Want to cut reliance on foreign oil? Replace the whole barrel

Many people know about first generation biofuels – ethanol and biodiesel
that are blended into gasoline or diesel fuel in limited quantities.
But what may be surprising is that technologies also exist today that
can convert a variety of agricultural products – including sugar, wood,
and agricultural waste – into bio based products that can replace over
90 percent of a barrel of oil, including the chemicals used to make so
many consumer goods we use every day. On Wednesday, Secretary of
Agriculture Tom Vilsack toured our company, Virent’s, facility in
Madison, Wisconsin to see firsthand how these innovative technologies
are creating sustainable bioproducts’ solutions.

So, if the technology exists, why aren’t biorefineries already a reality? The challenge is scale and cost. Companies need to build biorefineries producing volumes that are competitive with the existing global refining sector, and this means we need access to low cost capital. The capital required to deploy a commercial scale biorefinery is at least an order of magnitude higher than the cost of technology development or demonstration – and beyond the investment capacity of venture capital. Private lenders are likewise unlikely to offer low cost debt to finance first of its kind, innovative technologies, and even tax equity investors can be put off by the on again, off again nature of government policy.

Compounding these issues is a unique hurdle to biorefineries – significant commodity risk on both sides of the value chain. On the input side, there is volatile pricing for commodity feedstocks and uncertain pricing and availability of cellulosic feedstocks. On the output side, biorefineries must compete against refined crude oil prices that vary considerably by product and region.

{mosads}This is why government can and should play a role, guided by three principles. First, private investors need to know that policy and incentives will be around long enough for them to recoup their investment, and so regulatory and tax policy must be stable. Single year extensions of tax incentives do little to bring private investment for manufacturing capacity off the sidelines. Second, technology is always evolving, so policymakers should avoid carve outs for specific technologies and instead select broad performance criteria that align with national policy.

In the case of biorefineries, these could include energy density of products, compatibility with infrastructure, and environmental standards related to water use and greenhouse gases. Third, governments make billions in purchases every year and should use this purchasing power to drive markets in ways that help achieve national goals. The USDA BioPreferred® program, which has certified cost competitive biobased alternatives to more than 500 products, is one successful model.

There is no doubt imported oil presents both a challenge and an opportunity for the United States: a challenge because our security is threatened by countries upon which we are dependent for the fuel that runs our economy; and an opportunity because U.S. agricultural resources and our strength as innovators can be leveraged in efforts to be globally competitive as a nation and create sustainable jobs that can’t be moved offshore. Taking steps to replace imported oil – and the whole variety of products derived from it – with domestic alternatives will help address this challenge while positioning us to capture long term competitive advantage. To our lawmakers I would say, this should not be a partisan issue, but a national imperative. This year we should all commit to helping ensure that during summer driving seasons to come, there will be a little less pain at the pump.

Edwards is the President and CEO of Virent Inc.

Tags Tom Vilsack

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