Triage process for selecting bio-economy projects, Part I

When I worked at FPInnovations as Research Manager for the Biorefinery program, I had a constant dilemma: Lots of good ideas, but never enough resources (time, money, staff) to explore them all.

John Williams, CEO of Domtar, is fond of saying about diversifying into the bio-economy that he's kissing frogs, hoping to find a prince. I think it's a great analogy, but you can kiss an awful lot of frogs and not get anywhere. Ensuring you have a decent selection of frogs to start with is critical. And you want to weed out the toads, which will only give you warts. So how to sort through all the frogs?

As manager, the frogs came at me from all directions. First and foremost, they came from the scientific and engineering staff at FPInnovations who were (and hopefully still are!) very curious, motivated people who are excited about moving new processes and product lines into the existing Canadian forest sector. I could count on at least one idea per hour from these guys. (OK, OK, I'm exaggerating. Maybe one a day.) Then there were the people employed by forest sector companies, who are overworked and who are constantly approached by start-up firms with a great idea that just needs some cash. Finally there were ideas from university professors, government labs and funding agencies, conversations and presentations at conferences, etc. It can all be a bit overwhelming, and I gather from ongoing conversations with people in the field that it remains challenging.

So are you awash in frogs? Worried you might be stuck with a bunch of toads? I thought I'd outline some of the approaches I developed in partnership with colleagues. Initially the point of view was that of a not-for-profit research institute, but I have tried to rewrite it here so it could also be used by a government agency, a for-profit industrial player, or anyone else interested in evaluating which frogs to kiss.

The overall approach, which led to the LignoForce lignin extraction plant at West Fraser's mill in Hinton, Alberta, involves picking a Plan A (selected by triaging a broader set of ideas), then focusing on delivering. A couple of backup plans (Plan B and C) should be identified in case Plan A falls through, but should only take a small portion of the overall effort. An initial list of criteria for the triage process follows. Note that not all points need to be addressed in detail for all projects, but you should skim through to make sure there isn't a deal-breaker lurking in there somewhere.

Fuels versus value-added 

In my view, the first step is to separate bio-fuels and bio-energy projects from pathways leading to platform chemicals, materials or intermediates that are presently made from petroleum. Hauling wood out of the bush and turning it all into fuels, without a concurrent value-added pathway, is only really economic in very narrow circumstances or in the presence of the appropriate politically-supported carrots (renewable fuel standards) or sticks (carbon taxes). As a result, there are additional criteria for these projects which I will not get into here.

Technology

Do the claims seem reasonable from a scientific basis? Anything that appears to violate laws of thermodynamics or conservation of mass should be looked at with great skepticism. The same goes for paths that seem to ignore the basic chemistry of wood (or whatever your bio-based feedstock is).

Estimate the yield (kg of product per dry tonne of wood consumed). Equally important is what happens to the yield losses (residues). These numbers are essential for subsequent steps.

Evaluate the patent landscape. Are there existing patents out there? Can a deal be made to license the patents from the owners, and at what cost? If we are free to develop and operate this proposed process without infringing someone's patent, might there be an opportunity to build a patent position that would protect all this and give us an advantage? At what cost?

Markets

Most importantly, who would want this? Pushing a new product into the market is like pushing on a rope; far better to have some serious market pull.

Are you replacing an existing product or are you proposing something which is completely new to the world? In the first case you need to worry about incumbents; in the second, it is a major challenge to convince someone with an existing profitable product line that he needs your new material.

If you are proposing some form of drop-in replacement, what is the likely product quality compared with the incumbent? Is it better, the same, worse?

Assuming product quality is decent, what is the likely market in terms of tonnes (NAFTA, world-wide), and at what typical list prices? Given transportation costs and discounts you may need to offer to volume buyers, what is the likely mill-gate price? Will a further discount be needed to account for poorer (or different) product performance characteristics? If so, how big a discount?

At full scale, what percentage of this market would a new plant occupy? If the answer is a large number, you will need to consider what existing players might do to protect their turf (lower their prices, for instance, to drive you out of business). Sneaking into the market with capacity of 0.5% of world demand is safer.

Understand the incumbents: They have a lot to lose and may have sneaky ways to keep you out. Alternatively, in a market with several players, one may be interested in partnering as a way of keeping ahead of the competition. Monopoly markets have their own challenges.

Economics

Given the yields and process details, what are the likely operating costs (chemicals, energy, wood) per tonne of product? Start with variable costs; you'll need to consider fixed costs eventually, but if it doesn't work with your variable costs, no point in digging deeper. 

What are maximum possible gross revenues at steady-state and full-scale? Can you take a crude first pass at capital costs? From this, a crude first pass at internal rate of return (IRR) or Return on Capital Employed (ROCE) can provide some guidance. If it is poor even in an optimistic framework, can the technology be improved to be more effective? Sensitivity analysis to the major costs will show where opportunities might exist. Eventually a pro-forma showing revenue ramp-up over several years will give a more accurate estimate of payback time.

To be continued...

So far I have covered items where data analysis and research can lead to relatively hard numbers, with reasonably well-understood probabilities and risk factors. Next week I'll outline some approaches to risk factors which can't be so easily quantified in numerical terms, but which are equally important. Stay tuned! 

1st International Forest Biorefinery Conference

I attended the 1st International Forest Biorefinery Conference (IFBC), held in Thunder Bay, Ontario on May 9-10, 2017.

I've been to Thunder Bay regularly from about 2009 until my retirement in 2016, as the pilot lignin extraction facilities that I developed as a manager at FPInnovations were installed there and I had up to six employees onsite. The city is big enough, at over 100,000 people, that there is a critical mass of university and college campuses, government offices and labs, and industrial capacity to get things done, but small enough that everyone knows everyone else. So it was nice heading back to see old colleagues and partners.

It was also nice to see that this conference, organised by Lakehead University's Biorefining Research Institute, featured a broad selection of solid papers, not just from Ontario-based Ph.D. students and professors but also research institutes from Sweden, Finland, Belgium and the US, to name a few. Close to 150 attendees, including close to 50 presenters, made the trek to Thunder Bay. A few highlights follow.

Opening plenary sessions included reviews of the LignoBoost (Per Tomani of RISE Bioeconomy) and LignoForce technologies (Mike Paleologou of FPInnovations). In a later session, Kirsten Maki, also of FPInnovations, described the LignoForce pilot plant in Thunder Bay and installation of the full-scale plant at the West Fraser mill in Hinton, Alberta. I won't get into the details as I am biased -- the LignoForce system, developed by Mike and scaled up by Kirsten when they worked for me, is clearly better, but don't let that influence your decision as to which one to buy for your mill. (See my report on the 7th NWBC, here, for a description of the LignoBoost pilot at Backhammar, Sweden).

Michel Jean of Domtar described the company's move to novel products. Paper, specifically uncoated freesheet where they are a market leader, currently represents 50% of sales, but this is declining at 3% to 5% per year. He mentioned the need to move slowly into novel bio-products or risk failure, and stressed the importance of understanding the markets when doing so. That being said, they have four projects on the go, having triaged a much wider set of several hundred ideas:

• Cellulose nano-filaments made in the CelluForce plant at Windsor, Quebec. This joint venture with FPInnovations now has added investments from Fibria and Schlumberger. 
• Lignin, dubbed Bio-Choice lignin, from the LignoBoost plant at Plymouth, North Carolina. 
• The so-called 'super pulp' cellulose filament additive made in Dryden, Ontario.
• Compounding of lignin with commodity thermoplastics at Espanola, Ontario. 

Interestingly, while 75% of Domtar's manufacturing capacity is in the US, three of the four bio-products plants are in Canada. It is also nice to see a company of Domtar's size prepared to invest at this level, and one can only hope it pays off, if only to prod their competitors to boost their own spending on innovation.

Alan Smith, Director of Business Development at Avantium, described fast-moving developments in this growing company. The company has spun out its core YXY technology, for converting fructose to PEF, into a joint venture with BASF called Synvina. They have also developed a proprietary wood to sugars platform based on patented improvements to the classic high-acid, low temperature process exemplified by the old HCl CleanTech process and many others. The improvements are said to cover acid/sugar separation, material construction, and lignin de-acidification. (If getting sulfur out of lignin from kraft mills is important, I can only assume getting the chlorine out of lignin from a hydrochloric acid process will be no less so.) The process generates three streams (a C5/C6 sugar stream from the hemicellulose portion of wood, a glucose stream from the cellulose, and a sugar-free lignin). All three must be sold; this will be a recurring theme in the world of wood-to-sugars processes. He commented that the cost basis for the glucose will depend on the market value of the other products, which I assume means that the glucose will only be profitable if enough revenue is obtained from the other two streams. This will also be a recurring theme in this space. There are plans for an eventual plant consuming 300,000 to 400,000 dry tonnes of wood per year.

Finally, Avantium is working on a sugar to bio-MEG (monoethylene glycol) pathway which would allow sugar to replace both components in plastic bottles. The pathway is said to be much cheaper than traditional bio-MEG routes, and competitive with petroleum-based MEG. Their partnerships with customer-facing companies like Coca-Cola will ensure that the techno-economic analyses will be thorough. This is one to watch.

On the biofuels front, Jack Saddler of UBC covered pathways to biojet in the plenary session. Later, two entire sessions went into greater detail on various biofuels pathways. I won't cover these here; Jack admitted that kerosene is cheap and bio-jet only works, economically, because there are policy and other non-business drivers that overcome the poor economics. My feeling continues to be that wood in particular is too expensive to make into fuels, and that value-added products must be the route forward when wood is the feedstock. Fuels will come from any left-overs, not the reverse. And since the value-added pathways are more challenging, both technically and economically, this is where the effort needs to be.

A number of academic presenters, PhD students or their supervisors, described early-stage bio-chemicals and bio-materials pathways variously involving glycerol, pyrolysis oils, bio-carbon, PHAs and other intermediates. It is hard to say at this point which ones will do well, because success depends as much on luck or marketing approaches as on technical excellence. (The old folks among you will recall the VHS versus Beta battles.)

One thing is clear: pathways to aromatics remain critical if wood-to-sugars pathways are to be economically viable. Ludo Diels of VITO in Belgium described pathways from sugars (furans via glucose, or furfuryl alcohol via xylose) and from lignin. Low reactivity, high molecular weights and high polydispersity of lignin when compared to petroleum-based aromatics remain problems, according to Diels. An interesting way of looking at different molecules is on a plot of percent oxygen content versus percent hydrogen content, as proposed by Thomas Farmer [1]: petrochemical molecules are all along the x-axis (essentially no oxygen) while lignin and cellulose are to the left and up (lower hydrogen content, but more oxygen). In between are a range of oxygenated petrochemicals, for instance polyethylene terephthalate, (C₁₀H₈O₄)_n. The length and complexity of the track followed by various transformation processes from the proposed feedstock (petrochemical or biomass) to the proposed end product on this graph is an indicator of the difficulty of the process in terms of hydrogenation or de-oxygenation. Given this, going all the way from lignin to one of the BTX molecules is probably not necessary (or feasible), especially if you  are going to re-oxygenate to PET, so intermediate lignin products with new functionalities will be critical.

On the policy and analysis side, Cooper Robinson of Cap-Op Energy described the processes for getting Renewable Fuel Credits (RFS2) and for certifying a fuel under California's Low Carbon Fuel Standard (LCFS). These are here to stay, according to him, but the animosity of the current US government to the EPA may be a threat, at least to the RFS program. Other issues include how to allocate GHG emissions in the case of multiple products, where not all are fuels, and how to get credit for a bio-chemical that may displace a GHG-intensive petroleum-based pathway to an identical or similar molecule. This is a complex space where money can be made if the right accounting procedures are put in place.

Peter Milley, of Halifax Global and a graduate student at Queen's University in Kingston, Ontario, described policy issues in the context of his PhD thesis, which is related to commercially viable pathways to a forest bioeconomy. The Canadian track record is not pretty, with a range of relatively uncoordinated approaches, applied reactively rather than proactively and as part of a long-term strategic plan, and with little in the way of follow-up once deadlines expire. He offered the Finnish national bioeconomy strategy (click here) as an example worth reading, along with reports from the OECD (here) and EU (here). That being said, I would argue the Canadian approach has been far more effective than the large grants from the US Department of Energy; Canadian funding has generally gone to successful projects and has not gotten sucked into quagmires such as the KiOR or Range Fuels disasters. As a result, progress has been slow but has tended to generate better results per dollar of taxpayer money than in the US.

Unfortunately, the organisers had similar sessions scheduled concurrently and in parallel rather than sequentially, so that attendees were forced to choose which bio-fuels session, or which policy session, to attend. So I missed an entire policy session with some very interesting papers, as well as some biorefinery talks I would have liked to see. Hopefully this will be changed in future events. Apart from this quibble, the quality of the presentations and the breadth of expertise in the audience was a very nice surprise given the location, and I am hoping there will be a second edition in a year or 18 months from now.

Were you there? Do your recollections and analysis agree with mine, or do you have a different viewpoint? Did you see interesting presentations that I did not discuss? Drop me a note using the Comments box (for public use) or by e-mail (if you want your comments kept private): Tom (at) TCBrowne.ca.

References:
[1] T.J.Farmer, M.Mascal, Chapter 4: Platform Molecules, in Introduction to Chemicals from Biomass 2nd Ed., Wiley, 2014.

7th Nordic Wood Biorefinery Conference

I thought I had posted this but now I see it in the Drafts folder ... Apologies for the delay! 

I attended NWBC 2017 this week [March27-30 2017) in Stockholm. I've attended all but one of the previous six versions, and I am happy to say that this remains a well-focused opportunity to meet and interact with world-class actors in the field of wood-based biorefineries, without having to wade through endless crop residue presentations, or listen to VP Business Development types from dodgy little startup firms with huge promises but no content. Indeed the presence of solid industrial representatives means that there is a strong focus, not just on excellent science, but also on solutions which actually stand a chance of working in the real world where bankers want decent returns. While the location, which swings between Stockholm and Helsinki, ensures a Nordic focus, there were representatives from Central Europe as well as both North and South America, so it is truly international in scope. 

What follows is a hot-off-the-presses viewpoint, written in the lounge at Arlanda as I wait for my flight home; I gather the presentation material will be circulated soon, at which point I may come back and edit this to fine-tune my comments. 

Industrial viewpoints

Perhaps the best part of this conference in the past has been the strong participation by industrial representatives, and this time was no different. 

Niklas von Weymarn of Metsä Fibre described progress on the new mill at Äänekoski, Finland. This million-tonne per year kraft pulp mill will start off by generating 10% of its revenue from non-traditional products, with an eventual target of 20% or more. The Finnish political climate encourages reduced or zero fossil fuel consumption, so all onsite vehicles, for instance, will be electric and driven by the mill's sizable power surplus. More information, as well as links to real-time webcams showing construction progress, can be found by clicking here. 

Matheus Guimarães of Fibria described the very aggressive process the company is taking to diversify. They now have a joint venture with Ensyn and Ensyn's partner, Honeywell-UOP, for a commercial pyrolysis plant at the Aracruz pulp mill. The resulting oil will be fed to a conventional petroleum fluidised catalytic cracker (FCC) plant; given the deep sea port at Aracruz, this could be shipped almost anywhere. Low substitution rates mean that the oxygen content in the bio-oil requires little or no changes to FCC operation; the UOP partnership supports this view. In his view, replacing 3% of total FCC feed in the US would require 18 Modt/y of wood, an aggressive but not a completely unreasonable number. On the cellulose front, they have a joint venture with CelluForce, and a license for the CNF process developed by GL&V and University of Maine. Finally they are actively evaluating lignin precipitation processes. With their purchase of Lignol a few years ago, it is worth pointing out that three of their paths (Lignol, Ensyn, CelluForce) involve Canadian partners or technologies. 

LignoBoost process and uses of lignin

The week began with an optional tour of the LignoBoost pilot facility, which is hosted by the Nordic Paper mill at Bäckhammar, about 3 hours west of Stockholm by bus. This is a process for removing lignin from kraft black liquor through acidification and precipitation, and competes with the LignoForce process developed by the FPInnovations biorefinery team when I was research manager there. (I'll save the details of the differences between the processes for another day, but in my admittedly biased view, the LignoForce system offers some major benefits). 

Back at the conference, Henrik Wallmo of Valmet described progress on two fronts. The first was odor; he claimed that the main source of odour in lignin is guaiacol, which, unlike various reduced sulfur compounds, cannot be removed by washing. A patent pending approach, which reduced guaiacol content in lignin from 1.42 mg/kg to 0.04 mg/kg, is in the works. Valmet also offers its customers access to a range of product development activities with players such as VTT or RISE. 

Tiina Liitiä of VTT described the LigniOx process (for oxidising lignin) which leads to a concrete plasticizer which is said to perform much better than either ligno-sulfonates or kraft lignin. Hanne Wikberg, also from VTT, described making a more reactive lignin for phenols in resins for plywood, but the cure times presented (15 minutes in the best case) seem long to me compared to a classic petroleum-based PF resin. The comparison presented was with LignoBoost lignin, which is not really the true competitor. 

Many papers described lignin depolymerisation processes, but it doesn't look like any of them are going to be economic anytime soon. Processes described included electrochemical approaches and solvents of various types (including deep eutectic solvents). At least one presenter admitted that the added cost associated with his process may not be recoverable in terms of a probable increase in sales price.

Carbon Fibre from lignin

There was enough on this topic to warrant a separate heading. 

A number of years ago, Oak Ridge National Laboratory in Oak Ridge, Tennessee, did some pioneering work in this area. RISE appears to have taken up the torch here, and Darren Baker described current state of the art. The primary issue, in his view, is the need for a sufficiently high-quality lignin as a feed -- everything else will work out fine if this can be addressed. Purity levels of 99.8% or better are needed, which is likely to be expensive; but with PAN representing half the €20/t production cost of carbon fibre, there is a lot of room to manoeuvre. In private conversations with a range of people, I got the impression that estimates of future growth in the area range from 2X to 10X or more over the short term (3-5 years). This is worth watching, in my view, but the volumes are not going to save the pulp industry -- today, any one of the three operating lignin plants could probably meet close to 100% of world demand for carbon fibre with capacity to spare, if the quality was there. 

Bio-Fuels

Also at Bäckhammar, Joseph Samec of Renfuel described their lignin-to-biocrude process which is piloted onsite. Using an esterification process, lignin is linked to a fatty acid (provided by tall oil in the typical pulp mill) to make a liquid that is soluble in hexane. This can apparently be deoxygenated and hydrotreated in conventional petroleum refineries.  

Once back in Stockholm, Valeri Naydenov of SunPine described their bio-Diesel process which is in operation just down the road from the SCA pulp mill in Piteå, Sweden. While the process initially consisted of a fatty acid methyl ester (FAME) process applied to tall oil, today they convert most of the tall oil into a fuel precursor for conversion to a hydrocarbon in the Preem refinery in Gothenburg. The process involves some distillation and other steps, but no longer relies on FAME processes. The plant makes 100,000 tonnes of this so-called RTD liquid per year, enough to provide 2% of the total Swedish demand for Diesel. The process also makes about 50,000 tonnes of a bio-oil that is burned by the pulp mill (presumably in the lime kiln), and is being converted to make an additional 24,000 tonnes of tall oil rosins for value-added products. I recall the SunPine folks and the representative of Arizona Chemicals engaging in some barbed exchanges at past editions of NWBC as well as the old Solander series of meetings in Piteå; it seems that SunPine is doing well and perhaps moving into Arizona Chemicals' turf. 

Tom Granström of St1 Biofuels described their softwood-to-ethanol process. The parent company, St1, operates a petroleum refinery and a chain of retail gasoline and Diesel stations in Finland, Sweden and Norway. The demonstration plant, costing €40M, produces 10 million litres of ethanol per year at the former UPM mill site in Kajaani, Finland. The approach is relatively standard: steam explosion, enzymatic fermentation and fermentation. Lignin is burned for heat and power. No comments were provided on the enzymatic process which has proven difficult on softwood, as is the case here: the feed will be a mix of spruce and pine sawdust. The next step, a 50 million litre plant costing €150M, will include value-added uses for lignin. This is likely to be a challenging task; so-called biorefinery lignins will include a lot of other material such as remains of enzymatic or fermentation organisms. To be continued... Granström claims there is enough sawdust in the Nordic countries, combined with Germany and Austria, for annual ethanol production of 579 million litres. Policies play a major role here. 

Marie Anheden of RISE reported on a lignin to jet fuel process. Lignin is removed from black liquor by membrane-based ultrafiltration, then the permeate is depolymerised using a hydrogenolytic process. This all seems like an excessively complicated process, leading to low yields and possibly high contaminant levels. Lignin cost is said to be the largest component, although numbers were not provided.

Overall, biofuels still have a future in Sweden, and perhaps in Finland, due to political considerations that are absent in other jurisdictions. In a conversation with Joseph Samec of Renfuel over lunch, he agreed that this works in Sweden, which has a very strong political commitment to a fossil-free future, but may be less effective elsewhere. The Swedish policy approach is supported by political parties of all stripes, so is unlikely to change as elections lead to swings from liberal to conservative and back. Meanwhile, back in the USA, the future of the Renewable Fuel Standard is looking increasingly tenuous...

Cellulose and derivatives: Nano, Micro, Macro

Eva Ålander of RISE, the former Innventia, described in some detail their micro-fibrillated cellulose (MFC) process. This includes 2-stage refining with an interstage enzymatic stage; the final freeness is SR 80 or about 55 CSF, so energy levels are likely to be high. In an economic analysis of the use of this MFC as a wet-end additive, MFC production costs estimated at €794/t led to reductions of 5% to 10% in board production costs due to increased filler and lower grammage at constant strength, both contributing to reduced BKP consumption. Addition rate of MFC was 5%. This was all fine but it was mentioned that it is difficult to ship this material, as it is a very viscous liquid even at 4% concentration; the suggestion that every paper mill should invest in its own MFC plant is not really realistic in my view. On the other hand, RISE has a mobile unit, consisting of a pair of 40-ft containers, which can produce 100 kg/h, so machine trials are relatively easy, at least for Nordic mills.

Sugar production and use

The usual approaches to sugar extraction and use were presented. This remains challenging when the feedstock is wood, in part due to yields, and uses of lignin are more important in my view -- these will be lignin plants with sugar byproducts, not the reverse. The uses of lignin are described above. In terms of sugar production and uses, Florence Gschwend of Imperial College London described an approach with ionic liquids; Matti Siika-aho of VTT described an approach using recycled construction waste; all face the usual yield, quality and economic issues facing any other wood to sugar process. None, in my view, represent a game-changer. Mother Nature still makes this challenging.

A range of people also suggested the usual soda or organosolv processes, but again the probability of anyone building a full-scale soda or organosolv plant, if the main product is sugar, is pretty low in my view.

Among the more interesting approaches to using sugars, once you've made them, was a catalytic process from glucose to FDCA described by Juha Linnekoski of VTT. This is claimed not to require fructose, as does the Avantium process; it is also claimed that production costs for FDCA can be below €1000/t. This is thus worth looking at in greater detail, although the underlying sugar price was not broken out. The preprints include a full paper and I will read, review and report at a later date.

Of course the FPInnovations TMP-Bio process, described by Luis Fernando del Rio, is a winner in my view, but then my name is on the patent, so of course you may consider my viewpoint to be somewhat biased.

Summary

So, there you have it. Were you there? Do your notes differ from mine? Did you pick up an added bit of detail I missed? Drop me a line using the comments box, or privately at tom (at) tcbrowne.ca.

8th NWBC

This will, as usual, be hosted by VTT in Helsinki. Mark your calendars for October 23-25, 2018, at the Scandic Marina Conference Centre just around the corner from the fish market. Unfortunately, the garlic restaurant on Frederikinkatu at Uudenmaankatu is closed, but there are plenty of other opportunities for fine dining in Helsinki, including the brew pub which has replaced said garlic restaurant. See you there!

Government policies and the bioeconomy

Policy stability is a critical component of building any kind of industrialised society. When evaluating a proposed investment into a new plant, bankers and other investors all want to see a detailed business plan, with a decent proforma over 20 or 30 years, showing capital repayment and eventual profits. This is especially true in capital-intensive industries. A key part of policy stability is stable taxation rules.

When governments change, even in swings from one extreme of the political spectrum to the other, the incoming finance minister or treasurer will usually be very careful about making sudden, sweeping changes to taxation policy, even if the party campaigned on the flaws of current policies. Any changes made will be gradual, and will be telegraphed well in advance through conversations with business leaders and the press. Stability here is absolutely critical to preventing capital from moving elsewhere. 

The current uncertainty around Renewable Fuel Standards (RFS) in the US, and around carbon pricing in general world-wide, is a major obstacle to the development of a bio-fuels industry. New governments will tread carefully around taxation, but see no problem making radical changes to carbon pricing policies early in a new mandate. 

Why is this? One reason is that carbon pricing is driven by environmental considerations, not the views of Treasury or Finance people. The folks at Environment have their hearts in the right place, but one's position on the environment is more of a visceral reaction ('right', 'wrong'), while Finance is run by accountants and economists with a basic set of rules to go by - 'right' and 'wrong' don't come into it, it is all supposed to be a science. (I am aware of the science which shows that climate change is real and man-made; I am also aware that many do not consider economics a 'science'. I am making the point that one's response to environmental issues is more likely to be emotional, and tied to one's political affiliation, than one's view of the tax act.)

In public, large players in the petroleum and petro-chemicals industries will applaud carbon pricing schemes, and will imply that the adoption of these schemes will accelerate the implementation of novel bio-products. The reality is that the only business plans that depend on carbon pricing come from start-ups. Large industrial players want a business plan that works under current taxation rules (which they assume will remain stable even with a radically new administration) but with no benefits assumed from carbon pricing (which they assume will NOT remain stable from one administration to the next).

To be fair, a more subtle and perhaps more realistic view is that business wants stability. Whether that involves carbon pricing or not is immaterial; what matters is that once it is decided and implemented, it can be incorporated in a proforma that you can take to the bank, with a reasonable expectation that it will remain stable over 20 years. 

What needs to be done? Make carbon pricing part of the tax act, and give it to the bean counters at Finance to manage. Make it simple but effective; base it on solid accounting procedures; make sure it is revenue neutral by clearly identifying other changes to the tax act that will compensate; most importantly, build on the idea of new jobs, generating new tax revenues, from this new industry rather than focusing on the costs and on the potential for environmental disaster. Oil and gas exploration credits are based on the idea that a large oil and gas industry will generate lots of taxable economic activity; carbon pricing should be based on the idea that a large bio-industry will do the same, with potential environmental benefits thrown in as a bonus. And like Brazilian support for ethanol from sugar cane, you can make it clear from the outset that support will decline as the industry reaches a point of standing on its own.

Meanwhile the bio-chemicals industry, which may be less reliant on carbon pricing than bio-fuels, is a better bet moving forward. Bio-fuels, especially second generation bio-fuels, are really only cost-competitive with petroleum-based fuels at oil prices well above $100 per barrel, while some bio-chemicals stand a chance at oil prices closer to $50 per barrel. I am not alone in this opinion; the French giant Total agrees. To read more, click here.

Comments? For public discussion, please use the comments box below, or write to me privately at tom (at) tcbrowne.ca. Thanks for reading!

Growth of the bio-industry

There is a family legend about my grandmother's brother Leo, which says that he was involved in the first airplane trip across the U.S. In order to find out more, and to try to verify the legend, I've been reading up on the early years of the airplane industry and its close cousin, the automotive industry. I have been struck by the similarities between these industries in their infancy, and the current state of the bio-plastics and bio-chemicals industries.

Wikipedia lists operating American automotive manufacturers and the years in which they operated. Copying all this to a spreadsheet allowed me to add up the number of operating companies in any given year, adding existing manufacturers to startups and subtracting failed or merged companies.

There were some surprises.

The number of automotive companies in the U.S. (bearing in mind that Wikipedia's definition of an 'operating company' may be a bit loose) peaked in 1913, at 165. The decline that followed was most likely due to World War 1, and a new increase in startups is apparent beginning in 1920, peaking at 158 in 1921.

But then something happened. By 1929, the total number of companies had dropped to 57. (Another 30 disappeared during the Depression.) However, this isn't the whole story: industry production increased from about 320,000 vehicles in 1913, to just over 4 million in 1929. And given that Ford and Chevrolet, between them, made 2.8 of those 4 million vehicles, the remaining 55 companies really only made about 1.2M units between them.



US auto companies in operation (left scale) and units produced (right scale). Data from Wikipedia. Up to 1942, Wikipedia provides production data by company, for the largest 8 firms only; data for smaller firms is probably not available or reliable. After 1946, production figures in the chart above are for the entire American industry. 

So clearly the industry was growing even if the number of companies was declining. Consolidation, mergers and acquisitions were matched with production efficiencies and increasing levels of standardisation and commoditisation, critical requirements for consumer acceptance. (If you are the proud owner of, say, a 1929 Stearns-Knight, but the only place to get spark plugs or tires for it is the Stearns-Knight factory, which has just gone out of business, your next car will probably be a Ford.)

What can this teach us about the bio-products business? and where are we on the curve?

Jim Lane's excellent Digest covers all the news in this area much better than I can, and is a great source of information on all the various companies out there. For every success (BioAmber), there are many failures, some of them catastrophic (KiOR). But we are beginning to see the development of mature technologies by companies with sensible business plans who are making progress towards being cash-positive without government support. There will surely be more failures along the way, but total tonnage of bio-chemicals and bio-materials produced from second generation biomass supplies is heading for the 7-figure mark.

So is the bio-industry at a point comparable to the automotive industry in 1910? 1929? For discussion ... I would say 1913. Lots of churn, lots of activity, and tonnage is low, but we are beginning to see that inflection point on the curve. Your comments please!

Oh, and Great Uncle Leo? I have no evidence yet that he actually participated in Cal Rodgers' epic transcontinental trek in 1911. The trip took 49 days, 25 of them on the ground rebuilding the Wright Model B after crashes. In fact, Rodgers crashlanded (twice) in the area where Leo was born, at a time when he would have been 25 years old, so it is not impossible that he saw Rodgers' plane, and may even have helped to get it airborne again. Leo went on the serve in the US Air Force as Second Lieutenant in World War I, and the fact he survived to tease an impressionable nephew in the late '60s is remarkable given the life expectancy of Air Force flyers in Europe in 1915 was about 3 weeks. Leo passed away in 1970 at the age of 84.

Moving new processes to full scale: Plenty of pitfalls

Jim Lane runs one of the best known blogs in the field of bio-products, and in his latest post (here), he uses BioAmber's recently announced successes to identify critical drivers for success when scaling up a novel bio-based process. He concludes that the operating culture of the company is critical, and that many technology developers are ill-equipped to be owner-operators.

I agree that this is critical, and Bio-Amber's reported progress is very pleasant news indeed given the backdrop of failure and alleged fraud at some other operations, which Lane has documented very clearly over the last number of years. But I would argue there are a couple of other factors as well.

Taking the time to get the technology right

Bio-Amber is not, to my knowledge, running on second generation sugars yet. Their partnership with Comet will hopefully bring sugars from crop residues to the mix. Bio-Amber took it slow: proving the process works on first generation sugars, getting the bugs out, then moving to the next stage. Trying to do everything right the first time out is a challenge; focusing on one technical challenge at a time will be far safer (if slower). And the first focus should be on the single most critical technical step, in this case getting Bio-Amber's specific sugar-to-succinic acid process to work. Other successful firms have illustrated this single-minded focus on the one critical step in their process, to the exclusion of almost everything else.

Taking the time to scale it up

The mad rush over the last decade to build full-scale second generation ethanol plants in the US led to a landscape strewn with wreckage. Pilot and demonstration scales are critical before going commercial. You find out all kinds of things in these steps, between lab-bench results at the 10 or 100 gram scale, and the hundreds of tonnes per day pace of a full-scale plant. Many of the things you will find out are unrelated to the technology, but will cause huge delays and costs later if you don't find these things out early. Corrosion, impact of recirculation loops on process stability, process controllability and real-world yields are among the problems that can bring a multi-tonne per day project to its knees. 

Conclusion: take your time

No, banks or other lending agencies won't like this. But the alternative may be a costly failure. And an added problem with costly failures, beyond the lost government or private investments, is the negative impact that another bit of bad PR will have on future projects in this industry. The good news is that companies with excellent operating cultures get it.

Next phase in my life

By now, some of you will know that I have chosen to retire from FPInnovations at the end of this summer, after almost 22 years as a research engineer and research manager.

There were a number of reasons for this decision, which was not an easy one. FPInnovations is a great place to work, and I will miss the intellectual stimulation of the day-to-day contact with staff. However, the reasons for leaving eventually overcame those for staying.

First, if you have read earlier posts on this blog, you will know that I lost my wife, Mary, to cancer early in 2014. Since then, several other close friends and family members have also been hit with life-changing medical issues; some are still fighting, some have overcome the challenges, but not all have survived. I have learned from that experience that life is short, and that you should not wait to pursue your dreams. I do not want to work to age 65 or beyond, only to fall sick shortly after retiring. This is fine if your career is all you want to do, but not so good if you have other plans.


Second, many of the projects I was involved in at FPInnovations are at major transition points. Having brought a given project to a major milestone, it is now time to select a direction and strategy for the next phase, typically of 3 to 5 years duration. The question was whether I was willing to commit for 3 to 5 years; I didn't feel right, committing the research program to a long term path, only to retire a year or two later and leaving my successor to live with my choices. I decided that this would be a good time to step back and hand the controls over to keen, young professionals who will have the opportunity to take on a major challenge, select the path forward, and prove their capabilities, build a career and forge a reputation on a solid platform of new bio-product development.

On the other hand, I do not intend to sit around and watch the grass grow. Among the plans: cycling, traveling, playing with my granddaughters, learning photography and music, building model cars, the list goes on. Furthermore, I intend to stay connected and active in the field of bio-products and bio-chemicals, especially from wood, with this blog as a part of that ambition. In this context, I will shortly be updating my LinkedIn profile.

With a renewed focus on climate change, in Canada and around the world, there should be plenty of things to talk about. I am looking forward to building the dialog with you.

Sincerely,

Tom

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Thomas C. Browne, ing., Ph.D.
https://ca.linkedin.com/in/tcbrowne