Hopes Are High, As Are the Hurdles, for Alternative Fuel Ambitious Target Set for Biofuels, Which Have Yet to Be Economically Viable
Posted on: Sunday, 16 March 2008, 09:00 CDT
By Holly Hubbard Preston
Biofuel, a technology once championed by Henry Ford and Rudolph Diesel, is roaring back into public consciousness after almost a century of oblivion.
Among the factors contributing to its comeback are soaring oil prices, climate concerns and government anxiety over dwindling oil reserves. The combination has led more than 40 governments to enact biofuel consumption mandates that not only set annual targets for adoption but also provide tax incentives and subsidies to the companies supporting this emerging technology.
To varying degrees, it is working. As of 2007, WorldBioPlant.Com, a database service created to track biofuel development, reports that there were 954 biofuel plants - 386 biodiesel and 565 bioethanol - in 56 countries with a cumulative output capacity in excess of 43 billion gallons, or 163 billion liters. Dig down into who is helping fund such projects and big oil names like Royal Dutch Shell, BP and Chevron come up, as do automakers like Daimler, General Motors and Volkswagen who get tax credits for producing vehicles that can burn "green" fuel.
Retailers, a vital link in the chain, are also beginning to jump on board. Last month, a biofuel producer in the United States, VeraSun Energy, made a deal with Kroger, a leading U.S. grocery chain, to sell its 85 percent ethanol blend at 20 of its convenience store locations in Texas. The fuel, known as E85, is intended for the small but growing rank of flex-fuel vehicles capable of running on either conventional gasoline or on high-percentage blends.
That the deal was done in Texas, home of many of the biggest U.S. oil companies, is symbolic of the growing interest in and legitimacy of biofuels as an alternative energy source. Whether and when that interest will translate into big profit for makers of biofuel is harder to gauge.
Biofuels account for a minuscule part of the overall fuel market. Biofuel sales reached $25.4 billion in 2007 - trailing only wind power, at $30 billion, in the alternative space - and are projected to grow to $81.1 billion by 2017, according to Clean Edge, a research firm in Oakland, California. Alternative fuels of all types, including fuel ethanol and biodiesel as well as synthetic crude and fuels, accounted for only about 2.6 percent of total fuel output in 2006, according to data released by Goldman Sachs International at the end of last year. Even with continued government support, alternative fuels are not likely to exceed more than 5 percent of the market by 2015, Goldman said.
"Biofuels in this country are clearly supported by government policy and not economically viable on their own," said Marc Levinson, a senior commodities research analyst for JPMorgan. By support, Levinson is referring to the recently expanded U.S. Renewable Fuel Standard, which raised targets on biofuel consumption, including advanced biofuels - defined as cellulosic biofuels and biomass-based diesel - to 36 billion gallons by 2022.
In Levinson's view, there is "no way" the U.S. biofuels industry will be able to meet the targets. Levinson said he believed that the U.S. biofuel industry would either need to find more efficient ways of converting existing feedstocks into biofuel or turn to outside sources like Brazil, which is rich in sugar-ethanol but faces heavy U.S. import tariffs.
Brent Erickson, a former oil industry lobbyist and now an executive vice president of the Biotechnology Industry Organization, said he believed that the U.S. directive was not unrealistic: "It guarantees a market for biofuels" and is a "big risk reduction" for corporations and private equity that might want to invest. Erickson pointed to the Brazilian government, which adopted an aggressive biofuel policy mandate over 30 years ago. Today, some 40 percent of its total transport fuel comes from locally grown sugar cane turned into fuel for 75 percent of Brazil's total automobile fleet.
As a form of combustible fuel, commercial biofuels come in two primary forms: fuel ethanol derived from fermented plant sugars and starches, and biodiesel made from plant and animal oils converted into fuel.
Critics of biofuels contend that they contribute to higher commodity prices and encroach on food supplies and that their production processes deplete the environment.
Given the growing criticism, policy makers have become more conditional in their support. In February, several members of the European Union called for a review of the 1998 Fuel Quality Directive as a means of enforcing stricter environmental and sustainability standards on biofuel procurement and use within the bloc.
To Martina Otto, who heads the energy and transport policy unit of the United Nations Environment Program, the backlash against current-generation biofuels is neither surprising nor wholly damning.
"There are both positives and negatives to biofuels," Otto said. "There's a lot of research that still needs to be done."
Much of the debate over environmental hazards could be made irrelevant if promising advances in next-generation biofuels, which rely largely on nonfood biomass and waste matter, come to fruition.
Among the most promising is cellulosic technology, said Michael Tian, an analyst at Morningstar. Cellulose is a glucose generating complex carbohydrate found in the walls of plants. Technologies designed to extract cellulose from biomass from wood pulp, wheat stalks and algae are at the forefront of industry development.
Novozyme, a privately held Danish company, has discovered and is now replicating biomass-eating bacteria capable of breaking down cellulose quickly. Its technology is already in use by a number of ethanol concerns, including Abengoa Bioenergy, a publicly held biorefining subsidiary of Abengoa of Spain.
Xethanol, a small-cap company based in the United States, is transforming citrus waste into ethanol using both enzymes and yeast for fermentation. Last month, it broke ground on a pilot plant in Florida with the capacity to convert citrus waste into 500,000 gallons, or 1.9 million liters, of cellulosic ethanol a year.
Advanced fuel development does not end with cellulosic technology. Choren Industries, a privately held German company, recently teamed up Royal Dutch Shell to build what it calls the first dedicated biomass-to-liquid, or BTL, commercial plant. Choren, whose shareholders include Volkswagen and Daimler, makes a second- generation synthetic diesel fuel produced from biomass inputs including wood pulp and waste known commercially as SunDiesel. The fuel is compatible with both future as well as existing diesel engine technology.
Meanwhile, International Energy, a U.S.-based company, is producing biofuels derived directly from the photosynthesis of green microalgae, which it claims can accumulate up to 30 percent of their biomass in the form of valuable biofuels.
Most of the publicly traded companies in the sector, including International Energy are penny stocks. Among them: Allegro Biodiesel, Kreido Biofuels, Earth Biofuels, Pure Biofuels and Green Star Products.
And like most penny stocks, the risks are upfront. As International Energy, a 10-year-old company acknowledged in a recent filing with the U.S. Securities and Exchange Commission, "Our early stage of development makes it difficult to evaluate our business and prospects."
Originally published by The New York Times Media Group.
(c) 2008 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.
Source: International Herald Tribune
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