MIND THE GAP: Letter from Europe

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March 04, 2020

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by Jim Lane (Biofuels Digest) If you have not followed the Alternative and Renewable Fuels Forum, bookmark this, and today I’ll give you some of the flavor of this group with 110 members — project owners and developers, policy experts, technologists, automotive manufacturers, oil companies, airlines. I think of them as the ARTFL Dodgers for their skill at navigating the Dickensian rollercoaster of European policy in transport decarbonization.

If it fell to me to summarize, the three words that stood out to me at the Forum, and throughout Europe, is “MIND THE GAP”. A warning, using the familiar language of the London Underground, for EU leaders to accept that their attempts to decarbonize transportation will fail if they fail to have a stable, meaningful biofuels policy — a gap will emerge between Paris targets and actual emissions that will be impossible to address with electrification alone.

For almost two decades, Europe has been writing its policies in pencil instead of ink. There was the Biofuels Directive, then the Renewable Energy Directive, then the Renewable Energy Directive revised for Indirect Land Use Change impacts, then the Renewable Energy Directive II, and lately all the discussion in Europe revolves around what is known as the Green Deal. Frankly, if there’s a patch of the good Earth that better exemplifies the phrase, “perfect is the enemy of good”, it’s the otherwise pleasant streets of Brussels.

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The issues are the old ones. There is the issue of fuel costs, the potential for more alluring alternatives (such as electric vehicles), and there is an entrenched and well-organized opposition to biofuels in Europe over the issue of land use — a fear that a shift to biofuels will take up so much land that emissions will rise and that food production would be threatened.

As a result, Europe is in monitoring mode rather than action mode, ....

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As SkyNRG’s Darrin Morgan observed at the forum, “Remember when biofuels were going to save the planet? It was not so long ago, ....

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“But perhaps there is a chance to re-set the agenda, to hit the reset button. What was scary and unknown then, is a lot less unknown and scary now. ... Can we have a more cogent rational discussion about what the bioeconomy can do, about how we can grow the pie, set aside other concerns and build a political consensus?”

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"... I heard just the other day in Germany, a major player mentioning how much solar they were going to build in North Africa. How is this different from planting massive amounts of jatropha in Africa, the concern from the past? How is building solar in Africa for Europe helping, in a macro sense?”

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Indeed, what comes first, the policy that drives the technology or the technologies to drive the policy? In the US, the first way was tried with cellulosic ethanol, and results were mixed at best. In the EU, its usually the second approach. But the level of proof on consequences required to get a stable biofuels policy is astonishing to outside observers.

The EU is approaching electrification the other way, we hear of bids to ban the production of new internal-combustion engines by as soon as 2030 for selected countries, and we may have the devil to pay for ambitions such as those, when we exchange a dangerous dependency on petroleum-rich countries for a dependency on lithium- and cobalt-rich countries.

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Mind the (Cost) Gap

Perhaps most substantive and troubling was a rather bleak assessment offered by IEA Bioenergy on the prospects for cost-competitive advanced biofuels, a report you can find here.

The IEA Bioenergy survey looked at 89 different organizations and their technologies. You could sum it up this way: renewable fuels share with solar and wind all the troubles of being very expensive capital projects, and the incumbents are already in place; conversely, renewable fuels share with fossil fuels all the troubles of having expensive feedstocks, and the afore-mentioned Willies that the prospect of land use change gives some sections of the environmental community.

IEA Bioenergy’s Adam Brown told the Forum, “there is a significant cost gap between fossil and advanced biofuels, even with medium-term cost reductions of 20-50 percent the gap will still exist and large-scale deployment will depend on policy support.”

In general, the EU has developed a reasonably good approach to address this gap, and that’s through projects that gain access to the EU Innovation Fund. ... The funds, presumably, come directly or indirectly from the sale of emission credits.

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Making a feed-in tariff for the bioeconomy

As support schemes go, what might work better is simply this:

1. Operator A signs a production agreement, saying it will produce fuels at such-and-such a (cost-competitive) price and supply those into the EU fuel stream, within EU targets for carbon intensity.

2. Operator A demonstrates its technology at the smallest integrated scale for a prescribed set of hours to validate the techno-economics.

3. Construction capital is provided by the public on a scale commensurate with carbon intensity, up to 100 percent for net zero carbon production, with a target capex per BTU of energy. produced.

4. Any capital saved via a low-cost design, below the target $/BTU rate, would be contributed towards working capital for the project.

5. Operator A secures the balance of working capital, and operates at scale.

The scheme removes some barriers of capital formation that are impeding carbon progress, and carbon not avoided now will be costly to remove later. So, there’s a financial reason to invest in this manner — consider it a sort of feed-in tariff.

And, the scheme levels the playing field between fossil energy — produced at paid-for refineries — and renewables, which generally have to be produced at greenfields.

The scheme rewards innovation in driving down the carbon intensity of a process, and driving down the capex of a project. It rewards thrift in operating expenses because the operator makes a profit on the margin between operating costs and the selling price.

In other words, we have the usual drivers familiar in market economies, but we are forcing the fossil industry not just to blend renewables but to capitalize them in order to retain freedom to operate. READ MORE

Advanced Biofuels – Potential for Cost Reduction (IEA Bioenergy)

Main Report – T41_CostReductionBiofuels 11_02_19-final

2-Page Summary – IEABioenergy-2pSummary-CostAdvancedBiofuels

Presentation – presentation-T41_CostReductionAdvancedBiofuels

Minding the Cost Gap: The Digest’s 2020 Multi-Slide Guide to IEA Bioenergy’s Cost Reduction for Biofuels (Biofuels Digest)