If You Build It, They Will Come: Biofuels Industry Sees Renewable Chemicals as New Strategy

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October 27, 2017

To create additional value in the biobased economy, companies and investors are turning toward the production of renewable chemicals and products. They argue that in prioritizing higher-value chemicals and products, advanced biofuels will follow.  The biofuels sector may soon turn the ‘fuels and co-products’ model on its head, with higher value chemicals being the focus, and fuels becoming the co-product.  Such a move would mirror the production model of petroleum refineries – where fuels are the loss-leader and chemicals are the real revenue producers.

Several points will spur this transition to further diversifying the bioeconomy beyond biofuels -- sustained low oil prices, uncertainty around continued federal support of biofuels, lowering capital investment costs for integrated biorefineries, the build-out of biomass supply chains (such as corn stover), and consumer demand for more environmentally-friendly products. Additional policy support, such as measures in a potential tax reform package, may also help build and diversify the industry.

 While renewable chemicals today make up less than 1 percent of chemical production, globally, the renewable chemicals market is expected to grow 12.3 percent per year over the next decade, reaching a value of $155.2 billion by 2025. Chemical groups poised for the largest growth in renewable sourcing include alcohols, polymers (plastics), ketones and acids. Two biobased plastics, bio-PET and bio-PE, are likely to have the largest growth potential over the short term, according to a market research group.

Seeking to spur investment in renewable chemicals, Senator Stabenow (D-MI), introduced the Renewable Chemicals Act of 2017 (S.1980) on October 18, which would provide a production tax credit of 15 cents per pound of renewable, biobased chemicals.  The bill is co-sponsored by Senators Collins (R-ME), Coons (D-DE), Franken (D-MN), and Baldwin (D-WI). A companion bill in the House (H.R. 3149), sponsored by Rep. Pascrell (D-NJ), was introduced in June.

Both S.1980 and H.R. 3149 stipulate that the qualifying chemicals, polymers, plastics, or formulated products must be made in the United States from renewable biomass. Food, feed, and fuel end-uses are ineligible. In lieu of the production tax credit, the producer may instead claim an investment tax credit at 30 percent of an eligible renewable chemical production facility. The tax credits would be capped at $500 million over a 5-year period. The bill could be taken up in a larger discussion of tax reform now taking shape on Capitol Hill.

Existing federal vehicles for renewable chemicals include the Farm Bill’s Energy Title. Traditionally, programs in the Energy Title have been focused on the production of biofuels, but there has been a push from industry, lawmakers and researchers to allow facilities that produce renewable chemicals to qualify for the Title’s programs.  They argue that by building integrated biorefineries, the production of high-value chemicals will also hasten the production of cellulosic fuels. In the 2014 Farm Bill, the Biorefinery, Renewable Chemical, and Biobased Manufacturing Assistance Program (Sect. 9003) was expanded to allow facilities that produced both biobased fuels and chemicals to qualify.  In the build-up to the 2018 Farm Bill, groups are now asking that Congress “fully and unconditionally allow renewable chemical standalone manufacturing facilities” to be eligible for the program.

The Biotechnology Industry Organization argues that prioritizing renewable chemicals will benefit, the entire sector, commenting in a recent letter, “renewable chemical standalone manufacturing facilities need to be constructed first and operated with innovative technologies to build the economic value to support advanced biofuels, which is a component in the biorefinery.”

According to a March 2017 report from Business Wire, U.S. companies poised to be leaders in the U.S. renewable chemical space include Myriant Corporation, Metabolix Inc., NatureWorks LLC, Genomatica, Cobalt Technologies and DuPont Tate & Lyle Bio Products.  

 

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