A new report from the Milken Institute, "Turning Plants Into Products: Delivering on the Potential of Industrial Biotechnology," released today at the Global Conference, examines the challenges facing the industrial biotechnology sector and identifies market- and policy-based responses. The report captures the results of the Institute's Financial Innovations LabTM in which stakeholders and experts in the field discussed how the United States could facilitate the flow of private capital into the production of bio-based products.
"There is much appeal for policymakers to invest in expanding the biotech-derived chemical industry. In the long term, it has environmental advantages and offers an alternative to foreign oil," said Joel Kurtzman, executive director of the Milken Institute Center for a Sustainable Energy Future. "In the short term, it offers the immediate benefit of rural employment opportunity."
Unlike industrial biotechnology, the petrochemicals industry is well-established, with fully amortized facilities, economies of scale, and entrenched processes for operating efficiently. Further contributing to biotechnology's price disadvantage is that petroleum prices don't take into account increased defense spending to secure petroleum shipping lines, potential climate change effects, disturbances from unfriendly oil-producing countries, and imbalance of international trade. Using domestic biomass feedstocks largely avoids these negative effects of fossil energy-based industrial product production.
What is it?
Instead of petroleum, industrial biotechnology uses biological resources such as plants, algae, marine life, fungi and micro-organisms, and biosolids to produce a broad range of products from plastics and chemicals to face creams and detergents. Because bioplastics can be engineered to biodegrade more quickly than traditional plastics do, companies such as PepsiCo and Coca-Cola are already using bio-based packaging materials and bottles. In medicine, industrial biotechnology can produce stitches that eventually dissolve. And in agriculture, compostable mulch films - organic matter for mulching made into rolls - can be left in the fields to biodegrade on their own.
But obstacles remain for the industrial biotech industry - petroleum's price advantage being chief among them.
Accelerating the Economic Case
According to "Turning Plants Into Products," developing the bio-based products industry will require the organized cooperation of local, state, and federal governments, the investment community, trade organizations, and academia. Currently, the complexity of the industry and the immense investment required to commercialize bio-based products, aside a small number of joint-venture successes, have resulted in low investment participation and large attrition rates, particularly for underfunded biofuels start-up companies.
Among the approaches suggested in "Turning Plants Into Products":
Establish concrete, long-term government policies. Some policies designed to help the industry have time frames that are too short for industrial biotech's long investment horizon, a shortcoming that dissuades private investment and decreases the odds of commercial success.
Create prize forums. The industry is young and rich in opportunity for innovative technology and processes, and prize forums are an effective way to collect and share expertise.
Utilize established resources. Beyond strategic partnerships, the industrial biotechnology industry can take advantage of existing pilot plants and encourage the development of more pilot and demonstration plants to test (and thus de-risk) technology and reduce the capital expenditures.
Create innovative securitization. Start-ups that have already developed intellectual property can obtain financing by bundling their idea for the purpose of portfolio valuation and patent securitization. Investors can buy into bundled intellectual property once it is put up as collateral.
"The industry needs to find the momentum to get companies past the funding gaps and on to commercial-scale production," Kurtzman added. "This will require continued investment in R&D, supported by the government and public-private partnerships, to make the investment less risky and to increase the efficacy of the technology. We believe the results will be greatly worth the effort."
The Financial Innovations Lab that led to the development of the Institute report was funded in part by the Office of Energy Policy and New Uses at the U.S. Department of Agriculture. Participants included leading scientists and technologists, bio-based product producers, banks, institutional investors, venture capitalists, public officials, and representatives from think tanks and industry associations.
"Turning Plants Into Products" was prepared by Kurtzman and Mark Conolly, a Milken Institute research analyst. The full report is available at www.milkeninstitute.org.
Jeff Monford, Interim Director of Communications
About the Institute: The Milken Institute is a nonprofit, independent economic think tank whose mission is to improve the lives and economic conditions of diverse populations around the world by helping business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity. It is based in Santa Monica, CA. (www.milkeninstitute.org)
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