Tuesday, October 20, 2009

Exxon Invests $600 Million in Biofuels

Oil companies see dollar signs in going green:
Among the oil companies, BP PLC and Royal Dutch Shell PLC have been the most active investors in the sector. But it's even beginning to attract more-conservative companies like Exxon Mobil Corp., whose chief executive, Rex Tillerson, once famously dismissed corn-based ethanol as "moonshine." Exxon announced in July it was investing $600 million in an algae-to-fuel start-up, Synthetic Genomics Inc.
"It was a major signal to the biofuels industry," says Bruce Jamerson, chief executive of Mascoma Corp., a producer of cellulosic ethanol, which is made from inedible plant materials.

The world economy is shifting, in part due to organized government action.
The answer is the low-carbon policies now being put in place across the developed world. In the U.S., for example, the Renewable Fuels Standard mandates growth in annual sales of biofuels through 2022. The Department of Energy expects U.S. production of biofuels to increase from less than half a million barrels a day in 2007 to 2.3 million barrels a day in 2030. Inevitably, that will erode the oil majors' conventional business.
"The oil companies…see a world of restrictions coming on high-carbon fuels, and they need alternatives," says Mr. Jamerson.

Investments in biofuels, however, account for but a small fraction of total capital investments
Shell, for example, has spent about $1.7 billion on alternative energy and carbon-emission-reducing technologies like CCS in the past five years, while its total capital investment budget last year was $32 billion. BP's investments in alternative energy totaled $1.4 billion last year, about 6% of its capital-expenditure budget for the year, and will fall to between $500 million and $1 billion this year as the global economic slowdown saps demand for energy.
What I want to know is Shell's total investment in R&D. A lot of capital spending could be going to building infrastructure or buying machinery, but I don't think its public information what fraction of the research money is going to renewables. I would imagine a lot, but who knows, oil still has decades. But they know the change is coming.

To reduce carbon in the atmosphere efficiently, we must assign it a specific cost, because oil is terribly convenient from an energy perspective. It will take a long time before renewables catch up, and even longer if there is no change. Carbon credits are inefficient paperwork nightmares, and ultimately add up to a tax, so why not skip the middle man and call a spade a spade, and a tax a tax.

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