Bio-fuels are here to stay but carving out a share of the market for them is going to be much more difficult than previously envisioned, according to a study by the global consulting company Accenture released this week. The report envisions a 10 percent to 15 percent market share for various bio-fuels over the next two decades, but also outlines several potential problems.
A biodiesel plant in Missouri.
Photo: AP
The report cited three areas of potential challenges: environmental, distribution and infrastructure investment. The environmental benefits might be a hard sell to consumers, particularly the food versus fuel debate, the study argued. In the US and Europe, bio-fuels are based on corn and soy, respectively.
Also, "There are distribution challenges related to integrating bio-fuels into the established fuels value chain, with tough decisions to be made around storing, blending and accommodating different grades of bio-fuels," according to a statement released by the company.
Yuval Hod, a supply chain management specialist at Accenture Israel, told The Jerusalem Post that there were certain difficulties that had to be overcome before bio-fuels would really be able to enter the market.
"First of all, bio-fuels harm the rubber components of the engine in their current format. They still need to work on the distillation. In addition, since [the product] is biological there may be no constancy of quality," he said.
The report also noted that required investment might not be so easy to find when the size of the market and potential returns were uncertain.
Regarding timing, the report suggested that bio-fuels needed to establish themselves in the next 10 years before alternatives such as algae or plug-in hybrid vehicles edged them out.
However, Isaac Berzin of the Interdisciplinary Center Herzliya disagreed with Accenture's analysis.
"David Ben-Gurion once said, 'There are only experts on the past and none on the future.' This study looks at the past and the old way of doing things," he said.
The point isn't to integrate bio-fuels into the global petroleum supply chain, Berzin contended.
"Every country needs to find its own energy crop. More than 50 percent of Brazil's gas is ethanol. Why? Because they had the raw material, sugar cane, in abundance. Bio-fuels won't be shipped all over the world, they will be sold within a hundred miles of their manufacture," he predicted.
Berzin is creating an energy policy center at the IDC. He made Time Magazine's list of 100 most influential in the sciences last year with his work on algae.
"The distribution model must be decentralized rather than centralized. Today's petroleum market is not the model," he added.
The report acknowledged that the increase in fuel distributors was changing the shape of the energy market.
Berzin was more optimistic about the future of bio-fuels. If they can be made to be cheap, they can be sold, he told the Post.
Regarding competition from other sources, Berzin stressed that there wouldn't be much competition since every country would have a different energy crop. Some would use bio-fuels and some would use algae or something else.
"China, for example, is more suited to algae than bio-fuels," he said.
Regarding investment, Berzin was dismissive of the study's concerns.
"If you can get a 15% return on your investment, then there is no lack of money," he said.
Whether or not 10%-15% market share is a lot or a little makes little difference to the Israeli government.
"Israel follows the European directive which has set a goal of 10% of the fuel market coming from bio-fuels," Chen Bar-Yosef told the Post. Bar-Yosef is the head of the fuel administration in the National Infrastructures Ministry, which regulates the industry.
While some European countries, like Germany and Hungary, had already converted 5% to bio-fuels, he said, Israel was just introducing bio-fuels this year.
"We are aiming for 5% of diesel in the next few years, so 10-15% of the market is reasonable. No one is talking about 40% of the market," Bar-Yosef said.
"We hope to introduce bio-fuels into the benzene market soon as well, and perhaps get up to 5% in a few years as well," he added. The policy is based on a government decision from December and supported via regulations promulgated by the Green Tax Committee, so the government is supportive, Bar-Yosef noted.
As President Shimon Peres is fond of saying, overall, any increase in alternative energy sources is beneficial to Israel because it weakens the oil-rich Arab states' power.
