Making sense of the bioeconomy
by Robin Francis, Chandler Hatton, Phil Webster , Enguerran Ripert
Issue 1, 2016
Utilities & alternative energy, Technology & innovation management
Promises, challenges and opportunities in a developing market

Many companies, both large and small, view fuels and chemicals derived from bio-based feedstocks as a potential source of sustainable growth. Yet in practice, breakthroughs have been hard to achieve and the number of large-scale commercial successes are few. In this article the authors examine the promise of the “bioeconomy”, the challenges faced in bringing biobased products to market, how these challenges can be overcome, and how companies can spot which opportunities may be attractive for them.

Fuels and chemicals produced from bio-based feedstocks, such as waste wood and agricultural co-products, offer incredible potential. They can help to reduce demand for non-renewable fossil hydrocarbons such as oil and gas. They are completely renewable, often help to reduce atmospheric carbon emissions, can improve national fuel security and can play a key role in the emerging concept of a “circular economy”, helping to minimize the consumption of non-renewable materials.
From a business perspective, using and manufacturing bio-based products can present a completely disruptive approach to conventional fuels and chemicals. They offer opportunities for new entrants to disrupt existing markets, and for incumbents to defend their businesses against emerging threats. Some bio-based materials are produced from low-value or waste materials whose potential is under-exploited, providing an opportunity to create completely new market niches. This creates opportunities for agricultural commodity companies to derive new materials from crop co-products, for food companies to find ways to repurpose waste materials, and for chemical companies to create entirely new product lines.
Yet despite this promise, the sector’s development has historically been disappointing. In particular, segments such as “second-generation” biofuels have been – at least to date – a perpetual “jam tomorrow” story – perennially on the cusp of materializing as a major market, but never quite breaking through. The environment today is even more challenging for many bio-based products due to four main hurdles:

 

 

  • Environmental and ethical concerns: Some bio-based products are produced from arable food crops such as wheat and palm oil. This causes indirect land use change, especially in Latin America and Asia-Pacific, as forests are cleared to create more farmland. There are accompanying ethical concerns over whether growing crops for use as fuels and chemicals should be prioritized over food.
  • Inconsistent and unpredictable regulation: Bio-based products are sometimes more expensive to produce than fossil alternatives. They may also require substantial upfront investment in putting supply chains and processing equipment in place. In some cases, mandates or penalties to favor their uptake are necessary – and where business cases are built on legislation, an abrupt change can prove disastrous. The European Commission and several national governments have been unable to provide long-term support for bio-based materials, which has resulted in the collapse of some industries, notably the “first-generation” biodiesel industry in Germany during 2008.
  • Technology and supply chain development: Bio-based feedstocks are often variable in composition with relatively low calorific value. Processing them into high-energy-density fuels and pure chemicals is therefore difficult and expensive. Many technology approaches have floundered due to poor reliability, difficulties in maintaining product quality, high costs and problems in ensuring a consistent supply of raw materials.
  • Costs relative to bulk tradable commodities: Bulk bio-based products which are intended to directly compete with those derived from oil and gas are strongly affected by fluctuating oil and gas prices. Those derived from arable crops are also influenced by fluctuating prices due to changes in supply and demand across global markets and poor harvests caused by adverse weather conditions, for example. Recent falls in the price of oil and gas, and as a consequence, the products derived from them, have exacerbated the issue.

Despite these issues, under the right set of circumstances, some businesses have managed to balance the complex interplay between feedstock prices, regulation, processing costs and end-market values to achieve success in the bioeconomy. Some are making healthy profits. For example, Coca-Cola is now using bio-based polyethylene terephthalate (PET) in many of its drinks bottles, while DuPont has successfully commercialized its bio-based fiber, Sorona®, in carpets and apparel. The fashion brand G-Star Raw is using Lyocell, a man-made natural fiber of cellulose extracted from eucalyptus wood pulp, in many of its products.
What have these companies done differently? In this article, we set out a framework for finding the right opportunities and making sense of the bioeconomy.