Transitioning to a Global Bio-economy
Philip New, CEO BP Biofuels speaks at the World Biofuels Market 2012
Speaker: Philip New, CEO BP Biofuels
Speech date: 14 March 2012
Venue: World Biofuels Market 2012
Speech date: 14 March 2012
Venue: World Biofuels Market 2012
Thank you very much – it is always a privilege to have the opportunity to address what now must be the world’s leading global biofuels forum.
To start, let me briefly - very briefly - give you an update on where we are as a company and then I will move on to the most important topic for today.
Since I was in this room 12 months ago, we have taken a big step in Brazil with the acquisition of three modern mills. We were the first oil company to get into cane ethanol production, and today are the only oil company to own and operate cane ethanol mills. This is a position which gives us a lot of options to grow further; to expand existing assets, buy brownfields or build greenfields. It is a position which, for the first time, really puts BP Biofuels on the radar screen of our Group’s rich portfolio of operating businesses. No longer are we just an investor and JV (joint venture) partner. We are now an owner-operator, with a long-term view.
Because this is a long-term play. We started in 2008. We spent two years learning the business, convincing ourselves that we can operate these assets safely and reliably before we started the current phase – investing to grow, and leveraging this hard won operational experience not only in Brazil, but across the rest of our biofuels portfolio. Here in Europe, and after five years of planning, investment and construction, we will see the Vivergo asset in Hull open in a few months. A truly world-scale facility, not only producing about a third of Britain’s ethanol needs, but also enough animal feed to nourish roughly 18% percent of the UK dairy herd.
Because this is a long-term play. We started in 2008. We spent two years learning the business, convincing ourselves that we can operate these assets safely and reliably before we started the current phase – investing to grow, and leveraging this hard won operational experience not only in Brazil, but across the rest of our biofuels portfolio. Here in Europe, and after five years of planning, investment and construction, we will see the Vivergo asset in Hull open in a few months. A truly world-scale facility, not only producing about a third of Britain’s ethanol needs, but also enough animal feed to nourish roughly 18% percent of the UK dairy herd.
In the States, we have made great progress towards bringing cellulosic ethanol to commercial reality. In Highlands County, Florida, we are growing energy cane on almost 2000 acres as we speak. This crop should yield 3-4 times more ethanol per hectare than corn. We have started the development of our second and third facilities. We are developing new strains of energy grasses, new yeasts, new enzymes, new pre-treatment protocols, new harvesting techniques, new relationships with local farmers. We are integrating through the value chain, leveraging our position as the only truly vertically integrated player in the business. And we will have supplies of cellulosic ethanol available in London to fuel some official vehicles at the Olympic Games.
But this is another long term play. Having started investment in the wake of the energy and security act in late 07, our first commercial scale plants are only likely to arrive over the next couple of years.
Finally, we are equally convinced that new, better biofuel molecules have a very important role to play. With our partners at DuPont, we have been developing a commercially-robust production pathway for bio-butanol, a great refining blend component, and a real answer to the blendwall dilemma. This has demanded not only a profound understanding of fuels, but truly innovative biotech and process engineering, with an extensive and very robust IP (intellectual property) portfolio to go with it reflecting the fact that we started working on this 2004. It has been a long game, an ambitious project, requiring courage and investment stamina.
But this is another long term play. Having started investment in the wake of the energy and security act in late 07, our first commercial scale plants are only likely to arrive over the next couple of years.
Finally, we are equally convinced that new, better biofuel molecules have a very important role to play. With our partners at DuPont, we have been developing a commercially-robust production pathway for bio-butanol, a great refining blend component, and a real answer to the blendwall dilemma. This has demanded not only a profound understanding of fuels, but truly innovative biotech and process engineering, with an extensive and very robust IP (intellectual property) portfolio to go with it reflecting the fact that we started working on this 2004. It has been a long game, an ambitious project, requiring courage and investment stamina.
We are now within sight of our goal. BioButanol, made at our demo facility at Hull, will also be available at the Olympics. We aim to have a retrofit package to offer to ethanol producers by 2014 – initially based on corn starch - giving the whole industry the opportunity to manufacture this higher-value fuel product.
This is a fourth example of a long-term play - eight years so far.
BP is committed to biofuels. We could go on and on about the progress, but my main point is that biofuel investment is long-term, and requires a stable investment climate. The technology we and others are developing is important, but getting the right backdrop for investment is even more important.
In Europe there is a challenge to the consensus we need for a stable investment climate. This challenge has emerged from biofuels sceptics and anti-biofuels activists. They have focused on building perceptions of biofuels done badly – whether through highlighting very specific cases, or producing speculative hypotheses. Unfortunately, the entire sector has been painted with this brush. As a consequence, anxieties are established which seemingly cannot be addressed. Our sector has not done enough to respond and to foster a moderate debate about - biofuels done well.
A competitive media environment has fanned the flames. Thus it is no surprise that regulators and elected leaders seem to be ambivalent about biofuels. And as a result of this ambivalence, the citizen in the UK and Europe is not at all clear of the role biofuels, or indeed, biomass, are playing or need to play in their energy future.
BP is committed to biofuels. We could go on and on about the progress, but my main point is that biofuel investment is long-term, and requires a stable investment climate. The technology we and others are developing is important, but getting the right backdrop for investment is even more important.
In Europe there is a challenge to the consensus we need for a stable investment climate. This challenge has emerged from biofuels sceptics and anti-biofuels activists. They have focused on building perceptions of biofuels done badly – whether through highlighting very specific cases, or producing speculative hypotheses. Unfortunately, the entire sector has been painted with this brush. As a consequence, anxieties are established which seemingly cannot be addressed. Our sector has not done enough to respond and to foster a moderate debate about - biofuels done well.
A competitive media environment has fanned the flames. Thus it is no surprise that regulators and elected leaders seem to be ambivalent about biofuels. And as a result of this ambivalence, the citizen in the UK and Europe is not at all clear of the role biofuels, or indeed, biomass, are playing or need to play in their energy future.
This is not a climate conducive to more investment.
I make the case that we as a sector must take a stronger role in reclaiming our narrative. We cannot abdicate that to social commentators and analysts.
Social License for biofuels
What is at stake is, in effect, the “social licence to operate” for the biofuels sector. The “social license to operate” is not the same thing as having a legislative mandate, like the RED (Renewable Energy Directive) in Europe or RFS2 (Renewable Fuel Standard) in the US. Mandates and even more so, subsidies are always vulnerable to short-termist political will. The best defence for mission critical legislation or regulation is that it is underpinned by social acceptance. The social license exists when society has granted a form of long-term approval for the sector. It is not a formal piece of legislation. But it is the reflection of the beliefs of the community.
What elected leadership says about biofuels has a massive effect on what the ordinary citizen believes. What the regulators do has the most effect on the confidence of the investor. And in the case of the biofuels sector, elected leadership, particularly in Europe, appears ambivalent despite the fact that in the US, following the withdrawal of VEETC(Volumetric Ethanol Excise Tax Credit), and in much of the EU, biofuels are one of the few forms of energy to receive no direct subsidy from the tax payer. Without a settled view from the political and regulatory leadership, this sector will always be at best “grudgingly accepted”. So we have to be concerned about this.
What elected leadership says about biofuels has a massive effect on what the ordinary citizen believes. What the regulators do has the most effect on the confidence of the investor. And in the case of the biofuels sector, elected leadership, particularly in Europe, appears ambivalent despite the fact that in the US, following the withdrawal of VEETC(Volumetric Ethanol Excise Tax Credit), and in much of the EU, biofuels are one of the few forms of energy to receive no direct subsidy from the tax payer. Without a settled view from the political and regulatory leadership, this sector will always be at best “grudgingly accepted”. So we have to be concerned about this.
What feeds this political ambivalence is an antagonistic polarizing of the debate. Polarization means “either you’re with us, or against us”. It makes it impossible to have a balanced discussion about how to do biofuels well. We never get to the positive consequences of doing biofuels well.
Most opponents make what is essentially an emotional case – which is precisely what makes it so powerful-about carbon, food, and costs. It goes like this:
First, take a single-component view. Assert carbon reduction as the only hook to hang biofuels on. That way, there is no other dimension to the scorecard.
Second, pick a starting point that is irreconcilable. In the case of biofuels, this would be ILUC(Indirect Land Use Change). Everybody can understand the theoretical appeal of ILUC as a concept, albeit one of massively broad application, and which therefore makes little sense as a policy measure when restricted just to biofuels. It is also still very uncertain as a concept and impossible to measure – to the extent that we now see disputes between econometric modellers reminiscent of the quarrels between medieval monks about how many angels can dance on the head of a pin. But ILUC has become a cause celebre, a weapon, because it’s used as the starting point for the discussion, and while it cannot be nailed, it endures as a source of doubt; this despite the fact that the rate of deforestation in Brazil1 has reduced at the very time when the cane ethanol industry was expanding most rapidly, and that the cultivated area in the US actually diminished at the time when we saw the greatest expansion of corn use for ethanol production2.
Third, food is seen as a higher priority for land use than fuel. Therefore – when we see millions of people go hungry it is easy to present a case that it is wrong to use land for any other purpose than the production of food.
And finally, Biofuels are claimed to be imposing extra cost on consumers, since it is often alleged that most biofuels cost more than the petrol and diesel they replace.
Little carbon reduction, competitive with food supplies, and at a higher cost. No wonder policy-makers and citizens gravitate to the “panacea” of electric vehicles. You will agree with me this argument is unbalanced and one-sided.
By creating sweeping generalisations from individual examples of biofuels done badly, by constantly invoking the precautionary principle, and appealing to emotion regardless of fact, the biofuels narrative has been positioned to undermine societal acceptance. The starting point for biofuels is not ILUC. It is our energy future. It is how we harness the precious few solutions that we have to deliver energy in a manner which is secure and affordable to the many, and a source of economic development, and helps us to mitigate climate change.
Where can we start? We can be pretty certain that the worlds demand for energy will increase, and that a significant proportion of that demand growth will be for energy for transportation. BP’s current outlook suggests that by 2030 the world’s demand for liquid fuels will increase by close to 20%, from 87mbd (million barrels per day) to 103mbd.
And from what we know of technology today, liquid fuels derived from biomass are the only credible large-scale alternative to crude in this critical application.
And finally, Biofuels are claimed to be imposing extra cost on consumers, since it is often alleged that most biofuels cost more than the petrol and diesel they replace.
Little carbon reduction, competitive with food supplies, and at a higher cost. No wonder policy-makers and citizens gravitate to the “panacea” of electric vehicles. You will agree with me this argument is unbalanced and one-sided.
By creating sweeping generalisations from individual examples of biofuels done badly, by constantly invoking the precautionary principle, and appealing to emotion regardless of fact, the biofuels narrative has been positioned to undermine societal acceptance. The starting point for biofuels is not ILUC. It is our energy future. It is how we harness the precious few solutions that we have to deliver energy in a manner which is secure and affordable to the many, and a source of economic development, and helps us to mitigate climate change.
Where can we start? We can be pretty certain that the worlds demand for energy will increase, and that a significant proportion of that demand growth will be for energy for transportation. BP’s current outlook suggests that by 2030 the world’s demand for liquid fuels will increase by close to 20%, from 87mbd (million barrels per day) to 103mbd.
And from what we know of technology today, liquid fuels derived from biomass are the only credible large-scale alternative to crude in this critical application.
The question then is, can the planet support this? What is our biomass potential, and how do we optimize this? How do we realize the potential of photosynthesis - for food and transportation, as well as heat, power and other outcomes.
Let me lay this out. According to the IEA3, global transport fuel demand is about 90 exajoules, representing 16% of total global primary energy demand of 550 exajoules. Each year, biomass primary production globally amounts to 4,500 exajoules.
Therefore, just a 2% increase in biomass productivity globally would be the energy equivalent of all current transport fuels. Of course this is from an IEA (International Energy Agency) model, not empirical data. But does position the scale of biomass potential in the context of global primary energy demand.
Based on studies carried out by the UK Energy Research Centre4 and Imperial College London5, sustainably harnessing between roughly one fifth and one half of current global primary energy demand from biomass could be possible with very little impact on existing agricultural land.
Let me lay this out. According to the IEA3, global transport fuel demand is about 90 exajoules, representing 16% of total global primary energy demand of 550 exajoules. Each year, biomass primary production globally amounts to 4,500 exajoules.
Therefore, just a 2% increase in biomass productivity globally would be the energy equivalent of all current transport fuels. Of course this is from an IEA (International Energy Agency) model, not empirical data. But does position the scale of biomass potential in the context of global primary energy demand.
Based on studies carried out by the UK Energy Research Centre4 and Imperial College London5, sustainably harnessing between roughly one fifth and one half of current global primary energy demand from biomass could be possible with very little impact on existing agricultural land.
We now know that enormous potential exists for increasing food production on existing arable land. For example, wheat yields vary from over 10 tonnes per hectare in parts of the UK, to below 4 tonnes per hectare across regions of Eastern Europe where the conditions are very good for growing wheat, and where much higher yields are possible6. Similarly, across most of Africa, wheat yields are below 2 tonnes per hectare, even though in many wheat growing regions the conditions could support much higher yields.
There are many other examples of where cropping yields and production intensity could be significantly increased. And efficient markets, efficient regulations, and technology developments can enable this to be managed sustainably.
Crop cultivation is highly responsive to practice and technology and policy. Agriculture developed over millennia, in a world that was seemingly limitless to our ancestors. But it can become much more efficient.
Crop cultivation is highly responsive to practice and technology and policy. Agriculture developed over millennia, in a world that was seemingly limitless to our ancestors. But it can become much more efficient.
Range of Solutions Intergovernmental Panel on Climate Change /UK Energy Research Centre
There is growing evidence that global biomass resources have the potential to provide more than quarter of all transport energy, without compromising food security for mankind or bio-diversity for the planet5.
We need to start with the idea of biomass potential. Then optimise that to deliver both food and fuel and fibre. That should be the basis of our social license to operate.
At BP Biofuels, we believe that the world needs to make the most of photosynthesis, sustainably and cost-effectively. For us, that means biofuels done well, as part of a bioeconomy that realizes the potential of biomass. And we can all point to what biofuels done well means. At the highest level it is its contribution to what development economists call resilience. Resilience both in global and in local terms.
We need to start with the idea of biomass potential. Then optimise that to deliver both food and fuel and fibre. That should be the basis of our social license to operate.
At BP Biofuels, we believe that the world needs to make the most of photosynthesis, sustainably and cost-effectively. For us, that means biofuels done well, as part of a bioeconomy that realizes the potential of biomass. And we can all point to what biofuels done well means. At the highest level it is its contribution to what development economists call resilience. Resilience both in global and in local terms.
Globally, diversity of energy sources builds resilience against the volatility of energy prices. Volatility which itself impacts agricultural production economics.
Locally, it means resilience for rural communities in developing countries, vulnerable to food stress and seemingly caught in a vicious circle of market failure, leading ultimately to depopulation and migration to rapidly expanding cities. Cash crops such as biofuel and other biomass can kick-start a local economy out of poverty, providing access to cheaper energy and generating the revenues and infrastructure that help establish local markets for goods and services, itself catalysing increased food production.
And there are plenty of other examples of what biofuels done well means: low cost, low carbon, sustainable and scalable. It means jobs – whether in the urban north east of England, or in rural communities. It means low carbon, whether through the way we can generate process power and crop nutrition from the leftovers of the production process from cane ethanol in Brazil, or through the effective use of by-waste, or sequestering deep rooted perennial crops that have the potential to offset more carbon emissions than reforestation. It means caring about direct land use change. It means active stewardship of the environment, maintaining ecosystem services. It means adopting and complying with the voluntary codes that have been developed by the industry – in many cases setting new standards for agriculture as a whole. I could go on. The point is that done well, biofuels are a force for good.
And we want to be a part of it, we want to invest in it, we want to help create it and shape it.
And there are plenty of other examples of what biofuels done well means: low cost, low carbon, sustainable and scalable. It means jobs – whether in the urban north east of England, or in rural communities. It means low carbon, whether through the way we can generate process power and crop nutrition from the leftovers of the production process from cane ethanol in Brazil, or through the effective use of by-waste, or sequestering deep rooted perennial crops that have the potential to offset more carbon emissions than reforestation. It means caring about direct land use change. It means active stewardship of the environment, maintaining ecosystem services. It means adopting and complying with the voluntary codes that have been developed by the industry – in many cases setting new standards for agriculture as a whole. I could go on. The point is that done well, biofuels are a force for good.
And we want to be a part of it, we want to invest in it, we want to help create it and shape it.
How do we make it happen? What we need, as any investor needs, is a clear and shared vision of the future, stable policy, clear regulations, clear expectations of us and the ability to make a competitive return on our investment.
What we worry about is that policy makers will, in effect, get the wrong end of the stick. That they will legislate on the basis of that polarizing opinion I mentioned earlier. We risk missing the priceless opportunity to develop a global energy resource which can contribute to food security, conservation and development. So perhaps we should spend less time debating the niceties of specific technologies – without denying the essential impetus provided by a healthy competitive spirit - and more on illustrating the bigger picture; how our biomass potential can be realized, and the practical policy that needs to be there so we can achieve that potential.
So, to summarize, the bottom line is that there is ample biomass potential to enable biofuels to be a meaningful part of transport energy and meet the world’s need for food without needing to stress biodiversity. The real question is how? Rather than be trapped in an emotional or a technocratic debate predicated on the notion of competition for finite resources, we should instead always be asking ourselves how do we do biofuels well. An alternative which denies the world the opportunity to harness photosynthesis for energy is something fraught with even greater dangers. Perhaps the first step on the way is for us to challenge ourselves on how best we reclaim our narrative.
What we worry about is that policy makers will, in effect, get the wrong end of the stick. That they will legislate on the basis of that polarizing opinion I mentioned earlier. We risk missing the priceless opportunity to develop a global energy resource which can contribute to food security, conservation and development. So perhaps we should spend less time debating the niceties of specific technologies – without denying the essential impetus provided by a healthy competitive spirit - and more on illustrating the bigger picture; how our biomass potential can be realized, and the practical policy that needs to be there so we can achieve that potential.
So, to summarize, the bottom line is that there is ample biomass potential to enable biofuels to be a meaningful part of transport energy and meet the world’s need for food without needing to stress biodiversity. The real question is how? Rather than be trapped in an emotional or a technocratic debate predicated on the notion of competition for finite resources, we should instead always be asking ourselves how do we do biofuels well. An alternative which denies the world the opportunity to harness photosynthesis for energy is something fraught with even greater dangers. Perhaps the first step on the way is for us to challenge ourselves on how best we reclaim our narrative.
SOURCES:
1. INPE (deforestation rates) and IBGE (sugarcane area)
2. USDA, Major Uses of Land in the United States, 2007, Dec 2011
3. IEA World Energy Outlook 2011, Nov 2011
4. UKERC, Energy from biomass the size of the global resource, Nov 2011
5. Science Insights: Meta-analysis of Biomass Potentials for Biofuel Production, Mark Akhurst, Nicole Kalas and Jeremy Woods May 2011
6. LCAworks analysis based on data taken from FAO FAOSTAT
1. INPE (deforestation rates) and IBGE (sugarcane area)
2. USDA, Major Uses of Land in the United States, 2007, Dec 2011
3. IEA World Energy Outlook 2011, Nov 2011
4. UKERC, Energy from biomass the size of the global resource, Nov 2011
5. Science Insights: Meta-analysis of Biomass Potentials for Biofuel Production, Mark Akhurst, Nicole Kalas and Jeremy Woods May 2011
6. LCAworks analysis based on data taken from FAO FAOSTAT
