The Game Changer

April 5, 2012 |

Protect and defend the US Renewable Fuel Standard, says BP Biofuels chief

“And then there was a game-changing event,” BP Biofuels chief Philip New told delegates at the Advanced Biofuels Leadership Conference, “with a profound effect on the shape and the trajectory of the biofuels industry.”

There was a stillness in the room, as a quiet spread over the delegates at the Advanced Biofuels Leadership Conference. Usually, at an event attracting over 500 delegates and more than 100 C-level delegates, there was the slam of conference doors opening and shutting, and the low, continual hum of click-click as CEos and senior executives consult their Crackberries.

But, today, there was none of it.

Even for long-time observers or supporters of alternative energy, it is a startling thing to hear a division head at an oil major, presiding over a duchy consisting of upstream energy assets in the UK, US and Brazil and having 4,000 employees in his care – talking in terms of becoming an owner-operator of energy assets in Brazil. Making the decision to take on agricultural risk and operate beyond proxies like joint ventures.

And, most startling of all, leading the call for the preservation of the US Renewable Fuels Standard, or RFS2.

Weren’t the opponents of RFS2 supposed to include the incumbent oil majors? Weren’t they the forces of “drill, baby, drill”?

The contrast between expectations and realities had the delegates at ABLC rapt with attention like at no other time during Leadership Week, excepting for the stirring address, also on the critical need to defend RFS2, from US Secretary of Agriculture Tom Vilsack.

Yet, eloquent and impressive as Vilsack was, drawing two standing ovations, New’s address was the more shocking. When titanic forces such as the Department of Agriculture and British Petroleum come together in unified support for RFS2, it deepens the mystery surrounding the forces opposing RFS2, and who seek its repeal.

Who are these forces? What is their economic argument. What exactly is their political argument, faced with unity from farmers and the oil industry on the need for policy stability, to the extent that USDA and BP can be seen as representative of sector opinion. New himself did not encourage the view that BP’s outlook was representative of the oil majors; in fact, he took pains to portray BP, instead, as the sole oil major to date that has gained the self-confidence necessary to take on agricultural risk and become an owner-operator of advanced biofuels refining capacity.

RFS2 “galvanized us into action”

“RFS2 was a game-changer,” New told the delegates, “assuring absolute global primacy in advanced biofuel for the United States. It made clear that there would a market for this advanced technology and that there would be a price mechanism.

“America has responded powerfully. Only in this country is there the combination of farming and technology. It’s puts anything else anywhere in the world to shame. Speaking as a European, I regret the contrast between America and the EU, and the EU’s confused state of regulatory support.

“Until RFS2, we were content to take a back seat, happy to leave it to others to be at the bleeding edge. That was our view on RFS1. But as soon as RFS2 became clear to us, it galvanized us to action.

“In August 2007 we had seven people working for us on biofuels in the US. Within one year, we had signed a joint venture with Verenium. Two years later, we bought them out. Two years later, we are on the path to completing our first cellulosic biofuels plant.

“A miracle in which Americans should take immense pride.”

New was dismissive of the argument that missed cellulosic biofuels targets were indicative that RFS2 had failed. “The fact that the industry has come this far, less than seven years after the signing of RFS2, is a miracle in which Americans should take immense pride.

“Some profess surprise that the targets for cellulosic biofuels have not been met. We should not be surprised. At BP, we are used to seeing big energy solutions take ten years.

“Mobilizing this technology at scale is an immense achievement, and anyone who thought they could solve a big energy problem, like it was a dot com proxy, is nuts. What is required is serious players, serious technology.

The critical role of infrastructure in determining winners

Infrastructure is critical. The events of recent years demonstrate the extreme difficulty of shifting infrastructure, no matter how compelling the alternative. That’s why we are skeptical about battery-electric vehicles and quite skeptical on gaseous fuels. Infrastructure has a retarding effect on the introduction of new energy types. So, we think that biofuels are the only proper, realistic alternative to crude oil.

But New stopped well short of a blanket endorsement of all biofuels, or even all advanced biofuels. Instead, he focused on “advantaged biofuels”.

“For us, biofuels have to be produced sustainably, and reduce carbon-intensity. Those are essential for us. But Biofuels also have to be scalable, and cost-competitive. For us, only sugarcane ethanol initially ticked all four of those boxes.

He connected the deployment of cellulosic biofuels feedstocks with growth in the US and other countries outside the tropics. “The primary driver is low-cost, sustainable sugars,” he noted, “and in other regions such as the US, expanding the range of those sugars is essential for scale.

The rewards of consistent, patient policy support

New drew a clear parallel between Brazil’s Pro-Alcool program, which was designed initially in the 1970s to foster a Brazilian ethanol industry, and the expected trajectory of government supports and mandates for biofuels in other parts of the world. “We are three decades into Brazil’s Pro-Alcool program, and in the first two decades, government support was essential for operating, for production to scale. But in the last decade, regulation dropped away and today it is about market forces.”

And New issued a caution to US lawmakers. “It would be a mistake to carelessly squander the immense advantage that the Renewable Fuel Standard has built up for the US in advanced biofuels.”

The Advanced BIofuels Leadership Conference continues today in DC with a focus on military and aviation biofuels markets headlined by addresses from the US Navy and former NATO Supreme Commender Wesley Clark, and a bio-based investor summit which has attracted prominent VCs, investment bankers, strategic investors, policymakers and producers.

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