The World and Sustainability

(A continuation from the AERTOs BBE Forward-Looking Analysis. For background, see Bioeconomy: The Scenario Pathways)

Scenario Pathway 1: Our Common Future

20151214 Our Common Future

In this pathway, the dominant logic is that of Environmental Sustainability, meaning that sustainable handling of natural resources, protection of ecosystems, and reduction of undesirable human impact on the biosphere are the main priorities of global approaches to sustainable development.

The working green paradigm is one of Earth Systems Solutions, which means that environmental problems and the attendant solutions are put in a global systemic context. Environmental activists describe threats to the health of the planet and seek large-scale, long-term solutions based on global collective action.

In the absence of true global governance, the global politics of sustainability must therefore seek Incremental Collaboration, negotiating through existing vehicles such as the UNFCCC, WTO and other trade agreements. Complete top-down solutions remain elusive and these negotiations are more successful at generating international convergence and a cooperation between national approaches to sustainability.

Policies thus aim to create Shared Incentives, both between nations and across sectors of the economy. The emphasis is on economic instruments, especially those that put prices on environmental externalities.

In response to the search for large-scale, global solutions, the most important technological paradigm is one of Affordability and Transferrability. Technologies that can reduce environmental impact and replace fossil fuels in the greatest volumes, at the least cost, and in the most contexts globally are in demand and are the focus of research, development and innovation efforts.

Markets for these technologies deliver Price Convergence, driving the value of greenhouse gas reductions, saved water and other ’sustainability goods’ together by working at scale across borders and across sectors.

Value chain formation creates Global Efficiencies, with large companies stitching together value-add and deploying according to advantageous conditions across from multiple countries and sectors to minimize the costs and reach of sustainability-products and services.

Scenario Pathway 2: The Clean Tech Race

20151214 Clean Tech Race

In this pathway, the dominant logic is that of Competitive Innovation, as countries and global companies approach sustainable development as a challenge which will produce winners and losers, with innovative capacity the determining factor.

The working green paradigm is one of Clean Tech and Leapfrog, as novel technological and social innovations are seen as the key to addressing environmental problems while creating win-win situations for business and the economy. Action on the environment is viewed as modernizing and countries see themselves in a ’race’ to develop green solutions.

In this competitive environment, the global politics of sustainability are focused less on common benefits and more on securing Exemptions and Advantages for countries and their preferred strategies. Links and synergies between the strategies are pursued only when they are seen to generate economic or political benefits.

The resulting policies create a Tangled Web, both of trade and regulations. Market-making tools such as subsidies and preferred purchase programmes are common, and some tariffs are used defensively.

The emphasis on competitive advantage means that the technological paradigm of sustainable development is Targeted and Proprietary. Companies and research institutions seek to develop highly differentiated innovations, and to protect both the intellectual property and market positioning.

Markets for these technologies, products and services deliver Green Premia, either via the aforementioned policy instruments, first-mover advantages, or marketing and branding.

Value chain formation attempts to create and preserve High-Margin Niches. Brand and technology owners use bargaining power to capture as much of the aforementioned premium as possible. Supply chains tend to be hard to replicate and overall dissemination of a given solution tends to be less broad.

Scenario Pathway 3: Green Resource Nationalism

20151214 Green Resource Nationalism

In this pathway, the dominant logic is that of Resource Utilization, and global approaches to sustainability are built around maximizing efficiency and asset utilization, both in terms of natural resources and capital assets.

The working green paradigm is the Circular Economy, and the minimization, re-use, and valorization of waste are seen as the keys to reducing environmental footprint. Radical resource efficiency building on existing industries and technologies is seen as both green and strategic.

In this competitive environment, the global politics of sustainability see countries trying to achieve ’Sustainable Nation Status,’ with ambitious domestic strategies competing with one another for political and industrial prestige. International relations on sustainability are less collaborative and more akin to a ’Top-Runner’ arrangement.

Domestic Policies focus on Supply-side Security, with rules, trade, and subsidies promoting sustainable domestic feedstocks. Industrial policy, including targeted R&D initiatives, seeks to maximize the value of existing industrial assets and facilitate industrial symbiosis rather than looking to create new markets.

The technological paradigm most associated with this logic is that of Closed-Loop Systems. Zero-waste approaches come to dominate in process and manufacturing sectors and the system perspectives expand over time to incorporate consumers, both through advanced end-of-life recycling and upcycling and through new business models focused on function and service rather than product ownership.

For both industry and consumers, these markets are valued for their cost-certainty. Waste valorization reduces exposure to volatile feedstock and raw material prices, and an increase in leasing and subscription-based consumption gives consumers mores table expenditure over time.

Under these conditions Value chain formation produces Islands of Efficiency. Integrated companies, clusters, and even sectors of the economy pioneer specialized, deeply efficient approaches to production and consumption, but these solutions see limited dissemination globally and fail to systematically address economic and environmental externalities beyond their system boundaries.

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Bioeconomy: The Scenario Pathways

The Forward-Looking Analysis portion of the AERTOs Bio-Based Economy project seeks to develop contextual, exploratory analysis that helps the participating research institutes better evaluate their bioeconomy strategies. The general approach has been to build up a framework for thinking about the future and to consult with stakeholders to identify potential issues of particular importance  and discuss how they might play out. The analysis takes a 15-20 year perspective, near enough to be relevant to the research and development being done today, but far enough away to allow for a new bioeconomy regime or regimes to have emerged.

The first output of the analysis was the scenario framework, and associated ’pathway narratives’ below. In 2016, the project will also summarize possible ranges for key quantitative variables at the bioeconomy level, and dig deeper into four themes identified by project stakeholders.

20151214 Bioeconomy Pathways

The accompanying short texts are intended to explore the implications of the scenario framework. This framework looks at three different ’Dominant Logics’ over three levels, with their intersections creating nine ’scenario pathways.’ The narratives to follow explore these pathways across six ’framework conditions.’ These are speculative and are kept at a general level – the intention is not to produce in-depth, evidence-based scenarios for each pairing, but rather to give a sense of how this scenario framework could inform conditions for more specific scenarios.

The Scenario Pathways:

The Lignin business – what is the way forward?

Henna Sundqvist-Andberg, VTT

Discussions on business potential of lignin have come and gone over several decades. Is this an everlasting cycle or is there something revolutionary in the air?

Lignosulphonates have established they position in the markets for decades ago in several applications, including construction, food and feed ingredients, and bitumen. So far other types of lignin haven’t been able to compete in production volumes with lignosulphonates. Kraft lignin from pulp production has been the second largest commercial lignin type but production volumes and markets have been modest. Lignin business hasn’t been lucrative enough for companies, even though there could be several viable applications for lignin (Fig. 1). However, weak signals from the industry have become stronger. Anticipation and expectations are once again in the air.

20150822 Lignin business blog price vs. volume

In 2014 Stora Enso announced a biorefinery investment in Sunila Pulp Mill Finland which focuses on extracting lignin, “the green gold of the Nordic forests”, from pine and spruce kraft pulping process by utilizing LignoBoost recovery technology. According to Stora Enso the initial markets are anticipated in the construction and automotive industries, as a renewable and sustainable alternative to the phenols used in plywood and wood-panelling glues and the polyols used in foams. Similar kind of progress is taking place in Canada. West Fraser Mills is investing in LignoForce System™ lignin recovery plant together with its partners (AB Plywood, Ecosynthetix, FPInnovations, Hinton Pulp, and Quesnel Plywood). The company is planning to use lignin as an adhesive (phenol formaldehyde resin) for its plywood and engineered wood products.

What makes the situation different this time? The bioeconomy boom is going strong with public funding available for R&D, piloting and investments. Innovation processes are advancing into piloting stage (e.g. carbon fibre (Innventia and Oak Ridge National Laboratories) and bioaromatics (Biorizon, Biochemtex)). Separation technologies for kraft lignin are commercially available (LignoForce, LignoBoost, SLRP). Environmental sustainability has become more and more important for both consumers and companies.

Even though the recent progress has been positive the picture is still not that rosy. The first step has been the production of green substitutes, like phenol formaldehyde resins. Additional commercially viable applications are needed, and the industry needs to evaluate whether lignin-based chemicals are for niche applications or if they could fully substitute petroleum-based products, and build the appropriate value network and even markets. Lignin-based chemical producers need to provide right product properties, ensure the consistent quality, guarantee the supply security, and balance with oil price development. It does become clear why it has taken a long time to reach this point, doesn’t it?

Could this still be a tipping point for lignin business? It might be that for kraft lignin, but for other types of lignin (organosolv, hydrolysis etc.) it is likely to take several more years until these truly take off. Cellulosic ethanol production and solvent pulping are further away but are steadily developing, with several pilots (CIMV, Renmatix Plantrose, Lignol Innovations’ Alcell process for solvent pulping) and start-ups are running (e.g. Abengoa, POET/DSM, GranBio for cellulosic ethanol production).

So what is the way forward for the lignin business? Two steps forward and one step back? The recent oil price development certainly might curb enthusiasm but there is no denying that there are opportunities today, if the circumstances are right: the raw material is cost competitive and available, quality of the lignin is right, performance is reliable and sustainability is taken into account, Fig. 2.

What could be the next step forward? It has been said that the best way to predict the future is to create it – so let’s continue developing new business from lignin in collaboration with the industry.

20150822 Lignin business success factors

Figure 2. Critical success factors for lignin business

20150822 Lignin business future markets

Fig. 3. An overview of prospective lignin markets.

About the Insight Refinery

This is a blog used by the AERTOs Bio-Based Economy project to develop and exchange ideas and insights related to the bioeconomy. All readers can comment, and if visitors would like to create their own posts they can contact the site administrator jesse.fahnestock@sp.se.

We are open to all bioeconomy-relevant ideas for articles. At the moment the following articles are available:

On the Price of Sugars by Bart Goes, Tecnalia

Market Analysis: Products from Lignin

Bioeconomy: The Scenario Pathways:

by Jesse Fahnestock, SP

The Lignin Business: What is the Way Forward? by Henna Sundqvist, VTT

Sustainability certification for biobased chemicals & materials by Jorrit Gosens, SP

Market protection for sugar, ethanol and biobased chemicals & materials by Jorrit Gosens, SP

Investment climate for biobased business in Europe by Roald Suurs, TNO, and Elsbeth Roelofs

A description and applications of products obtained from brown and green algae, by Bart Goes, Tecnalia

Visions of sugar beets: Parsing Deloitte’s analysis of the sugar beet boom and its relevance for the European bioeconomy by Jesse Fahnestock, SP

(Some background on the creation of the blog is also available here.)

Sustainability certification for biobased chemicals & materials

(work in progress)

For a full version of this blog post click here (word version, includes comments by Roald)

Key points

  • Costs of sustainability certification do not appear to be very high; around €10.000 to €20.000 for medium sized companies;
  • Sustainability criteria for biobased chemicals and materials are in the making, but look set to be more stringent than those for biofuels;
  • Competition over feedstock with biofuel uses is already displacing use for biochemical production, as markets for biofuel enjoy policy support, whilst those for biochemical use do not. This is set to increase with the revised Renewable Energy Directive, which will increase double counting of biogenic residue and by-products use for fuel production. Differentiated sustainability criteria will further erode the attractiveness of the use of these feedstocks for biochemical production;

Market protection for sugar, ethanol and biobased chemicals & materials

(work in progress)

For a full version of this blog post click here (word version, includes comments by Roald)

Key points

  • Pending reform of the European sugar market will decrease sugar prices for food use, but strongly increase prices for industrial uses of sugar. This is good news sugar producers that use residue streams including cellulosic material, but not good news for industrial sugar users;
  • Trade barriers between global and EU markets are (and will remain after reform) prohibitively high for sugar, very high ethanol, but very low for biobased chemicals and materials. This is highly likely to shape competition and localization decisions of bio-refinery plants, especially as feedstock costs are lower outside of Europe as well

tariffs

Investment climate for biobased business in Europe

Roald Suurs, Elsbeth Roelofs

For a full-text report, please send an email to roald.suurs@tno.nl

Introduction

As part of its general innovation policy, the Dutch government wants to make sure that it provides positive conditions for innovative companies with biobased ambitions. For this reason, TNO was asked to investigate the factors that determine the investment climate for biobased chemical companies in Europe (and more particularly in the Netherlands). The following questions were central:

  1. Which criteria determine the outcome of planning biobased investment decisions?
  2. What is the relative country performance within and outside Europe?
  3. What are the specific barriers for investing in the Netherlands and Europe?

The results of the study indicate that, depending on the development stage of innovation activities,  decision criteria will be dramatically different. Europe, and the Netherlands, are doing relatively well when it comes to supporting R&D but key improvements are necessary when the ambition is to move from R&D to demonstration and commercial production.

Approach

The results presented here are based on a quickscan, consisting of a short literature study and 20 interviews with industry leaders and venture capitalists. Interviews were directed at identifying key decision criteria for building either R&D facilities or pilots, demonstration plants or commercial scale production lines (see figure). The focus of the study was on companies developing and/or producing biobased chemicals.

  • Excluding companies that exclusively produce bioenergy and biofuels.
  • Excluding companies that exclusively produce feed and food.

Despite the narrow focus, a large variety of companies was involved, ranging from large waste processors and a sugar company to small pyrolysis or IB oriented technology start-ups.

 fig1

Figure 1: Three categories of investment and typical budgets involved.

Which criteria determine the outcome of planning biobased investments?

The figure below provides an overview of criteria that were considered most important in deciding on go no-go / location of investments in R&D, demo’s and commercial installations.

fig2

Figure 2: For each type of investment the figure shows the average weight of each criterion considered for deciding on a go/no-go and/or choosing a location. Weights are calculated on the basis of a collection of ‘top 5’ rankings. A weight of 5 stands for an average rank score of 1; a weight of 1 stands for an average rank score of 5; a weight of 0 means absence from any individual top 5).

Based on the interviews the following explanations can be given for the relative importance of different criteria for the three categories of investment.

R&D capacity / pilot plants (network oriented)

  • Generally speaking, investments are drawn to regions where professionals with the relevant knowledge are situated. The knowledge infrastructure (organisations, facilities, education level) is key in attracting and supporting these professionals.
  • Biobased clusters are important for their network effects, pilot facilities and especially for their ‘marketing power’.
  • Public financing, subsidies, are a lifeline for biobased pre-competitive R&D.

Demonstration plants / semi-commercial (risk oriented)

  • Access to sufficient quantities of biomass feedstock at predictable and affordable costs is a requirement.
  • Energy costs are a cost determining factor in the (bio) chemical industry.
  • Moreover, investors seek to minimise the high costs and risks associated with this stage. Policy regulations directed at mitigating investment risks is therefore crucial.
  • For the same reason, investors will usually look for a fit with existing site infrastructure (e.g. steam supply, heat outlet, logistics, safety services).

Commercial production / Upscaling (market oriented)

  • Feedstock, infrastructure and energy costs remain very important criteria.
  • The business case perspective is leading. Access to biobased markets is therefore an important additional criterion at this stage. Whether this affects a location decision depends on the type of product and company (how locally organized is the market for that company).
  • Labour market conditions (e.g. costs and quality of operators) are key.

What is the relative country performance within and outside Europe?

Based on the key decision criteria for the three investment categories, it becomes clear that Europe’s strengths lie in the development of knowledge and networks. Critical weaknesses are the feedstock situation, energy costs, relative tax level and (other) financial incentives.

fig

Some more detail on the most differentiating criteria for biobased companies making investment decisions are provided below:

Feedstock costs

  • Wood prices (chips, pellets) in the EU are about three times higher than in the USA.
  • Cost levels in the EU are modest where wood residues can be collected and transported over short distance. Still the prices are volatile.
  • Global prices of sugar are currently highly volatile. Potential for upscaling sugar production is, by most respondents, believed to lie especially in Brazil and SE Asia.

Policy support

  • A key strength of EU is the policy support for R&D.
  • The EU has trouble supporting companies in bridging the ‘valley of death’.
  • Tax levels are relatively high
  • Lack of demand-side policies / public procurement initiatives
  • Permits can be important for choosing specific regions within a country, but only after all other business requirements have been met.

fig3

Figure 3: Scaling up from pilot to demonstration remains a critical challenge. The key is a combination of measures to support risk mitigation (push) and market outlook (pull).

Knowledge infrastructure

  • The USA and the EU are globally considered leading in biobased R&D.
  • Growing competition is to be expected from China and Brazil.
  • Important differences do exist between EU countries for specific areas of expertise (for example biotechnology is relatively big in the UK).
  • The figure below provides a crude estimation of strengths in terms of R&D spending in general (not specific for biobased). fig4Figure 4: Global R&D spending 2011. Size of circle reflects the relative amount of annual R&D spending by the country noted. Source: 2012 Global R&D Funding Forecast.

Energy costs

  • Energy prices are lowest in China and the USA. For the EU, energy prices are relatively high.
  • Within the EU price differences are less significant.
  • Cheap energy on the basis of coal (China) and shale gas (USA) comes with high ecological costs. Many biobased businesses consider this a liability from a CSR / branding perspective.

fig energy1

figenergy2

 What are the specific barriers for investing in the Netherlands and Europe?

High feedstock costs / availability

  • Subsidies for bioenergy seem to create artificially high prices for biomass
  • Lack of incentives for farmers to innovate e.g. sugar quota
  • Regional biomass supply is insecure
  • Waste legislation is not adapted to circular economy concept

Lack of ‘valley of death’ capital

  • Lack of risk capital
  • Lack of government procurement programmes
  • Conditions of government financing are often unfit for commercial parties:
  • Obligation to form consortia
  • Obligation to disclose knowledge

Limited market value biobased products

  • Lack of market incentives for biobased products
  • Limited consumer awareness of (advantages of) biobased products
  • No level playing field for fossil and biobased applications

Burden of regulation

  • REACH requirements press on biobased businesses (especially SMEs)
  • Permit procedures (province, municipalities) take too much time

Fragmentation and lack of critical mass

  • Biobased initiatives are spread too thin
  • Lack of cooperation between regions
  • Lack of international cooperation across Europe

Concluding remarks

In the face of international competition, what role is there for a European biobased chemical industry?

Which possibilities are there for strengthening the position of European feedstock producers?

Which possibilities are there for different EU countries / regions in specialising in forestry, agriculture or waste as key biobased resource

How can the Dutch and EU governments mitigate the risks of biobased investments, most importantly for the support of demonstrations plants?

Which possibilities are there for developing biobased markets within Europe and the Netherlands? How to stimulate consumer uptake of biobased products?