President Biden’s Climate Plan and Its Role in Agriculture & Renewable Biofuels
By Oliver Peoples, Ph.D., CEO of Yield10 Bioscience
Special to The Digest
During President Biden’s April 22nd climate plan speech at the Virtual Leaders’ Summit on Climate, he announced his goal of cutting 50 percent of U.S. carbon-emissions levels by 2030. This is no simple task, and consumers, investors and businesses alike are aware of the difficult but necessary road ahead. To achieve this objective, it will take the work of more than just renewables innovators or consumers purchasing electric products, but rather an entire ecosystem working together. In particular, there is renewed optimism for the intersection of biotech, agriculture and energy companies working together towards improved renewable biofuel production.
Before the President’s announcement, demand for renewable diesel was already rising rapidly to meet California’s low carbon fuel standards. Renewable diesel can either be blended with petroleum diesel, or used as a drop-in replacement for it, enabling it to be used within existing infrastructure. Although this technology alleviates one hurdle in moving towards low carbon fuels, supply of waste vegetable oil is insufficient to meet demand. As a result, the industry is expanding its use of vegetable oil feedstocks including soybean, canola, and palm oil for use in renewable diesel.
According to U.S. Agriculture Department, it is expected the biofuels sector will consume 12 billion pounds of soybean oil in the 2021-22 marketing year, which is up from an estimated 9.5 billion pounds in 2020-21. The growing demand for soybean oil as a renewable diesel feedstock has driven soybean oil prices to decade highs, and led to shortages in many areas of the world. These challenges are felt across the entire supply chain, from grain processors, big oil companies to consumers, as well as investors. Now, with favorable political and public tailwinds in the renewables, agtech and biotech categories expect alternative oilseed crops like Camelina to emerge and demonstrate their value and potential as an added source of feedstock oil for renewable diesel production.
What does this mean for energy companies?
Biden’s climate plan is slated to include $2 trillion in spending – grants, loans and tax incentives that would need to be approved by Congress – to help fund and stimulate job growth among wind-and solar-power developers, battery makers and the electric-vehicle businesses. This comes on the back of existing trends, where a combination of government incentives, climate change policy, and pressure from investors to diversify energy investments, is hastening the investment in renewable energy and biofuels by major oil companies. These factors have significantly accelerated the development of renewable diesel, the second-largest consumer biofuel in the U.S. behind ethanol. In fact, the money and attention pouring into renewable diesel programs, as well as the ability to retrofit existing petroleum refinery assets for renewable diesel production, has led to the planned development of an additional 5 billion gallons of refinery capacity over the next several years.
These developments also place the oil sector in the rather new position of “not owning the well”. Unlike petroleum diesel, where the oil sector has historically been vertically integrated, owning all layers of the supply chain. In the renewable diesel space, companies in the oil sector may instead be completely dependent on the existing oilseed value chain to secure feedstocks for these refineries. We are eager to watch how energy companies react to this new challenge.
What will this mean for farmers?
Its once more a boom time in the farm belt as commodity prices grow, and this trend likely to continue in the future due to increasing vegetable oil feedstock demand for renewable diesel. While good for farmers, this has the potential to intensify the food versus fuel debate. This could lead to pressure to lower carbon offsets for vegetable oil feedstock used in renewable diesel, to reduce price increases in food stores. Incidentally, climate change has the potential to exacerbate the issue. As we are all aware crops are completely dependent on the weather conditions in a particular growing season and this year has been particularly challenging, as record heat waves in the Pacific Northwest and Canadian prairies have caused harvests to suffer for canola and other grains.
One way out of this paradox is the use of relay cover crops – those planted on fallow ground during the off season to improve soil health and prevent erosion. In fact, Biden’s climate plan offers incentives to farmers who plant cover crops, because of their environmental benefits for improving the carbon footprint of food production. However, the challenge has been to develop cover crops which generate enough revenue for farmers to broaden the practice.
The development of new varieties of winter Camelina sativa (Camelina) could change the dynamics and economics of relay cover cropping because it can produce oil for use as a renewable diesel feedstock as well as protein meal for use as livestock feed. As a result, this has the potential to hit sustainability goals on all fronts – increased feedstock oil for renewable diesel, increased food, improved carbon profile of farming, improved soil health, and more farmer revenue. Because of this strong profile, improved winter varieties of Camelina are being developed by Yield10 and other companies for use as a relay crop with soybean and corn. Yield10 is developing winter Camelina varieties with improved agronomics that are herbicide tolerant and disease resistant to provide farmers with the options they require for large acreage adoption and to maximize the harvest value of the seed.
Third party estimates indicate that Camelina has up to 30 million acres of potential as a cover crop in the mid-west of the United States and can serve as a key differentiator for farmers making planting decisions. Ultimately as companies like Yield10 continue to increase the harvest value of the crop through performance traits, Camelina has excellent potential as a versatile cover crop with a range of revenue opportunities for farmers. This upside is needed now more than ever, as droughts spurred by climate change, international competition and other challenges persist, putting many American farmers in jeopardy. The incentives to utilize cover crops such as Camelina and other emerging cover crops could spur adoption at farms across the country.
What will this mean for bioscience companies?
The large-scale adoption of Camelina as a relay cover crop offers significant opportunities for bioscience companies, and in particular crop genetics companies, to develop improved varieties. Camelina can be readily genetically modified using traditional technology or CRISPR genome editing, to increase seed yield and oil content, which in turn creates an improved carbon profile. Genome-edited lines with higher oil content have already received approval as non-regulated from USDA-APHIS providing for accelerated commercial use. Field tests with Yield10 performance traits for oil content or seed yield have shown seed yield increases in the range of 5%-23% and oil content increases of 5%, demonstrating the potential to increase revenue per acre for growers. This year the company is conducting field trials of Camelina varieties in the U.S., Canada and Argentina and executing the seed scale up of its current best performing seed varieties including E3902, a variety with enhanced seed oil content
PHA Bioplastics – Value Added Camelina Seed Product – As a new crop which is readily segregated from large acreage export crops, Camelina provides a unique opportunity to develop higher-value Agbio seed products and directly link agriculture with new identity-preserved value chains. The long-term focus of Yield10 since its inception in 2017 was to develop Camelina as a source of PHA Bioplastic, a natural polyester which can be processed in existing plastics processing equipment to produce useful plastic articles. It has been estimated that plastic articles made from these bioplastics could functionally replace over 50% of single use petroleum plastics. Direct production in oilseeds would eliminate the high capital and operating costs of fermentation technologies enabling a scale and cost structure in line with vegetable oils. Yield10 recently completed its first successful field test of this new technology and has begun scaling up the best bioplastic lines for larger scale production to start pilot seed processing to produce bioplastics feedstock oil and protein meal. Farmers will typically choose what they grow to maximize their return versus the next best option and the added product value of the Bioplastic Camelina should make this a very attractive choice for growers.
The development of differentiated and value-added Camelina lines also provide opportunities for partnerships between big oil and crop genetics companies like Yield10. Like major crops, where seed companies such as Bayer, Corteva, Syngenta, and BASF dominate the landscape due to strong IP advantages, attracting Camelina acreage will also depend on being able to provide the highest revenue genetic lines to farmers. As a result, big oil’s best hope at maintaining a sufficient vegetable oil supply for renewable diesel could depend on securing offtake agreements with genetic technology leaders in the relay cover crop space.
What will this mean for investors?
According to the WSJ, “Production capacity for soybean oil in the U.S. is expected to grow to 935 million gallons in 2021, nearly double from where it was last year.” As the report shows, ADM is investing $350 million into building a new soybean-crushing plant, Cargill is allocating $475 million toward improving its soy-crush facilities across seven states, and Phillips 66 Co. recently purchased a stake in an Iowa-based soybean-processing plant and will buy 100% of the soybean oil produced there, a figure expected to reach roughly 4,000 barrels a day.
It is this trend that we believe creates tremendous market opportunity and value for Camelina, an attractive feedstock candidate for renewable diesel in geographies such as California where there are low carbon fuel standards in place and the economic value of carbon savings can be substantial. Low carbon fuel standards are being established in other regions of the U.S., Canada, and the E.U., which will only increase the demand for renewable diesel feedstocks and require new sources of oil to meet this demand.
Companies ranging from Fortune 500 to startup are rethinking energy production and identifying biofuels as a potential solution. We expect this innovation and commercial adoption to continue, which is why Yield10 and others are dedicated to advancing technologies and commercializing new cover crops with traits that improve seed and oil yield to drive favorable economics for all market participants.