Investing in Biofuels

James C. Greenwood is the president and CEO of the Biotechnology Industry Organization (BIO). From January 1993 through January 2005, Greenwood represented Pennsylvania’s Eighth District in the U.S. House of Representatives, and from 2001 to 2004, he served as chairman of the Energy and Commerce Committee Subcommittee on Oversight and Investigation. In addition, Greenwood served in the Pennsylvania General assembly from 1980 to 1986, and in the Pennsylvania Senate from 1986 to 1993. He was named the president of BIO in July 2004.

The following interview was conducted on October 18, 2006, at the BIO InvestorForum in San Francisco.

Since you assumed your position at BIO, you’ve frequently focused attention on the need and prudence of biofuels as an alternative to oil. Would you cite what you view as the keys to a successful biofuels industry?

Number one, it’s making the transition from using the starch, for instance using the corn, to using the cellulose. We’ve long known how to take starch from kernels of corn and convert it into ethanol but the holy grail has been to break down the cellulose, the stalks and stems and so forth, and modern biotechnology now has developed enzymes that can do that. The science is there, it’s really just about commercializing it, just about scaling it up. … [President George W. Bush] had asked for $150 million to build two or three mid-sized biorefineries using cellulose. In fact, he talked about switchgrass in his State of the Union address. And so we at BIO have been actively lobbying for that. … This will be a 60/40 private-to-public match, so companies will provide the 60 percent, and the government will take the risk out of it with the 40 percent subsidy. Once that this can be demonstrated on a pretty significant scale that the dollars and cents work out and that the product is competitive with gasoline, I think then private investors will take over.

What message would you like to get across to investors regarding the biofuels market? Would you consider it a ground floor investment?

What investors need to know is that there is a huge coalition of Americans who want this to succeed — the environmental community, people who are concerned about our addiction to oil and the way that it affects politics in the Mideast, and in Venezuela and Russia and so forth, and consumers. The price of gasoline goes up and it goes down, and consumers would like a reliable, affordable supply that’s good for the environment, so there’s a whole lot of public. The BioWorld Biofuels Report support for this, and investors are recognizing that. Once they see that it’s truly scalable and practical, then investors will rush in.

In speaking of the support for biofuels across so many sectors, are there certain things that you perceive to be major challenges to the progress of the technology?

Some of the challenges will be transporting enough biomass to these refineries. In order for it to be cost efficient you have to be able to use a lot of plant material, and so [it will] probably require a very decentralized infrastructure — lots of midsized plants distributed widely across the country as opposed to a few refineries, … That’s probably the biggest challenge. The science is really there.

In your estimation, are there lessons we could learn from others, particularly Brazil, in terms of developing a more aggressive agenda in domestic ethanol production?

Brazil is certainly the poster child. They’ve obviously used the sugarcane, but it certainly demonstrates that where there are the resources in place and the support of the government, that societies can prepare to make wholesale changes in their fuel consumption; so we have a lot to learn from Brazil. … We have a goal of 25 percent of our motor vehicle fuel coming from ethanol by the year 2025. That’s an achievable objective.

The BIO survey released on Oct. 18, 2006, on public support for incentives for biofuel production and likely electoral support for candidates who favor incentives, showed that four in five adults agree that national and state governments are not doing enough to promote production of biofuels. What specific types of inducement must the Bush administration enact to motivate farmers, investors and biofuels producers to increase their involvement in the industry?

The key thing for the Bush administration to do is to use these federal subsidies to take the risk out. Investors are always going to be skittish about something that’s new and relatively untested, and so by providing these 40 percent subsidies. … The reality [is that when] the president of the United States says something in the State of the Union address, it has repercussions, and by talking about switch agrass and by talking about cellulosic ethanol at the beginning of this
year, he really jumpstarted public interest in this. Soon after the president’s speech, … members [of Congress] were concerned this [was] just the next new thing — There’s always a new alternative energy source. … By the time gasoline prices were well over $3, members of Congress were asking if $150 million was enough. Obviously the pressure’s gone down a little bit right now because the