Want more bioeconomy capacity, sooner? Our 4-point plan to relieve the investor’s Tour of Terror

March 5, 2023 |

The Yukon Striker is the world’s longest dive-style rollercoaster, with a drop of more than 240 feet, four inversions, hurtles at 80+ miles per hour, and when you take the first drop, you plunge into an underwater tunnel, after pulling a terrifying 5Gs on the way down. But it is only the world’s second-scariest rollercoaster, because the scariest one is the Tour of Terror in building a bioeconomy project.

Strategics bail when oil prices go low; formulator adoption is poorly understood; there’s a disdain for consumer marketing amongst bioeconomy executives that is flabbergasting in scale; the industry focuses on ingredients instead of products and can’t get a green premium. There’s not enough work on the feedstock diversity. Costs are on the dextrose rollercoaster, our standards for carbon sequestration lay at the halfway point between Fantasyland and Potemkin Village, so that you can’t get a low carbon credit for a permanent material made out of a tree but you can get one for planting a tree that will die in next summer’s wildfire.

They are supposed to be thrilling, bioeconomy projects, objects of delight and wonder. People love ‘em from a distance, but when it comes time to write large checks, investors scare away like doomed movie extras fleeing villains of the Marvel Cinematic Universe.

Who could blame them?

The real problem

It’s not the yields from the process. Not the demand for the products. Not the costs of construction. You’ll hear lots of discussion of all of these, but it is all folderol, the truth is elsewhere. It is the Risk. Few take the risks for the same reason that people did not walk the tightrope between World Trade One and Two in the old days of the Twin Towers. It is not the lack of any pleasure in success, it is the sickening plunge back to Planet Earth.

Now, I am about to hear from someone, somewhere that we need more R&D, more pilots, more engineering data to de-risk these technologies. That’s just cow cookies from people conditioned reflexively to think this way. The risks that mater are not internal to the technology, they are internal to the project yet external to the technology. Affordable, abundant feedstock. Distribution. Currency. Policy. Commodity price. Permitting. Tariff. Country risk. Demand for internal combustion. 

There are unexpected inversions, terrifying twists, plunges beyond reason, and lately because of carbon capture and storage technology, there are plummets into petrifying underground caverns where odious gases rule the day. The Yukon Striker nothing on the Bioeconomy when it comes to the horror of the commodity plummet and the G-Force of the policy pivot.

Nice to haves

It’s good news that the private sector is working on a biomanufacturing capacity build-up and the Biden Administration, spurred by a withering DoD report,  issued Executive Order 14081 on the Biomanufacturing, and we’ll hear more about this at ABLC.

Capacity is important and production targets are nice; but this is headache powder prescribed for the loss of a limb. As China found when they built vast ghost cities in their interior, nothing is solved by construction alone.

The 4-Point Plan

What are we to do about risk? First of all, we might face it — the risks outside of process technology that is. Science provides technology, investors provide capital, but nothing will happen until someone snuffs out the external risk. 

Rick must be placed elsewhere. The problem we have is the elsewhere of risk. Risk is placed where it is placed, right now, perhaps for good reasons. But it is not placed in the places from which we will be able to life ourselves out of the next giant bailout to mitigate climate change.

Here are four things that have to happen.

1. Capital has to be cleaved from risk. Asking the equity markets to put skin in the game via large equity bets on billion dollar first commercials is simply another form of inviting the waters to inundate Miami Beach. Capital will not take these risks, they will hem and haw, pettifog and delay, until the snowfall is gone and the fields can no longer support the production of enough food. Unless the carbon credits reach eye-watering levels, and what is supposed to be an industry starts look like gold fever.

2. Since the public sector has to absorb the losses, the public should receive the rewards. Dividends from successful projects should be paid out to taxpayers.

3. Sites should be owned by asset companies, not projects.

4. Projects should be operated as a service business, not entrepreneurial ventures. Just as apartment buildings hire management companies.

Projects have to be built at the public expense, since they bring a societal benefit of reduced emissions, the public has to pay the interest on the bonds which have to be sold to the public markets using a Dutch Auction at whatever rate will clear the market. Projects should be sold to private ownership after they are shown to run well, at whatever price the private market can bear. Service companies should operate projects, not government officials, at competitive rates based on competition. Feedstocks must be purchased on long-term, fixed-price contracts using a Dutch Auction at whatever price will clear the market. The products have to be sold at a market price based on function and performance. 

The Bottom Line

If the public sustains losses, they are in the name on climate action at speed and reduced complexity, and we all benefit, they must be borne. If the public sustains a profit, we can all use a dividend to help us pay the bills. Whatever public financial burden there is to bear, it must be borne, and it will not cost the public anywhere near the bailouts we’ve seen from lack of foresight on pandemic and mortgage banking, to mention a few.

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