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Summary:

It takes an optimist to see bright spots in today’s biofuels industry. As Lux Research puts it bluntly in a new report on the future of biofuels, the industry “has plunged over a cliff amidst rancorous debate over its near-negligible carbon mitigation, competition for arable land, […]

It takes an optimist to see bright spots in today’s biofuels industry. As Lux Research puts it bluntly in a new report on the future of biofuels, the industry “has plunged over a cliff amidst rancorous debate over its near-negligible carbon mitigation, competition for arable land, and poor economics.” So where are the opportunities? According to analysts at Lux, they’re in niche markets, infrastructure and vehicle technology — not in boosting yields through gene tinkering or new processing techniques, where many companies have been focusing their efforts.

There’s a misconception among biofuel advocates, Lux finds, that “demand will exceed supply as soon as costs are competitive with fossil fuels.” That’s the same basic assumption that’s driving the solar industry’s quest for grid parity. So let’s say biofuels, in a best-case scenario, do reach that price point; if the vehicles that can run on ethanol and the infrastructure to deliver it to the consumer doesn’t exist, even competitive costs won’t be enough to spur much demand.

In a less optimistic scenario, which could very likely be the reality, the industry could suffer through a lot more bankruptcies before it discovers some of these opportunities. Corn ethanol company failures have become commonplace. While companies working with other feedstocks have fared better on the whole, some of them are also struggling. Changing World Technologies, which used agricultural waste and ranked among the so-called next-generation biofuel companies, filed for bankruptcy in March, and algae startup GreenFuel cut nearly half of its staff in January amid difficulty raising a third round of financing for its plan to capture carbon emissions with algae and then turn that into biofuel.

But surviving the collapse of corn ethanol and today’s financial markets is only where the hurdles begin for the biofuels industry. Lux research director Mark Bünger, lead author of the new biofuels report, explained in an announcement this morning:

“The problem is that there aren’t nearly enough filling stations and cars…that are capable of using the fuel. Without changes downstream in the current distribution infrastructure and end-use, ethanol’s growth will soon cease -– even if it’s given away for free.”

Bunger says that if every car on the road uses the max ethanol blend (a standard that ethanol backers have urged the EPA to increase) for every trip, demand still will not exceed 30 billion gallons per year for at least another 15 years. That’s not enough to support an industry that, according to Lux, is set to produce more than 10 billion gallons in 2009, and growing at an annual rate of 35 percent.

To improve their chances of surviving this glut, Bünger and his team think biofuel developers should work on commercial-ready products like ingredients for medicine, as well as carbon capture technology, which Lux expects to generate revenue “long before” the mechanics of fuel production are figured out. Algae startup Bionavitas, which still needs capital for a large-scale demonstration of its biorefinery technology, is taking this approach. It plans to sell equipment for not only biofuels, but also food-grade algae production, water remediation and carbon capture at power plants or heavy industrial sites.

  1. Ethanol in particular hasn’t fallen off any cliff. It’s a matter of national security that we ween ourselves from foreign oil. Ethanol is the answer. It appears we have a government that is promoting ethanol with its right hand (it is actively backing companies to make cellulosic ethanol) and condemning ethanol with its left hand (indirect land use studies). There is so much new technology out there that refutes all of Big Oil’s lies and rumors about the inefficiencies of ethanol. Sooner or later, our government will figure out that what its right hand is doing is the correct, ethical, and moral way to go. God Bless America!

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  2. [...] welcome news for the struggling biofuels sector (see our biofuel deathwatch map). As Lux Research put it in the middle of last year, the industry “has plunged over a cliff amidst rancorous debate over its near-negligible carbon [...]

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