MIND THE GAP: Letter from Europe

If you have not followed the Alternative and Renewable Fuels Forum, bookmark this, and today I’ll give you some of the flavor of this group with 110 members — project owners and developers, policy experts, technologists, automotive manufacturers, oil companies, airlines. I think of them as the ARTFL Dodgers for their skill at navigating the Dickensian rollercoaster of European policy in transport decarbonization.

If it fell to me to summarize, the three words that stood out to me at the Forum, and throughout Europe, is “MIND THE GAP”. A warning, using the familiar language of the London Underground, for EU leaders to accept that their attempts to decarbonize transportation will fail if they fail to have a stable, meaningful biofuels policy — a gap will emerge between Paris targets and actual emissions that will be impossible to address with electrification alone.

For almost two decades, Europe has been writing its policies in pencil instead of ink. There was the Biofuels Directive, then the Renewable Energy Directive, then the Renewable Energy Directive revised for Indirect Land Use Change impacts, then the Renewable Energy Directive II, and lately all the discussion in Europe revolves around what is known as the Green Deal. Frankly, if there’s a patch of the good Earth that better exemplifies the phrase, “perfect is the enemy of good”, it’s the otherwise pleasant streets of Brussels.

We have a climate emergency, not a war emergency, but there are aspects in the management of climate legislation in the EU that parallel a similar state of drift experienced in the 1930s when Europe experienced the gathering storm that became the Second World War. At the time, Winston Churchill observed of the British government’s preparations:

“The Government simply cannot make up their minds, or they cannot get the Prime Minister to make up his mind. So they go on in strange paradox, decided only to be undecided, resolved to be irresolute, adamant for drift, solid for fluidity, all-powerful to be impotent. So we go on preparing more months and years – precious, perhaps vital to the greatness of Britain – for the locusts to eat.”

The issues are the old ones. There is the issue of fuel costs, the potential for more alluring alternatives (such as electric vehicles), and there is an entrenched and well-organized opposition to biofuels in Europe over the issue of land use — a fear that a shift to biofuels will take up so much land that emissions will rise and that food production would be threatened.

As a result, Europe is in monitoring mode rather than action mode, seeking a message with which to connect to policy makers, auto manufacturers and the public on the opportunities for domestic energy production and decarbonization via renewable fuels. At the Forum, more than half of the eyes at any given moment were trained on laptops and mobile phones rather than on speakers and speeches. They were scanning the news, managing messages, and doing the kinds of things that people do when they are not hearing any breakthroughs presented on the stage.

Animation is generally heard when the question arises as to who will bear the responsibility to “educate lawmakers,” or “persuade the Commission,” or “change the policy,” which is to say, the usual concerns of people who have a solution to a problem, but have not yet sold the problem.

Net Zero Carbon

What is the Green Deal? It’s slightly amorphous at best, right now, but the Europeans are going through a wave of declarations of corporate intent to achieve “net zero carbon” by 2050. BP gave the latest of them and you’d think that such a declaration by an oil company would have renewable hydrocarbons all over it. Yet, the leaders in sustainable fuels have hardly yet found their place even in that dialogue.

A chance to reset the agenda

As SkyNRG’s Darrin Morgan observed at the forum, “Remember when biofuels were going to save the planet? It was not so long ago, Boeing was sponsoring a major environmental event, people like Harrison Ford and some of the more famous NGO people were on the stage. The NYT columnist Thomas Friedman gave a speech and a word to those with a bioeconomy vision, he said that his NGO friends were beginning to realize that a bioeconomy was not as simple as we think.”

“The biofuels backlash ensued. At Boeing, we came of age in the crucible of that backlash, that idea that a massive amount of land would be needed to substitute for all the fuel, and that scared the you-know-what out of the NGOs, and they launched the effort restrict the bioeconomy over land use concerns. The financial crisis didn’t help.”

“10 years later, the NGOs see that ‘they won’. The message was delivered and heard, and they have forced those of us in the bioeconomy into the little piece of the pie they have allowed for us.”

“But perhaps there is a chance to re-set the agenda, to hit the reset button. What was scary and unknown then, is a lot less unknown and scary now. Electrification has arrived and we accept it, and the demand is much smaller than what people were concerned about. Can we have a more cogent rational discussion about what the bioeconomy can do, about how we can grow the pie, set aside other concerns and build a political consensus?”

“Electrification is important, and we are active in electrifuels at Sky NRG, but something I hear a lot, and I heard just the other day in Germany, a major player mentioning how much solar they were going to build in North Africa. How is this different from planting massive amounts of jatropha in Africa, the concern from the past? How is building solar in Africa for Europe helping, in a macro sense?”

Chickens and eggs in abundance

At the luncheon break, the table with the sandwiches could be approached from either side — there was no set line — so that it wasn’t entirely clear whether one should start with the chicken or the eggs.

In the afternoon, the Forum itself impaled itself briefly on the same metaphorical dilemma. Should the ART Fuels Forum be an organization aimed at advancing technology in order to deploy a positive message to lawmakers? Or, should the AFF be an organization aimed at advancing a message to lawmakers in order to deploy technology? Commercial voices were strongly for the latter, but the scientists kept updating us on technological progress as if the former were the point of the meeting.

Indeed, what comes first, the policy that drives the technology or the technologies to drive the policy? In the US, the first way was tried with cellulosic ethanol, and results were mixed at best. In the EU, its usually the second approach. But the level of proof on consequences required to get a stable biofuels policy is astonishing to outside observers.

The EU is approaching electrification the other way, we hear of bids to ban the production of new internal-combustion engines by as soon as 2030 for selected countries, and we may have the devil to pay for ambitions such as those, when we exchange a dangerous dependency on petroleum-rich countries for a dependency on lithium- and cobalt-rich countries.

Mind the (Cost) Gap

Perhaps most substantive and troubling was a rather bleak assessment offered by IEA Bioenergy on the prospects for cost-competitive advanced biofuels, a report you can find here.

The IEA Bioenergy survey looked at 89 different organizations and their technologies. You could sum it up this way: renewable fuels share with solar and wind all the troubles of being very expensive capital projects, and the incumbents are already in place; conversely, renewable fuels share with fossil fuels all the troubles of having expensive feedstocks, and the afore-mentioned Willies that the prospect of land use change gives some sections of the environmental community.

IEA Bioenergy’s Adam Brown told the Forum, “there is a significant cost gap between fossil and advanced biofuels, even with medium-term cost reductions of 20-50 percent the gap will still exist and large-scale deployment will depend on policy support.”

In general, the EU has developed a reasonably good approach to address this gap, and that’s through projects that gain access to the EU Innovation Fund. This Fund we understand offers grants of greater than €7.5 for large scale projects, offers support of up to 60% of the additional cost for innovative tech, and can support add-on CAPEX and OPEX for 10 years. It’s well suited to projects like carbon capture and storage where an existing site is there, and the technology will allow the project owner to substantively reduce emissions while finding public money to support feasibility. The funds, presumably, come directly or indirectly from the sale of emission credits.

The devil is in the details, Mies van de Rohe used to say, and the devil is in the capital cost.

Making a feed-in tariff for the bioeconomy

As support schemes go, what might work better is simply this:

1. Operator A signs a production agreement, saying it will produce fuels at such-and-such a (cost-competitive) price and supply those into the EU fuel stream, within EU targets for carbon intensity.

2. Operator A demonstrates its technology at the smallest integrated scale for a prescribed set of hours to validate the techno-economics.

3. Construction capital is provided by the public on a scale commensurate with carbon intensity, up to 100 percent for net zero carbon production, with a target capex per BTU of energy. produced.

4. Any capital saved via a low-cost design, below the target $/BTU rate, would be contributed towards working capital for the project.

5. Operator A secures the balance of working capital, and operates at scale.

The scheme removes some barriers of capital formation that are impeding carbon progress, and carbon not avoided now will be costly to remove later. So, there’s a financial reason to invest in this manner — consider it a sort of feed-in tariff.

And, the scheme levels the playing field between fossil energy — produced at paid-for refineries — and renewables, which generally have to be produced at greenfields.

The scheme rewards innovation in driving down the carbon intensity of a process, and driving down the capex of a project. It rewards thrift in operating expenses because the operator makes a profit on the margin between operating costs and the selling price.

In other words, we have the usual drivers familiar in market economies, but we are forcing the fossil industry not just to blend renewables but to capitalize them in order to retain freedom to operate. Companies are not required to operate, but so long as they profitably can do so, they are likely to remain. The longer they remain, the more capital becomes available, and the more that replacement technology appears.

The individual regulating authorities then have the obligation to a) mandate the usage of these cost-competitive fuels, b) set demand targets for those fuels that require blending, to minimize over-production, and c) organize a fair bidding system, and appropriate bidding terms (such as how many years of offtake can be bid at one time) should there be more potential supply than demand.

At the same time, the market is not exposed to failing technologies since they have to be built and tested before they can bid, but their capital efficiency and potential for large scale sales will make them attractive to investors. The system is not exposed to illegitimate feedstocks, or the risk of increased emissions, or to oversupply or undersupply in the way we have been experiencing it of late.