S&P Global: Nextgen Biofuels Could Support Global Decarbonization

by | Sep 26, 2018


(Photo: Miscanthus, used as a biofuel, is planted on a test farm in Iowa. Credit: Dennis Schroeder / NREL)

S&P Global Ratings published a new report that takes an in-depth look at the next generation of biofuels such as biodiesel, renewable diesel, and cellulosic ethanol. The credit ratings provider found that despite being cost prohibitive now, these fuels could contribute to global decarbonization.

The report, called Despite Risks and Costs, the Next Generation of Biofuels Could Support a Global Decarbonization Effort, examines the biofuels market and discusses the credit implications in the United States and globally. Biofuels policy in the United States remains contentious, with ethanol at the middle of an ongoing debate between conflicting agriculture and petrochemicals interests, the report says.

“Advanced biofuels have failed to proliferate in the US because of insufficient infrastructure, high costs, and technological limitations,” the report says. “Despite advanced biofuels’ weak showing in the US, there are signs of progress that may lead to a significant expansion of the market in the next several years.”

Michael Ferguson, director at S&P Global in the US Energy Infrastructure Group, and S&P Global Ratings associate directors Michael Pastrich and Yousaf Siddique served as the primary credit analysts for the report. They clarify that the report does not constitute a credit rating action.

Main takeaways:

  • Certain markets have strengthened subsidies and incentives that could result in the economic viability of increased biofuel sourced energy production and more widespread use.
  • Major technological risks remain, complicating the construction process and potentially affecting credit quality.
  • It is expected that nations will decarbonize their economies in part by using biofuels to power their transportation fleets in pursuit of Paris Agreement targets.
  • Challenges increase for conventional corn-based ethanol, which is subject to considerable market volatility.

California is positioned as a leader in renewable energy and expanded into the transport sector through the state’s Low Carbon Fuel Standard (LCFS), the report authors noted.

“The LCFS acknowledges that while ethanol may be the most common fuel additive, other fuels are more effective in decarbonizing, and the standard ascribes credits accordingly,” the report says. “The standard is an ambitious one, requiring a 10% reduction in carbon intensity between 2010 and 2020, with that figure possibly increasing to a whopping 20% by 2030, though the goal won’t be finalized until the fall of 2018.”

If California succeeds in meeting the state’s emissions reduction targets, other states will likely follow that lead and implement carbon emission reduction programs in the transportation sector, according to the report. That will lead to enormous growth of the biofuels industry and increased investment in next-gen biofuels technology as companies race to reduce emissions, the authors say.

Speaking with Energy Manager Today this year, Philippe Lacamp, senior vice president of Cathay Pacific Airways for the Americas, said that the airlines using biofuels generally pay a significant premium. He noted that the biofuel industry is heavily influenced by oil prices.

“When oil is at $120 barrel, it makes a $70 barrel of biofuel very attractive,” he said. “When oil is at $28 barrel, which happened in the last couple years, you can see the kind of damage that would do to a nascent technology.”

Advanced biofuels are still subject to significant construction and operating risks, the S&P Global report authors observed. “However, as capacity increases, we will look to determine how closely actual operating performance aligns with independent engineer forecasts,” they conclude. “We also continue to monitor regulatory developments around the world.”

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