Posts tagged “biofuels”
A recent article by George Monbiot explains one of the potential ramifications of diverting grains into fuel. Thanks to extreme weather around the globe:
”…this is also a year of food deficit, in which we will consume (31 million tons) more grain than farmers produced. If 2013′s harvest does not establish a new world record, the poor are in serious trouble.”
His main point is that thanks to a growing demand for food driven by an increasing population and improving standards of living, along with the conversion of grains into fuel, the world has to break harvest records every year to keep up. Thanks to grain reserves, humanity can weather years that don’t break records, but failing to break records for two or three years in a row means hunger for hundreds of millions because the price of food will spike as speculators capitalize on the fact that low supply relative to demand equates to higher prices. If weather extremes become more and more common, the odds of running out of reserves becomes more and more likely. (See more: Midwestern Drought, Ethanol, & Renewable Fuel Standard)
The European Union announced a major change in its biofuel policy earlier this week, making clear that new laws aimed at limiting crop-based biofuels to only 5 percent of transport fuel used in the region will soon be introduced, putting the biofuel industry itself in peril.
The decision is being made in order to allow room for so-called “advanced biofuels,” a source of energy made from waste products that the EU hopes will take the lead in the industry. This would allow more crops, such as grains and sugar, to be used to feed the world’s population, a cause that has been championed by groups influential enough to paint a negative public image of the biofuel industry at large. (See also: Are You Looking to Invest in the Google of Biofuels?)
The following article was written by Andrew Holland for Energy Trends Insider, a free subscriber-only newsletter published by Consumer Energy Report that identifies financial trends in the energy sector. Get you free subscription today.
The ethanol industry has seen its position in Washington severely weakened over the last year. The modern ethanol industry is a creation of Congress; the Renewable Fuels Standard (RFS), the ethanol tax credit, and a tariff on imported ethanol were all responsible for creating the ethanol industry we see today. We should note that this industry has seen some remarkable successes: it has replaced almost 10% of the country’s gasoline fuel supply, with an impact on prices that is marginal at best.
It is important to note that more advanced biofuels still receive tax support: cellulosic ethanol receives $1.01 per gallon in tax credits, but that is set to expire at the end of this year. A Senate bill would extend that credit for a year, as well as retroactively re-instate the $1 per gallon biodiesel tax credit that expired at the end of last year. The fate of these credits is up in the air, as Congress will have to consider a broad range of tax policy questions before the ‘fiscal cliff’ coming this year.
Last Wednesday, the Green Strike Group sailed during the international Rim of the Pacific (RIMPAC) exercises off the coast of Hawaii. These exercises are the Navy’s largest of the year, and feature participants from around the world. The reason, however, that this is important to clean energy investors is that the Navy could act as a market maker for the struggling biofuels industry. If the Navy guarantees its market over the next decade, there will be certainty for biofuels companies to make the investments necessary to reach commercial scale.
Today’s article is the 5th and final installment of my graphical look at the recently released 2012 BP Statistical Review of World Energy. Previous installments were:
- How Much Oil is Left in the World?
- How Much Oil Does the World Produce?
- World Energy Consumption Facts, Figures, and Shockers
- Global Carbon Dioxide Emissions — Facts and Figures
Today’s article looks at the explosive growth of renewable energy, but also places it in the context of our overall energy demands.
Rapid Rise in Biofuels Production — U.S. Takes the Lead
The first graphic shows the rapid rise in global biofuel production that has occurred in the past decade — led by the United States. CONTINUE»
Scale of the Global Oil Market
The RAND corporation recently released a report “Promoting International Energy Security” for the U.S. Air Force that, for the most part, contained the conventional wisdom about oil prices and energy security: in a global marketplace, there is little that one buyer can do to affect prices. The report then went on to state the importance of the US military in maintaining international trade routes and supporting energy infrastructure security around the world. On the whole, it was an anodyne report from a government contractor to its client that generally would have quietly been filed away.
However, the report did have one section that dove directly into a simmering area of contention: the Department of Defense’s investment in a domestic biofuels industry. Both the House and Senate Armed Services Committees have rejected the Department of Defense’s plans to purchase biofuels and to directly invest in domestic biofuels producers. The Senate will likely consider an amendment on the floor to attempt to reinstate the program in July. The specialist media quickly reported the controversial provisions, saying “Renewables no fix for U.S. military fuel woes” (Reuters) and “Alt fuels won’t solve military energy problems” (Greenwire).
The recent debate over the role of the military in investing in renewable energy technologies, energy efficiency and conservation programs and alternative biofuels has included many voices that sometimes conflate the linked but distinct efforts by defense officials to address energy concerns. The rationale behind the military’s energy programs can be broken down into two efforts:
- Adapting to operational energy requirements and security challenges in Afghanistan and other combat theatres;
- Hedging against future uncertainty in the global petroleum market.
Adapting to Operational Energy Challenges
Military leaders have become increasingly worried about operational energy challenges in Afghanistan and other theatres where U.S. soldiers, sailors and airmen are deployed and are working to reduce the demand for energy that must be transported across volatile terrain.
To date, part of the military’s effort to reduce operational energy requirements includes:
- prioritizing energy efficiency in the acquisitions process for new combat platforms;
- fielding micro-grid technology to more efficiently manage traditional power distribution systems that waste energy;
- replacing — where possible — diesel-fuelled generators with solar panels and other renewable energy sources;
- equipping soldiers with advanced batteries that stay charged longer to help keep them in the fight;
- and increasing awareness among all U.S. military personnel about energy use to help promote conservation practices.
There are clear operational advantages to reducing the fuel required by military personnel in theater. In particular, reducing fuel consumption also curbs the demand for petroleum that has to be trucked across dangerous territory where the fuel and the soldiers and contractors transporting it are vulnerable to insurgent attack.
I often hear the comment — “If we only had an energy policy” — but what does that really mean? In this column I will provide three examples — originating with both Democrats and Republicans and impacting both renewable energy and fossil fuels — of how constantly shifting legislation makes it very difficult to plan and execute energy projects.
Imagine that you were considering buying a home. However, let’s say your income is inclined to wild swings and the mortgage interest deduction is only approved on a year by year basis. Perhaps it is allowed to expire on occasion. In a situation like this, you would be wise to be very conservative with your purchase, or to even forego the purchase altogether.
This is analogous to the way energy companies plan and execute projects. Decisions hinge on the economics of the project. These projects are large capital expenditures and they only pay out over many years. Thus, when considering the economics of a project, it is important to have a stable environment around regulations and tax policies. Failure on these two items makes for dysfunctional energy policy.
The Big Names in Biofuels
So you’re hoping to strike it rich by investing in LanzaTech. Or Solazyme. Or KiOR. Or Gevo. After all, some of these companies recently had high-profile IPOs, and they are clearly “hot” given all of the press coverage devoted to them. So perhaps you have decided you want to get in on a potentially unique investment opportunity.
I get more e-mails and phone calls about investments than on any other topic. And it’s not just individual investors. I hear from institutional and private equity investors trying to determine what’s true and what’s hype, and asking whether KiOR or LanzaTech might turn out to be the Google (GOOG) or Apple (AAPL) of biofuels. Before offering any guidance, the first thing I try to do is establish your reason for investing. Are you looking for — in the words of former Fidelity Magellan’s Peter Lynch — a “ten bagger?” Are you looking for a hedge against the end of the oil age? Is this money that you are fully prepared to lose?
The second thing I would ask you is whether you really understand the company, their business model, their competition, and their potential technical challenges. (This is typically why people e-mail me — because they have questions about these things). Let me offer an example from my own investing history to demonstrate why these issues are important by telling you about the worst investing mistake I ever made. CONTINUE»
For those of you who missed it, the corn ethanol lobby failed to convince Congress to extend the ethanol import tariff (54 cents/gallon) as well as the blenders tax credit (46 cents/gallon), which were slated to expire at the end of 2011 …sound of crickets chirping.
My guess is that because we exported almost 9% of our ethanol production last year, it was hard to argue that we still needed a tariff to protect us from Brazilian ethanol imports, especially since Brazil was our biggest customer. In a related vein, it should also be hard to argue that we mandate ethanol use to reduce oil imports while exporting ethanol to Canada (second largest customer and largest oil importer) as well as the United Arab Emirates (our fifth largest customer).
As for the tax credit, well, paying oil companies to blend something they were already legally mandated to blend never did make much sense, except maybe to the oil companies who were not about to look that gift horse in the mouth.