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Poole College of Management 
Supply Chain Resource Cooperative

The US needs to step up Biobased investment to catch up with the rest of the world

March 12, 2018

Multiple discussions gleaned from interviews with executives in biobased product categories emphasize that significant barriers exist in two areas:  1) demand for biobased products that is supported by government incentives, and 2) tax benefits associated with supporting increased research across a breadth of biobased product categories.

As noted in earlier reports on this blog, the Federal government supports the adoption of biobased products in GSA and other agency contracts, but lacks the “teeth” to be able to ensure compliance with these requirements.  This is unlikely to occur without a full-scale revision of the FPDS system, so other measures could be applied.  The second component is related to creating incentives that may provide tax benefits for biobased research leading to innovations.

A good example of such a bill is the Renewable Chemical Production Tax Credits bill that is in review creates the Renewable Chemical Production Tax Credit Program Act; which provides a credit against taxes imposed under the Income Tax Act for eligible businesses that produces a renewable chemical in this State from which biomass feedstocks are derived.  The bill also provides eligibility requirements for the amount and applicability of the credit; defines terms such as required biobased content percentage, eligible biomass feedstock, eligible businesses, and renewable chemical, among other definitions.  The Department of Commerce and Economic Opportunity may issue tax credits up to $25 million.  Eligible businesses may claim a tax credit equal to the product of $0.05 multiplied by the number of pounds of renewable chemicals produced in the state from biomass feedstock.  Tax credits are not available for the production of a secondarily derived building block chemical if that chemical is also the subject of a credit at the time of production as a first product.

It is also worthwhile considering how other global regions are pushing a biobased strategy, in an industry which may put them ahead of the US in terms of global innovation in this increasingly important technology.

For instance, the EU is pushing a biobased strategy. Which is part of its broader Bioeconomy Strategy launched in 2012, which seeks to address the production of renewable biological resources and their conversion into vital products and bio-energy.

It is not a new piece of legislation. It aims to focus Europe’s common efforts in the right direction in this diverse and fast-changing part of the economy. Its main purpose is to streamline existing policy approaches in this area.

It is structured around three pillars:

  • Investments in research, innovation and skills;
  • Reinforced policy interaction and stakeholder engagement;
  • Enhancement of markets and competitiveness.

The Strategy proposes answers to the challenges Europe and the world are facing:

  • increasing populations that must be fed
  • depletion of natural resources
  • impacts of ever increasing environmental pressures
  • climate change

On 6 May 2014, the Council adopted Regulation (EU) No 560/2014 establishing the Bio-basedIndustries Joint Undertaking (BBI JU) a new €3.7 billion Public-Private Partnership between the EU and the Bio-based Industries Consortium. Operating under Horizon 2020, it is driven by the Vision and Strategic Innovation and Research Agenda (SIRA) developed by the industry.  The objective of the BBI Joint Undertaking is to implement a program of research and innovation activities in Europe that will assess the availability of renewable biological resources and the development of new bio-refining technologies to sustainably transform these resources into bio-based products, materials and fuels.  It is believed that this initiative will yield important breakthroughs in biobased innovation.  The partnership is designed to cross multiple industries and participants, through collaboration between stakeholders along the entire bio-based value chains, including primary production and processing industries, consumer brands, SMEs, research and technology centers and universities.

In China, significant progress and investment is also going into building capacity in a number of biobased product material industries.  This includes bio-based chemicals, such as lactic acid, 1,3-propanediol, and succinic acid; biodegradable bio-based polymers, such as co-polyester of diacid and diol, polylactic acid, Non-biodegradable bio-based polymers, such as bio-based polyamide, polytrimethylene terephthalate, bio-based polyurethane, and bio-based fibers.[1]

In both of these cases, it is important to recognize the interdependency of multiple parties in the biobased supply chain.  Up until recently, first-mover risks held back a good amount of investment as described in our last report of 2016.  During this period, there were also significant industry challenges due to the lack of high volumes to support large scale biorefineries as a source of feedstocks.  This was a true “chicken and egg” dilemma, as the benefits could not be made in large-scale biorefineries, unless there was significant demand for biomass value chains both in terms of demand for biofeedstocks, as well as support from farmers, foresters, and waste management authorities.  The interdependency and complex value chains that span a wide range of products and sectors calls for a coordinated approach, similar to what is happening in the EU.  As an example, consider the Ford case study, as well as the Reebok case study, that provide convergent examples of challenges that exist in terms of lack of product availability, in very diverse industries.  The key challenges that lie ahead include:

  • Sustainable biomass supply
  • Market pull from federal acquisition and state public procurement
  • Market pull from consumers
  • Incentives for the private sector to invest
  • Increased product standardization and labeling to drive consumer awareness
  • Education of retailers and consumers on what biobased really means and how it is measured

Many of these measures cannot be addressed simply at a federal level, but will require community-level collaboratives, supported by a common Farm Bill that is aligned with federal incentives for growth.  The focus should include:

  • Feedstocks – creating a sustainable biomass supply with improved productivity and logistics value chains for transportation to consuming markets
  • Biorefineries that optimize efficient processing through continuous improvement, R*D, and upscaling of flagship pilots and demos.
  • Development of national and regional clusters through tax incentives to provide support for emerging industries to co-locate near feedstock sources. This can help to drive efficiencies in logistics and reduce costs.
  • Support of entrepreneurial small and medium enterprises to get access to capital markets through pooled funds and support for market growth, to access global markets.

[1] Yan Xiaoqian,Weng Yunxuan,Huang Zhigang,Yang Nan,Wang Xiyuan,Zhang Min,Ji Yujuan.Development status of domestic bio-based materials industry[J].Chinese Journal of Biotechnology,2016,32(6):715~725

http://journals.im.ac.cn/cjbcn/ch/reader/view_abstract.aspx?file_no=gc16060715&flag=1