Rise of the big, bad biofuel industry

Once heralded as a key source of energy that would ensure global carbon emissions were reduced, biofuels have failed to match the ambitions of their proponents in recent years. Not only have they not delivered the financial returns many investors hoped for, but they have also proven to be more polluting than expected.

The concept of transforming naturally-growing produce into fuel is one that excited many environmental campaigners. Seemingly sustainable and potentially limitless crops could be recycled into precious power, cutting the reliance of countries on environmentally damaging fossil fuels. However, while there are many types of produce that can be turned into fuel, they are not equally sustainable. Indeed, many crops that would have traditionally been used as food supplies – already a scarce resource in the world – have suddenly gained a growing and increasingly demanding new customer.

The good and the bad
People often talk of ‘first’ and ‘second’ generation biofuels when trying to delineate between those that are ‘good’ and those that are ‘bad’. First generation biofuels tend to be ones extracted from food crops, such as maize, rapeseed and soya, and have seen most of the investment over the last decade or so because of the yields of those crops. Indeed, such has been the enthusiasm for these biofuels that investors have poured $126bn into the industry over the last 12 years, according to a report by Bloomberg New Energy Finance (BNEF).

However, all this demand is putting an increasing strain on already under-pressure food resources. Many parts of the developing world suffer from a lack of food, and increased demand for crops from rich developed nations wanting a supposedly greener way of powering their economies is only making things worse. It results in farmers focusing their efforts on developing non-food crops for their wealthy new customers, while neglecting the food crops and reducing capacity.

In a 2011 article for The Guardian, Tim Rice, Biofuels Policy Advisor for climate change charity ActionAid, wrote that biofuels were forcing global food prices higher. He said: “The drive for more biofuels to fuel vehicles and power stations in rich countries is having another, more localised effect. Companies are scouring the globe for land to meet biofuel targets. There is simply not enough land in the rich world to cater for the new demand; where better to look than in the developing world, particularly Africa where land is supposedly abundant and cheap?”

The alternatives to food crop biofuels are known as ‘cellulosic’ biofuels, and are made from waste, tobacco, seaweed, and other wood and non-food plants. However, none of these resources have yet proven commercially viable, even if they don’t impact on global food supplies. Even so, regulators are increasingly pushing the industry towards these types of biofuel.

One of the most widely touted second-generation plants is jatropha, which Goldman Sachs named one of the best prospects for sustainable biofuel. Though resistant to drought and pests, and abundant, few companies have so far managed to regularly create fuel out of it.

As a result of these pressures, European policymakers recently announced a series of new limits on the use of first-generation biofuels. The European Parliament has said it will change the existing 10 percent minimum EU member states must use for energy transport. Instead, member states must now only use a maximum of six percent food-based biofuels in transport use.

However, many in the first generation biofuel market have criticised the move, claiming it will cause jobs to be lost and hit investors hard. Indeed, the corn industry has profited considerably from this increase in demand for its resources as a fuel, and any limit on what it can sell its crops for will have a serious effect.

Around the same time, US regulators announced their country would reduce its reliance on corn ethanol for its biofuels market to 14 billion gallons by next year. The US biodiesel market will soar by 40 percent over the next two years, according to BNEF. These targets, however, have been met with outrage from both oil producers and corn farmers in the country.

Indeed, the oil industry has been one of the biggest proponents of biofuels, with both BP and Shell investing heavily in developing the technology as a method of reducing their carbon footprints. However, in 2013 it was reported both companies had scaled back their investments in the technology because it was not economically viable, and wouldn’t be so until at least 2020. BP reportedly scrapped a $300m cellulosic ethanol refinery project based in Florida because it couldn’t find an efficient way of using jatropha to create energy.

New uses
Using biofuels to power cars is certainly gaining traction among US regulators. In May, the US Environmental Protection Agency set ambitious targets for the country’s auto-industry to start using biofuels over the next two years.

While there has been a great amount of pessimism in the industry in recent years, MIT Technology Review reports biofuels could be used to create carbon-neutral vehicles. Percival Zhang, Professor of Biological Systems Engineering at Virginia Tech, is reported to have developed a new method of breaking down complex sugars found in plants that could deliver fuel for hydrogen-powered vehicles. These sugars are currently broken down by fermentation, which is not as efficient as Zhang’s new method. While the technology is still at an early stage, the potential for creating energy for vehicles in a more efficient way than existing technology could give the industry a shot in the arm.

Elsewhere, companies wanting to generate fuel are putting tobacco to good use. According to The Economist, a partnership between South African Airways and Boeing is turning some tobacco seeds into jet fuel, which they hope will become commonplace by 2022. The partners are also allowing poor farmers who have suffered from the declining tobacco industry to reinvest their proceeds in food crops.

The biofuel industry is set to undergo considerable change in the future, but appears to be at a crossroads right now. Cellulosic biofuels are yet to prove reliable alternatives to crop-based methods, which many want phased out. Speaking to Bloomberg in 2013, BNEF analyst Robert Rodriguez Labastida said: “Growth opportunities for first generation biofuels are close to exhausted, while a series of next generation technologies are not quite ready.”

While they were once touted as a viable alternative to oil, biofuels have had an unforeseen impact on the environment and poorer parts of the world. Unless there is a dramatic shift towards cellulosic fuels in the coming years, the industry is unlikely to form a major component of the future global energy mix.