Technology Revolution : Biofuels And Biomaterials

GETTING TO PRICE PARITY

One of the key dynamics contributing to the growth of biofuels, like other clean technologies, relates to economies of scale in manufacturing. As production ramps up and technologies improve, costs come down. And in a volatile, high-cost, fossil-fuel world, they can reach price parity with their conventional counterparts.

In fact, during brief periods in several states in the United States in 2005, fuel blends containing ethanol and biodiesel achieved what the industry calls price inversion—they dipped below the costs of regular gasoline and diesel fuel at the pump. In the Midwest early that summer, some stations sold a gallon of 10% ethanol blend for 7 to 10 cents less than regular gas. In Brazil, the world’s leading producer and user of ethanol, thanks to a large supply of inexpensive sugar cane as its feedstock, ethanol costs 15% to 40% less than gasoline. “Both ethanol and biodiesel are going through a building boom,” says Eric Bowen, vice president of energy and director of biofuels at Sigma Capital in San Francisco, an investment bank focused on project finance. “If petroleum prices keep going up, there’s no reason why these fuels shouldn’t be cheaper.”

Although expanded production capacity and increased supply are pushing down costs for ethanol and biodiesel, another factor has an even greater effect: commodity prices. In the United States, most ethanol is made from corn, and most biodiesel from soybean oil; in Europe, rapeseed oil is the standard biodiesel feedstock. Although prices have been historically low, commodity prices can be volatile—as evidenced by the recent increase in the cost of corn. Feedstock prices account for more than half the cost of biofuel, so there’s only so much that production volumes and efficiency can do when corn or soybean prices spike.

But much like the thin-film and nanotechnology breakthroughs that may wean solar cells from silicon wafers and dramatically drive down solar energy costs, the biofuels industry has high hopes for so-called nextgeneration feedstocks. Although the project is still in the laboratory phase, biodiesel chemists see big potential in certain forms of algae that consist of 50% oil. GreenFuel Technologies in Cambridge, Massachusetts, for one, has raised more than $13 million in venture capital to develop its technology that harnesses algae to produce biofuels from power plant emissions.

Ethanol refiners are working on producing cellulosic ethanol from agricultural waste products such as rice straw and vineyard prunings, a process that analysts say could bring ethanol prices down below $1 a gallon. Switchgrass is a fibrous, fastgrowing perennial native to the Great Plains that could challenge corn for ethanol production. “Harvesting basically means you just mow it every year,” says Bowen.

BACK TO THE FUTURE

With so much activity taking place in the biofuels sector, you’d think that the concept was relatively new. But not so. “The use of vegetable oils for engine fuels may seem insignificant today,” said one innovator. “But such oils may become in the course of time as important as the petroleum and coal tar products of the present time.” Sound like a clean-tech futurist of 2007? Actually, it was Rudolf Diesel, the father of the diesel engine, speaking back in 1912.

One of the transportation sector’s other great legends, Henry Ford, also believed that the future of energy and materials would come not from petroleum but from plant-based materials. Both Diesel and Ford believed strongly in the connection between energy security and local, home-grown solutions. Now, nearly 100 years since the introduction of the Model T, their visions are starting to come true.

Diesel’s first engine, demonstrated at the World Exhibition in Paris in 1900, was actually developed to run on peanut oil. Diesel believed the future belonged to a range of biofuels that could be locally harvested by farmers to fuel their machinery and tractors, not petroleum. Ford possessed a similar vision: He dreamed of manufacturing cars made of plantbased materials that ran on plant-based fuels. The Model T, the first mass-manufactured car, was introduced by Ford in 1908 to operate on both ethanol blends and gasoline.

“The fuel of the future is going to come from fruit like that sumac out by the road, or from apples, weeds, sawdust—almost anything,” Ford said in a New York Times interview in 1925. “There is fuel in every bit of vegetable matter that can be fermented. There’s enough alcohol in one year’s yield of an acre of potatoes to drive the machinery necessary to cultivate the fields for a hundred years“. Ford’s support and interest in bio-based fuels, along with others in the auto industry, culminated in the “chemurgy” movement of the 1930s.

Conferences were held throughout the country in support of agriculture, industry, and science to promote the use of plant-based alcohol fuels and materials. In Europe as well, ethanol fuels were popular during the 1920s and 1930s. It was used as an octane booster at levels ranging from 10% to 30% in Denmark, France, the United Kingdom, and other European nations.

Two key developments, however, changed the course of history, putting biofuels onto the back burner. First, oil remained relatively inexpensive throughout most of the twentieth century, making it difficult for ethanol and biodiesel to compete. In most cases, ethanol and biodiesel cost more than the prevailing cost of gasoline and conventional diesel. Second, in the 1930s, there was a battle in the United States between using lead or ethanol as an additive in motor engines to reduce the knocking in engines. The federal government and industry put their influential weight behind leadbased additives for more than 50 years, rather than ethanol. It wasn’t until after 1987, when lead additives were banned because of their high toxicity, that ethanol reemerged as a viable option.

But today’s promise of a biofuels and bio-based plastics boom has much more solid footing—and provides some important points of differentiation from the past. The reasons are varied: the inexorable rise of the cost of oil; the national security costs involved in relying on volatile foreign sources of energy; technological breakthroughs in the efficient production of biofuels and biopolymers; and a growing worldwide agri-tech movement that aims to wean nations off depleting oil supplies. Most important, biofuels have reached the realm of the clean-tech holy grail: They’re beginning to compete on a pure cost basis at the consumer level. Ethanol, is now cheaper than gasoline in the world’s most dynamic ethanol market, Brazil, and biodiesel is cheaper than conventional diesel in the world’s largest biodiesel market, Germany.

~RON PERNICK and CLINT WILDER~