camped on her doorstep than the fate of this industry. You have to promote the industry and don’t say anything bad about anyone, focus on what you give to society and greenhouse gas savings and so on. The leaders in Brussels think the solution is second-gen instead of first-gen even though it is a lot of the same raw material. We have got to rebuild confidence with investors and elsewhere. We need to talk about the good things, we have covered the bad things to death.

“How companies are adapting to the new market conditions.”

Yuan-Sheng Yu, Lux Research

Last year the big news was the nosedive of oil prices, and the one thing we don’t agree on is where oil will go.

Citi has projected $20 by the end of year, Goldman 40 end of year, and on the high end the EIA says it will reach $250 by 2040. It’s a wide spread. The result is that corporations cut back on biofuels investments and technology developers have shifted away from fuels. For example, Sapphire under a new CEO aims to produce produce omega 3s, Solazyme has shifted to a portfolio of new applications outside of fuels, and companies like Virent are focusing on paraxylene for the Plant Bottle.

$50 was never an after thought for this industry, they have aimed towards it all along, hut the question is who will achieve it. We looked at 98 companies that would go on record with a production cost, and most are at or below for spot prices for crude, but broadly we have see three strategies emerge.

Feedstock diversification – companies like Neste; Market flexibility – like Amyris; and Capital light – like Edeniq.

Feedstock diversification – Neste

Last year, Neste made 422 million gallons of renewable diesel and they plan on scaling up by 20% or more this year, they now make 74% of the renewable diesel out there, and in Rotterdam are at 98% utilization. They are growing despite reducing crude palm oil and despite the crash in CPO prices, they are now 62% FOG and are targeting 100%. Fish oil, waste fats and tallow oil are their targets.

Market flexibility – Amyris

When you hear that ASTM has approved farnesene as a jet fuel that likely the last you will hear about Amyris fuel ambitions. $12 / gallon is their farnesene costs, and that is going to keep them out of the fuel markets. Over the years they have continued to developed partnerships and relationships in flavors and fragrances, and they have continued to diversify and expand. In the last 6 month  they have entered the health care and pharma sectors and are even commercializing DNA programs as software services. Biopharma, industrial cleaning, cosmetics, personal care — that’s where they are going.

Capital light – Edeniq

Capital-light bolt-ons, with $3-$7 million in cost to increase corn capacity 2-6%, and they are adding capacity to existing facilities at a cost of $1.25 to $1.75 per gallon – that’s the kind of low capex and opex that makes bolt-on strategies work.

Companies we like

Diversification — we see Readifuels and Primus Green Energy as good companies here.

Market flexibility, we see Altranex, and Concord Blue (waste to power with options in fuels)

Capital light companies — Vertimass and Benefuel look good.

“Why use biofuels at all?”

Jo Howes, E4Tech

The key is to address the concerns, because in the EU the debate begins with a question, usually, such as “why do we need biofuels at all?”

To what extent should we decarbonize the RU transport sector now, the argument goes — rather, maybe we can do things after 2030, or do electrics and other areas now.

The low oil prices, continued sustainability concerns and uncertainty on EU and member state policy to 2030 all feed in to that. So, definitely in some countries people have continued debate on the fundamental argument for biofuels.

We think that the debate right now ignores real factors about transitions – the time you need to make changes, rollout of change, time for new specs, and the time to build new biofuel plants. It doesn’t think about the business model — the idea that you have technologies ready now, so you can’t just say “go on hold and come back in 15 years when the oil price is in line”. We can’t put technologies in a cupboard and expect to resurrect the Zombies later. And we run the risk that savings in other sectors don’t deliver and that the challenge in 2030 is far more than we expected.

What we see is that biofuels are needed in EU transport because even with a significant decrease in road transport liquid fuels will contribute 93% of transport needs. Efficiency gains and electrification are important but liquid fuel dependency persists, and liquids are needed for shipping and aviation.

So, then the question becomes, “how much could biofuels contribute?” We think that by 2020 biofuels could contribute 12-15% of road transport fuel energy. Looking at four scenarios, we have formed realistic expectations by 2030, on how fast can vehicles roll out, infrastructure, plant build rates, feedstock barriers and we see a 20% share from advanced biofuels.

What is needed? A stable transport energy policy, and coordinated vehicle and fuel developments, ensuring and demonstrating sustainability. Financing can be useful for a couple of plants, but it won’t get us there, we need self-sustaining businesses. But we do need to start thinking about and working towards E20 tolerant vehicles now, and we need more good news story lines to give quantified impacts.

Category: Top Stories

Thank you for visting the Digest.