Archive for April, 2009
The current economic meltdown has really challenged the US business model and its perceived invincibility. The imminent collapse of its home-grown automobile sector is telling. It resisted calls for better emissions standards and therefore better fuel efficiency and environment-friendliness. Such resistance may have only postponed the inevitable. Aided by administrations of the day, the automobile companies racked up untenable production costs, skimped on quality and were effectively shielded from competition. Countries like Japan and Germany now build more efficient automobiles even in the US. A proper regime of good emissions standards, cost effectiveness, quality control among others would have stood these companies in better stead.
In Copenhagen, the developing countries which have in the main been leery of their motives will be looking up to the developed, hoping for sincerity and commitment. Energy being a driver of industrial growth, the developed countries will do well to help make energy use among the developing cleaner, not to seek its reduction. With his global appeal, President Obama is certainly poised to bring in the necessary level of trust for a successful conference.
Second generation biofuels use lignocellulosic biomass as feedstock. They have much higher biofuels productivity. (Miscanthus for example has about five times the ethanol productivity of maize.) They can thrive on marginal soils and so use less resources like fertilizer and water. They are not food crops so will not interfere with food prices or availability.
That first generation US biofuels programs failed does not mean biofuels technology failed. Labelling biofuels programs as failures is like saying democracy is a failure just because countries like Zimbabwe and Myanmar have failed at it. Peddlers of such labels are either economical with the truth or are downright ignorant.
Another pillar of the Brazilian bioethanol success is institutional support; loan guarantees, power purchase agreements, blend mandates, automotive engine specifications etc. The US government has taken steps in this direction. It has mandated the use of 21 billion gallons of biofuels per year by the year 2022. It is also proposing loan guarantees and tax breaks as incentives. This has spawned a series of biofuels companies boasting different fuels, feedstock and processes. In addition to ethanol, the fuel butanol has attracted interest because of its capacity for higher blend values and ease of transportation with extant pipelines. Biodiesel has also been produced using algae. The major oil companies are not left out. At its startup, Solazyme received support from the second largest US oil company, Chevron to develop its algae-derived biodiesel. Chevron is currently in a joint venture to produce ethanol from lignocellulosic feedstock. The oil major Shell is also collaborating with other companies in algae-diesel projects. When the large ethanol producer VeraSun Energy filed for bankruptcy, seven of its plants were bought by the oil refiner Valero Energy. Also, a tax on fossil fuels as well as a gradual increase in blend ratios in step with flex vehicle specifications will ensure proper production and utilization synergies.
Next generation biofuels technology is evolving rapidly. The competition is keen and the stakes are high. Small startup companies hope to develop a viable program that will attract venture capital. Venture capitalists will also scrutinize programs to optimize their investment. Only a few of these programs will probably become viable. The economics of feedstock and energy balance will ultimately determine which.
As a guest and in a recent podcast, Professor Sydney Finkelstein of Dartmouth’s Tuck Business School shared his findings on why people who should know better make very bad decisions. He revealed that a large proportion of investors who lost their investment in the Bernie Madoff scandal were people who were well-positioned to perform due diligence but never did, because of inappropriate attachments. The race, particularly in the US, to produce ethanol from maize may have been plagued by the same sentiment. Hopefully the next generation biofuels will be duly evaluated.
Biofuels will increasingly feature in the global energy mix. The oil major, Royal Dutch Shell adds that biofuels will probably makeup 10% of the energy mix in the next decades. Some other estimates are higher.