LOS ANGELES -- The United States could replace 20 percent of petrochemical consumption with bio-based products over the next decade -- while creating jobs and capturing a large share of the global renewable chemical market. The key is acting soon, before the current technological and agricultural edge is lost to other nations. Among products made with biochemicals are disposable tableware, printer ink and skin-care lotions, along with numerous compounds for industrial use.
To generate ideas for spurring the industrial side of biotechnology, the Milken Institute, in collaboration with the U.S. Department of Agriculture, convened experts from the public and private sectors in a Financial Innovations LabA(R)— the Institute's signature miniature think-tanks for generating solutions to specific challenges.
Challenges to developing industrial biotech
According to a report of the Lab, "Unleashing the Power of the Bio-Economy,
? participants representing finance, policy and industry identified three significant barriers to the development of new biotechnology in the United States:
• Financing new projects and bringing them to scale: The development timetable for bio-based chemicals is five to ten years, significantly longer than most investors in new technology will tolerate before seeing revenue or profits.
• Perceived market uncertainties: The relative cost difference of bio-chemicals is largely dependent on the cost of oil and competes with established petrochemical companies.
• Policy uncertainty and complexity: The regulation of bio-based chemicals is complex and sometimes seemingly more onerous than the rules for petrochemicals, which are subject to a number of long-standing exemptions. In addition, traditional means of support from tax credits, purchasing incentives, and grants are becoming increasingly less palatable to policymakers.
"With our strong agricultural and manufacturing sectors, the United States can lead the bio-economy and create good-paying jobs," said Joel Kurtzman, Milken Institute senior fellow. "It is essential we develop new financial and policy innovations to move this cutting-edge sector forward."
Crafting solutions
Lab participants focused on the differing and complimentary roles of government and the private sector, noting that the private sector needs to supply much of the up-front capital, but government must still play a significant financial role in the early stages. Among their recommendations:
• Establish concrete and consistent government policies. Lab participants discussed how predictability may be as important as the substance of the policies. There is significant competition from other countries that have made investments in this sector a priority. Public funds are critical to reducing the risk for private investment.
• Create green banks. Lab participants pointed out the most daunting challenge for renewable chemicals is obtaining long-term financing for refineries and plants that produce at high volumes. The "green
? bank system is based on systems already in place in Denmark and would involve the sale of standardized, transparent bonds to finance loans for green initiatives, making it easier to create broad liquid markets and obtain lower interest rates.
• Expand "market pull
? systems. Current systems such as the USDA's BioPreferred program provide incentives, such as product purchases by government agencies, and allow promotional labeling for products that use biochemicals. Expanding this "market pull
? program helps drive consumer awareness and demand for products.
• Take advantage of existing infrastructure. Startup companies have little opportunity to raise the necessary money to build facilities from scratch, but they can piggyback on existing infrastructure that is currently idle. There is potential to retool unprofitable ethanol plants scattered throughout corn growing regions.
"By unleashing the power of the bioeconomy we can reduce our dependence on petrochemicals, protect the environment, and still produce the same great products. That will do more than just improve the economy, it will improve our lives," said Kurtzman.
Copies of "Unleashing the Power of the Bio-economy" are available for download at http://www.milkeninstitute.org/publications/publications.taf?function=d….