The outlook for biofuels: a reality check from Suzanne Hunt

Suzanne Hunt directed the Worldwatch Institute’s bioenergy program from 2005–2007, where she orchestrated the landmark research initiative and resulting book, Biofuels for Transportation: Global Potential and Implications for Energy and Agriculture.

She then founded Hunt Green LLC, providing strategic advice on transportation, energy, agriculture and the environment. She was a Senior Advisor to the Carbon War Room where she led their work on aviation and renewable fuels from 2010–2015.

In an interview with Anna Simpson, Hunt explains why advanced biofuels need sustained support if they are ever to reach scale.

“Biofuels magnify the cracks in other systems”

Let me begin by acknowledging that biofuels have been a very controversial area. There are lots of competing agendas, which makes it difficult to get good quality information and good quality data to inform smart, sustainable decisions. There’s also such diversity in conversion technologies and feedstocks — ranging from crops and forestry residues, to garbage, some of the stuff that comes out of paper mills, and other wastes — that it’s impossible to make any blanket statements.

Another key thing to remember is the context: a global industrial agriculture system that’s highly unsustainable, a global forestry sector that’s highly unsustainable, and global energy and transportation sectors, which are currently highly unsustainable!

Therefore, if not developed with great care, biofuels will add pressure to already overstressed ecosystems. This is partly why biofuels get blamed in so many instances: they magnify the cracks in other systems.

“Competition for land is the big issue”

We’re very rightly applying pressure to create systems and insurance schemes to ensure that biofuels are developed sustainably. But it’s an unfair standard in a way, because we’re not demanding a sustainability certification scheme for all of our other fuels.

If you look at any supply chain that leads to a given biofuel, and you break it down to see where the majority of the environmental impact is — both positive and negative — it’s nearly always the feedstock. This is the most energy intensive and carbon intensive piece. And when land is involved, it has huge environmental implications — for biodiversity, water, competing uses, and so on.

Land use is really the big issue. It’s not enough to say, “We’ve got this crop and it’s not edible, so it’s fine. It’s about competing for prime farmland and whether natural ecosystems are being destroyed to grow more crops. Or conversely, is degraded land being rehabilitated and brought back into production?

“Ideal scenarios involve rehabilitating degraded land”

I think there’s generally an assumption that any change in land use for biofuels is negative, but there are interesting opportunities — for instance, in integrated farming.

The last time I checked, up to 40% of the world’s agricultural lands were severely degraded. Some of the ideal scenarios for the development of biofuels would involve rehabilitating those lands: starting to rebuild the carbon and soils, allowing rainfall to infiltrate, etc.

To give you an example, there’s a company that I have been looking at that grows oil seeds from shrubs on degraded land. They’re experimenting with grazing sheep between the rows of oil seed crops.

But these alternatives to standard industrialised agricultural models require more upfront investment and more effort to succeed.

“With oil at prices so low, the economics often don’t work out”

A lot of the different emerging technologies, such as some of the algae-based biofuel business models, require huge amounts of capital to scale up. Sources of this magnitude of capital, that will accept any level of technology risk, are extremely rare. The inability to obtain the financing needed to take these early stage companies to commercial scale is a really important barrier in all of this.

In algae, there are so many of these models that are really interesting at the research level, and promising systems are emerging from R&D. But in today’s environment, even if oil went back up to $100 a barrel, the economics generally just don’t work out. You could produce algae oil and you could produce biomass from algae but you couldn’t convert it into a fuel for any cost that was remotely viable in the marketplace. That doesn’t mean you never will be able to, but right now it’s really hard for a company to get a foothold.

So, what a lot of them are doing is focusing on high value products, such as dietary supplements and cosmetics, where a little bottle of it will sell for say $40, versus $3 for a gallon of fuel. The markets for these products are smaller than the global oil market, but the value of the products is much higher. These companies are now trying to build on that value and grow their business, with the hope that eventually they’ll develop the maturity and the economies of scale to be able to produce fuels at competitive prices.

There could be another issue though. If a company is producing a pure, incredibly nutritious oil, do you want to put that in your engine and burn it up?

“It takes a team to evaluate the potential”

One of the things I’m asked to do is to evaluate these models and these companies and it’s really tricky. I have deep knowledge of the industry: agriculture, policy, sustainability issues and assurance schemes, but I’m not an engineer and I’ve never worked on Wall Street. It really takes a team of people to evaluate these companies, so that’s a caveat.

If I’m working with a buyer, I need to understand their priorities. For example, if you are an airline fuel buyer and your priority, and what you define as promising, is something that can come to market in a few years and be within a reasonable price range, then you’re going to be looking at technologies that take a vegetable oil or an animal fat and convert it, just like oil companies take petroleum and then convert it to jet fuel. That’s a mature refining technology and so your challenge is getting the feedstock at a scale and a price that’s viable, from a system that’s sustainable.

“Consumer perception is only relevant in certain markets”

Buyers might have particular requests; for instance, there can be absolutely no land use involved. That limits you to waste streams, and then you have to pick from a pretty tiny raft of companies that have a chance of being technologically mature and able to produce commercially relevant volumes of fuel in the next few years.

Consumer perception I would say is only relevant in certain markets. In Europe there’s obviously a relatively high eco-consciousness and concern. For example, when Lufthansa did test flights on renewable jet fuels derived from palm oil, there was a strong public backlash. Whereas in Asia, I’ve had airlines tell me, “look we have no requirement for biofuel; the public don’t care and jet fuel is cheap”, and so they are just not interested. Obviously these are anecdotes and don’t apply to the entire region. Indonesia actually has an aviation biofuel mandate in place. I would say that a lot of airlines know that carbon limitations are coming and they know that eventually there’s going to be a cost.

Fuel is often the single biggest operating cost for airlines. Biofuels can help diversify the fuel supply and also have the potential to help reduce price volatility. It is really hard for businesses to budget based on a single fuel: your price could double or triple in a short amount of time with no control over it, other than hedging. It is the unpredictability which often costs the airline.

“Short-term contracts won’t cut the mustard”

About six airlines have already actually made concrete movements in the marketplace with renewable jet fuel companies. Several have directly invested in biofuel companies, including British Airlines with a company called Solena, and Cathay Pacific with a company called Fulcrum.

SkyNRG has been working with customers such as Heineken and other big brands, asking them to chip in money to pay for the added cost of the biofuels while they are really expensive due to being produced in small batches. It’s a branding thing and a corporate social responsibility thing and they probably claimed some carbon reduction. That was really innovative, but not scalable long term and quite specific.

I have been part of a team exploring the potential to create longer-term futures contracts for renewable jet fuel that would allow the biofuel producers to demonstrate to the financial world that they have offtake commitments in place ensuring a future market for their products. A short-term contract wouldn’t give the banks or investors much assurance. The producers want it to be as long as possible, to cover the development and lifespan of new bio-refineries. The airlines want it to be as short as possible because fuel prices change so frequently and so quickly. With conventional fuel, for the most part, there are very few airlines nowadays which hedge out for more than one or two years. It will take time for airline leadership to get comfortable making longer-term contractual commitments to renewable fuel producers.

“If you want a liquid biofuel industry, it needs sustained support”

These emerging companies are competing against the most powerful, most profitable industries in the history of humanity. The oil industry has had 100-odd years to invest trillions of dollars in a massive global (physical and political) landscape. And we see the impacts: every time the oil price goes up or down, we see the ripple effects throughout the global economy. I feel like we don’t really have full consciousness of just what these new renewable fuel companies are up against; we’re expecting them to be able to just hop into the marketplace and compete. I don’t think there’s a real appreciation of just how hard it is to create a viable business in this complex space against such a giant, powerful competitor.

And consider that the oil price literally went from $150 to $50 a barrel in the recent past. That’s what they are trying to compete with. Oil price is so volatile; it’s not like competing in the electricity market.

If nations want these nascent advanced liquid biofuels industries to grow and succeed, they need to provide long-term support for them. At the moment, support comes and goes, but subsidies for fossil fuels are there constantly. They need a reliable, consistent and healthy framework in order to get a foothold and compete.

Suzanne Hunt [@HuntGreen] was talking to Anna Simpson [@_annasimpson], the Curator of the Futures Centre at Forum for the Future.

Image credit: BBC

Originally published at www.thefuturescentre.org.