This week sees the start of another of those green initiatives that set out to meet the environmentalists’ demands to “do something about climate change”. As from today, under something called the Renewable Transport Fuel Obligation (RTFO), transport fuels sold in the UK have to contain 2.5 per cent biofuel.
Just two weeks before it was due to come into effect, and after companies had committed themselves to spending billions to meet the RTFO, Greenpeace, aroused by reports of shippers wanting to grab at US subsidies by shipping biofuels to and fro across the Atlantic, suddenly decided that it didn’t like the idea.
Don’t worry, we aren’t going to dive into the green debate. There really is a business story in here and one that concerns high-tech startups. Well high-ish tech.
Sustainable energy is a hot area for investors these days. The Carlyle Group, for example, has invested in a bunch of businesses including Ensus. This startup company, with both a chairman and CEO who spent years developing their engineering skills in ICI, before that bastion of the chemical sector evaporated, is spending £250 million building a plant on Teesside to turn wheat into bioethanol.
What can they be thinking of? Wheat? Should that be going into loaves of bread?
Not really, most of Europe’s wheat goes to feed animals so that we can eat beef. Even so, spare a thought for all those cattle. Don’t worry, they will still get their square meals.
If you believe Ensus’s pitch, and the company has had it peer reviewed, “biofuel from wheat is almost for free”.
That is how the CEO, Alwyn Hughes, describes the process, which he also likens to a giant whisky distillery. (That is why the new plant, due to start up in a bout a year’s time, doesn’t really qualify as being seriously high tech.) Ensus achieves this feat by creating two products, biofuel and animal food.
In another wrinkle, Ensus reckons that its animal food is so much better than the raw product that farmers don’t have to top it up with extra protein. So, in one fell swoop, Europe can cut down on its oil imports and on imports of protein for animal food.
The point of the story is that Ensus has backed up its sales pitch, and the all important business plan, with a detailed sustainability analysis, and one that it has thrown to the wolves, in the shape of a bunch of expert scientists.
It all comes down to the carbon footprint of the full fuel cycle. Not all biofuels are equal on that front, certainly not those created by ripping up rainforests to make way to crown palm oil, or even those created by plonking big processing plants down in the middle of American prairie country.
As Hughes puts it: “The question is not about whether biofuels are good or bad – it is about differentiating between good and bad biofuels.”
It is for someone else to tell if Ensus really does have a strong case. The point is that it is irresponsible of groups like Greenpeace to flail around indiscriminately knocking a whole industry. If the EU had heeded the organisation’s warnings, then a bunch of investors could have kissed goodbye to their money.
Companies cannot turn investment strategies on and off just because a bunch of greenies have had second thoughts. After all, they were the ones pushing for transport to do its bit for climate change. Let’s hope that they don’t put off too many investors. More important, let’s hope that Brussels ignores their shrill screams. The first wave of biofuels may not be perfect, but, as Alwyn Hughes says, you cannot have a more efficient second generation process without building a first generation.
