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Invest in Biofuels

Biofuels are fuels derived from biomass (recently living organic material) and are classified by generations.

1st generation biofuels are made from things like starch, sugar, and vegetable oil. These are edible feedstocks and therefore any biofuel source that can also be consumed by humans is considered a 1st generation biofuel. An example would be corn.

2nd generation biofuels, also known as advanced biofuels, are made from non-food biomass. This would include dead plant matter, food waste converted to energy, and algae (although algae can be classified as a 3rd generation biofuel).

First and Second Generation Biofuels

First generation biofuels have been around for quite some time. Henry Ford originally designed the Model T to run on ethanol and diesel engines have operated on vegetable oil much longer than on petroleum-based diesel fuel. Ethanol experienced a surge in demand during the 2000’s with the introduction of flex fuel vehicles (vehicles that run on a combination of gasoline and ethanol or methanol fuel) and today almost every gallon of gasoline contains about 10% of the biofuel.

While ethanol and biodiesel offer many benefits to transportation vehicles, including reducing emissions and improving engine life, 1st generation biofuels have faced backlash due to food scarcity concerns. Because 1st generation biofuels use edible food like corn as a source, many critics feel that using land to grow crops for fuel is counterproductive as the land could be used to grow crops for human consumption. This critique has led to developing technology for 2nd generation biofuels.

Currently, the United States (corn as the main source) and Brazil (sugarcane as the main source) are the world leaders in ethanol production and consumption with 72% and 70% combined global market share respectively. The United States and the European Union are the leaders of global biodiesel production and consumption with a combined market share of 52% and 55% respectively.

Major Developments

  • ExxonMobil teamed up with Synthetic Genomics in a $600 million partnership to utilize algae as a biofuel. The collaboration will look to accomplish what countless other companies have failed to do thus far: produce algae as a viable fuel source at global scale
  • In 2018, private biofuel company, Fulcrum BioEnergy, raised $150 million to finance a project to convert 175,000 tons of municipal solid waste into renewable transportation fuel. Fulcrum also received investments from both Waste Management (NYSE: WM) and United Airlines (subsidiary of United Continental Holdings, NASDAQ: UAL)
  • The world’s largest asset manager, BlackRock (NYSE: BLK), was one of the companies that took part in the C$280 million investment round of Enerkem, a Montreal biomass company that converts waste-to-energy
  • In 2018, FedEx (NYSE: FDX) has announced the expansion of its trials with Boeing aircraft that run 100% on biofuel. FedEx has pledged to consume 30% of aviaiton biofuel by 2030.

The Future

The global biofuels market is expected to register a CAGR of 4% through 2023 to reach a market value of $132 billion.

Though biofuels show much promise, obstacles are on the horizon. There is much debate as to whether the ethanol that is produced from corn provide enough energy than what is needed to grow and process it, in addition to the concerns regarding food scarcity mentioned above. These concerns have sparked interest in innovative 2nd generation biofuel technologies like using the cellulose from dead plants, grass, and wood for ethanol production.

The growing adoption of electric vehicles has also raised questions whether there would even be a need for biofuel in the future, as well as research done by BP projecting a decline in biofuel production by the mid 2030’s.

However, the combination of FedEx’s pledge to consume 30% of aviation biofuel by 2030, DuPont (NYSE: DWDP) recently opening the world’s largest cellulosic plant in Nevada, IA and investing $2 billion across 4 geographical regions to promote biofuel research, and the emergence of a slew of biofuel biotech startups, it proves biofuel research and development is far from over.

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