Tuesday, February 14, 2006

"Live Green Go Yellow"

The cynic within immediately thinks that the only reason there is a connection between GM and ethanol is because in some way there is a corporate quid pro quo. I can see the memo among the GM and ADM executives, something along the lines of, "we at GM will support the ethanol market while you at ADM purchase GM vehicles, promote GM vehicles, and create an ethanol blend that just so happens to run just right in GM vehicles, OK?"

Is this a poor perspective? Perhaps, but I am sure there have been high level conversations about market potential, it just makes business sense.

I suppose the timing is just right, considering President Bush's comments in his
State of the Union Address January 31st,

"...America is addicted to oil, which is often imported from unstable parts of the world. The best way to break this addiction is through technology. Since 2001, we have spent nearly $10 billion to develop cleaner, cheaper, and more reliable alternative energy sources -- and we are on the threshold of incredible advances.

So tonight, I announce the Advanced Energy Initiative -- a 22-percent increase in clean-energy research -- at the Department of Energy, to push for breakthroughs in two vital areas. To change how we power our homes and offices, we will invest more in zero-emission coal-fired plants, revolutionary solar and wind technologies, and clean, safe nuclear energy. (Applause.)

We must also change how we power our automobiles. We will increase our research in better batteries for hybrid and electric cars, and in pollution-free cars that run on hydrogen. We'll also fund additional research in cutting-edge methods of producing ethanol, not just from corn, but from wood chips and stalks, or switch grass. Our goal is to make this new kind of ethanol practical and competitive within six years. (Applause.)

Breakthroughs on this and other new technologies will help us reach another great goal: to replace more than 75 percent of our oil imports from the Middle East by 2025. (Applause.) By applying the talent and technology of America, this country can dramatically improve our environment, move beyond a petroleum-based economy, and make our dependence on Middle Eastern oil a thing of the past. (Applause.)"

Capital just so happens to avoid risk. If the federal government provides generous subsidies for the production of corn-based ethanol, it will attract investment. Of course, the long-term risk is that the subsidies will go away before the industry stands on its own two feet, which could then scare off the investors. The wind power and photovoltaic industries have struggled with similar on again/off again government support. We shall see how long the money flows.

GM Promotes E85 "Flex-Fuel" Vehicles

The World Business Council for Sustainable Development posted the news of GMs new campaign promoting the E85 vehicles. There are also numerous ads from companies like ExxonMobil, BP, Ford, Toyota, etc. promoting their commitment to reducing GHG emissions. These companies either supply petroleum products, a diminishing resource, or rely on their inexpensive and ready availability. It is in their economic best interest to change their message. In the case of the petroleum companies, they are rebranding themselves as energy companies, or at least emphasizing that small component of their businesses. They need new markets to develop and new products to manufacture and sell. Guess what? It's a good thing. They have the capital and the expertise. Take the hundreds of billions of R&D dollars and sink it into renewables and see how quickly there are solar cells dotting suburbia and and wind turbines dotting the landscape.

The domestic automobile companies are reacting to higher gasoline prices and competition from abroad. Efficiency matters.

Some news from the European Commission on biofuels,
Commission Urges New Drive to Boost Production of Biofuels

The Economist just so happens to have made a mention of ethanol, especially in the wake of President Bush's State of the Union Address.

Life after subsidies
Feb 9th 2006 - From The Economist print edition

A much-maligned alternative to oil comes of age

IT MUST rank as one of history's unlikelier conversions. President Bush is an oil man from Texas, and a reformed heavy drinker. But in his recent State-of-the-Union speech, the president declared that America is “addicted to oil”, and trumpeted the virtues of ethanol—an alcohol-based fuel. The virtue of ethanol is that it can power “flex-fuel” cars that can run on either petrol or alcohol. Mr Bush says he wants a vast expansion of the country's tiny ethanol industry. In particular, he wants “cellulosic ethanol”, prepared using an advanced technology, to become commercial within six years.

Will it happen? Ethanol will not replace oil anytime soon, but Mr Bush nevertheless has put his finger on something big. This once-sickly, over-subsidised industry is brimming with optimism.

America has traditionally made ethanol from corn. Alas, this is much less efficient than Brazil's sugar-cane ethanol or that using the cellulosic method. But the farm lobby's power means that America doles out billions in subsidies to corn ethanol—and imposes tariffs on imports of the greener, cheaper Brazilian variety.

High oil prices, government support and the promise of new technology have led to a veritable boom in production of American-style ethanol. Several billion dollars of investment led by agribusiness giants such as Cargill and Archer Daniels Midland are going into new production plants for corn ethanol. Daniel Kammen of the University of California at Berkeley argues that corn ethanol is not as bad as it seems: using it releases less greenhouse gas than burning petrol, he calculates, and its spread helps develop infrastructure for the much greener ethanol that should come onto the market in a few years' time.

But the biofuel to watch is cellulosic ethanol. It is made efficiently using powerful catalysts and enzymes to speed up natural processes. And it does not rely on valuable crops: it can use waste products such as straw, corn stalks or agricultural debris. Royal Dutch Shell has a joint venture with Canada's Iogen which plans to open a commercial plant by 2009. DuPont and Genencor, a biotechnology firm, are also busy developing better catalysts.

The best reason for optimism is the arrival of entrepreneurial capital. Paul Allen and Bill Gates, co-founders of Microsoft, have both made recent (but unrelated) investments in ethanol firms. Richard Branson, a British airline boss, has jumped into the fray with Virgin Fuels, a new firm that vows to invest $300m-400m in ethanol over three years. Vinod Khosla, a venture capitalist at Kleiner Perkins, has also put his own money into start-up firms developing cellulosic ethanol and speaks with the zeal of a convert: “Bush is too cautious, it can take off much sooner than six years!” Perhaps. But will that mean an end to subsidies? Don't count on it.

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