The Top 10 Biofuels Stories of 2008: a Biofuels Digest special report

A Hartford Courant cartoon offered a consumer's eye view of rising prices for corn, oil and the forces behind them

2008 was supposed to be the year when biofuels boomed, but producers and developers were under siege all year from a “vast, chicken wing conspiracy” drawn from groups that Daniel Gross, writing in Slate, described as “poverty activists, inflation hawks, efficiency freaks and environmentalists”. He could have added “an aggressive coalition of processed food, meat and poultry producers who had built their business models on cheap corn”.

Many predicted that biofuels would “arrive” in 2008, but at times it felt like the industry would be driven over a cliff by its critics, the financial meltdown, and oil and commodity prices. “Hello, I must be going” sang Groucho Marx in the opening of the old Broadway musical Animal Crackers, and at times it felt that way.

The year began with the passage of the Energy Independence and Security Act and the establishment of a Renewable Fuel Standard. Quickly, euphoria over a 36 billion gallons biofuels mandate was tempered by delays in cellulosic ethanol deployment, and the eruption of a controversy about the climate change benefits of biofuels. The year never slowed down, with rapid progress in advanced biofuels, a feedstock price rollercoaster and a “food vs. fuel” debate that ended up with two US governors calling on the EPA to suspend the Renewable Fuel Standard.

By year end, feedstock price hikes and the economic collapse caused a financial crisis at first generation biofuels companies. The year ended with rapid developments in algae-to-energy, election of Sen. Barack Obama as the next US President, and his appointment of the “Obama Green Dream Team” and promise of a green-oriented economic stimulus package.

Those late-year developments revived hopes that 2009 would be a banner year for biofuels.

Here were the top 10 stories for 2008:

#1: Land use changes, emissions
A pair of articles in Science magazine at the beginning of the year set the tone for a negative debate on the role of biofuels, when two sets of researchers challenged the effectiveness of biofuels as a climate-change mitigation strategy. A team led by Timothy Searchinger offered an indirect land-use impact model that showed a sharply negative impact from biofuels, unless grown on degraded or unproductive land. A second study indicated that converting land to biofuels production would release stored-up carbon and create a carbon debt that it would take up to 400 years to repay in some models.

The reaction poured in from the world’s media, almost universally dismissing the potential for biofuels to reduce greenhouse gas emissions.

#2: Algae
Algae bloomed in 2008, with Sapphire Energy raising $100 million in funding and providing fuel for the January 2009 Continental Airlines test flight. Origin Oil, PetroAlgae, Solazyme, Aquaflow Bionomics, UOP, and Bionavitas were among major movers this year in bringing us closer to commercialization. General Atomics and SAIC pulled in major grants for algae-based aviation fuel, and two associations (the Algal Biomass Organization and the National Algae Association duked it out with competing conferences on the same days in October).

#3: Gasification, pyrolysis, green fuels
This was supposed to be the year when cellulosic ethanol went mainstrean, with Range Fuels planned launch of its DOE-supported demonstration scale plant. Instead, it was companies such as Sustainable Power, Shell, Sapphire, Virent, Amyris and LS9 that attracted attention with their green diesels and gasolines – made from biomass but otherwise having the same molecules and performance characteristics of fossil fuels.

#4: Obama’s election and the Green Dream Team
With the election of ethanol supporter Barack Obama over ethanol foe John McCain, biofuels supporters drew a breath of relief. The appointment of biofuels subsidy author Tom Daschle to the cabinet was a good sign, as was the appointm of former Iowa Governor Tom Vilsack to head USDA. The appointments of Carol Browner as energy policy czar, Lisa Jackson as EPA Administrator, and Nancy Sutley to head the White House Council on Environmental Quality were generally welcomed by the environmental community.

Obama’s choice to head the Department of Energy, Steve Chu, winner of the Nobel Prize in Physics and a founder of the Joint Bioenergy Institute, gave reason to hope that support of second generation biofuels would remain strong. The addition of environmental lawyer Seantor Ken Slazar as head at Interior, and reliable renewable energy supporter Hilda Solis of California as Secretary of Labor, added icing to the cake. One wag dubbed the group as “Obama’s Green Dream Team” and the nickname stuck.

#5: EU mandate and subsidies collapse
Partly as a result of negative publicity regarding biofuels, the European Union watered down its 2020 biofuels conversion goals, while Germany began to remove tax credits that aided its domestic biodiesel industry. The biofuel tax increases, aimed at ultimately creating tax parity between biofuels and conventional fuels, rendered the domestic German biodiesel industry unable to compete with subsidized biodiesel from South American and the US. 27 percent of German capacity shut down altogether, while 36 percent ran at less than 50 percent of capacity.

Meanwhile, the European Union flirted with doing away with a 10 percent biofuels target and 2008-2020 conversion schedule. The EU ultimately agreed to confirm the targets as a renewable energy conversion, but 30 percent of the target would be met by electric cars or trains, with the remainder to come from biofuels. The EU also said it would develop regulations by 2010 to limit the impact of indirect land-use change, while biofuels developed from non-food sources will receive preferred treatment under the agreement. The agreement will need to be ratified by the European Parliament and all 27 EU members.

#6: Commodity prices
Palm, corn, wheat, ethanol, oil, and soybeans went on their biggest Coney Island rollercoaster ride ever this year, with corn rising as high last summer as $7.85 in the futures markets before falling to $3.50 late in the year. Oil famously climbed into the $130s before falling to $38 by year end.

Palm went as high as $1180 per tonne before dropping below $300 in the fall. Wheat and soybeans went through similar ups and downs, which wreaked havoc on planting plans, farmer’s cost of inputs, the price of packaged goods, and ethanol and biodiesel profitability. At one point, Malaysia, the home of palm oil, had just two biodiesel plants operating in the country.

#7: VeraSun, and the first generation ethanol collapse
The meltdown seemed to commence in the early summer when corn prices jumped from the $4 range to $7.

Biofuel Energy was the first to indicate that they had significant negative exposure on corn prices. In their case, they had failed to hedge their purchases and were buying in the sky-high open markets and selling ethanol at (presumably) a sharp loss. Later in the year Aventine Renewable Energy announced that it had tens of millions of dollars impaired in suddenly illiquid short-term securities – a sure sign of impending financial collapse.

Finally, Aventine and VeraSun were caught out — not by the rise in corn prices — but by their swift fall after the September financial meltdown. They had locked in at way-above market prices, while ethanol prices were tumbling. Aventine flirted with extinction and saw its stock crushed by investors. VeraSun declared a nine-figure loss and bankruptcy. Pacific Ethanol was hit by problems and declared a $69 million 3rd quarter loss, but POET seemed to roll along.

#8: The Food vs fuel controversy
In the first half of the year, and stampeded of voices cried out against biofuels in the “food vs fuel” debate where biofuels were blamed for the rise in food prices when corn and other commodity ingredients rose dramatically in price. Jean Ziegler called biofuels “a crime against humanity”, but in the end it was a US-led coalition of environmentalists and food producers that funded a massive lobbying and PR campaign. The campaigns were analyzed in a Biofuels Digest essay, “A vast, chicken-wing conspiracy,” that went through the math on fuel and food costs. The controversy simmered down considerably in the fourth quarter when corn prices collapsed but food prices remained high.

#9: India sets a 5 percent biofuels mandate, raises to 10 percent, misses the first target badly.
In late 2007, India imposed a 5 percent biofuels mandate, and hiked the mandate to 10 percent in 2008. Chaos ensued. As Biofuels Digest special correspondent Joelle Brink describes it: “The government couldn’t find enough ethanol to meet its 5% mandate. Since there was a sugar surplus at the time, one idea was to temporarily use the sugar surplus to produce enough ethanol to meet the target. However the sugar producers didn’t want to sell ethanol at the price the government–which establishes fuel prices and subsidies–was willing to pay.

“Sound familiar? So the govt. contracted with several Brazilian ethanol producers for imports by sea. No sooner had they done this than the sugar mills sued the government on the grounds that domestic suppliers had been passed over in favor of foreign competitors. They won their case, which left the govt holding useless contracts with Brazilian producers which they finally managed to convert into investment stakes.”

#10: Airlines test biofuels
Virgin Atlantic and Air New Zealand completed 747 biofuel tests this year, with Virgin testing a B20 blend using babassu palm oil and coconut oil in February while Air New Zealand used a B50 blend from jatropha in its December test. Continental and Japan Airlines announced early 2009 tests as well. Not only are the airlines facing steep fuel charges, but airlines will now enter the European Trading Scheme for carbon emissions in 2012, and the industry is facing up to $10.5 billion in carbon charges unless it reduces its carbon footprint.

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The Top 10 Biofuels Stories of 2008: a Biofuels Digest special report

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