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FutureScenariosforMichigan’sBioeconomy:
PlanningYourStrategicResponses
November2010
PreparedBy:
MichiganStateUniversityProductCenterforAgricultureandNaturalResources83AgricultureHallMichiganStateUniversityEastLansing,MI48824
3820Packard,#250AnnArbor,Michigan48108734.975.0333ShepherdAdvisors.com
Michigan State University’s Product Center for Agriculture and Natural Resources,
under the direction of the MSU Bioeconomy Network, is offering a series entitled,
“Status of Michigan’s Bioeconomy: Progress & Evolving Potential.” The purpose of the
series is to better inform decision‐makers and bioeconomy stakeholders about a range
of issues and opportunities related to the still emerging bioeconomy, especially in
Michigan.
The papers in the series include:
Advancing the Bioeconomy: Overview of Michigan’s Progress
Michigan’s Position in the U.S. Biofuel and Bioenergy Market
Potential Future Scenarios of Michigan’s Bioeconomy
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ACKNOWLEDGEMENTS
TheMSUProductCenterandShepherdAdvisorswishtothankandacknowledgethemanystakeholderswhowereinvolvedinthedevelopment,review,andrefinementofthepotentialscenariosforMichigan’sbioeconomyfuture.Inparticular,thefollowingpeopleofferedkeyinitialinputregardingtheuncertaintiesanddriversthatmightshapethebioeconomy:
DougGage,MichiganStateUniversityStevePueppke,MichiganStateUniversityBryanRitchie,MichiganStateUniversityBobbiBringi,MBIBrettSmith,CenterforAutomotiveResearchDonnaLaCourt,MichiganEconomicDevelopmentCorporationRayMiller,MichiganStateUniversitySteveRapundalo,MichBioWallyTyner,PurdueUniversity
Inaddition,thefollowingMSUfacultymembersprovidedcriticalinputonthefirstdraftofthescenariosaspartofworkshoponMichiganStateUniversity’sroleinadvancingthebioeconomy:
ChristophBenningRubenDerderianRayMillerDennisMillerBriceNelsonBryanRitchieBernieSteelTomSharkeyJinhuaZhaoBruceDaleKenKeegstraMaryMayerStevePueppkeAjitSrivastavaCharlesHasemannRichardFosterThomasHerlacheJosephHotchkissJamesJacksonSatishJoshiDavidJonesJonathonWalton
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CONTENTS
Acknowledgements..................................................................................................................................................................i
ListofTables.............................................................................................................................................................................iii
ExecutiveSummary................................................................................................................................................................1
Introduction...............................................................................................................................................................................3
BioeconomyScenarioPlanning–Methodology..........................................................................................................4
BioeconomyScenarios2029...............................................................................................................................................5
Scenario1–ThrivingBioeconomy..............................................................................................................................6
Scenario2–BusinessasUsual......................................................................................................................................7
Scenario3–Climate‐DrivenBioeconomy................................................................................................................8
Scenario4–StrategicBiofuelsImperative..............................................................................................................8
Scenario5–Deathanol.....................................................................................................................................................9
Implications.............................................................................................................................................................................11
ModelingtheBioeconomyScenariostobetterunderstandtheimplications..........................................13
DevelopingStrategicResponses.....................................................................................................................................16
MonitoringKeyDriversoftheScenarios.....................................................................................................................19
Conclusions..............................................................................................................................................................................21
AppendixA:SummaryofStakeholderInterviews...................................................................................................22
AppendixB:ScenarioPriceSchedule............................................................................................................................24
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LIST OF TABLES
Figure1:BioeconomyScenarioPlanningProcess....................................................................................................4
Figure2:2009GreatLakesCornEthanolCapacity:4.3BillionsofGallonsperyear(BGY)..................13
Figure3:2029GreatLakesEthanolProduction:15.2BGY(ThrivingBioeconomy‐BaselineScenario)...................................................................................................................................................................................14
Figure4:2029greatlakesethanolproductionscenarios.....................................................................................15
Figure5:2029michiganethanolproductionscenarios........................................................................................15
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EXECUTIVE SUMMARY “FutureScenariosforMichigan’sBioeconomy:PlanningyourStrategicResponses”isthethirdintheseriesofwhitepaperreportspreparedbytheMSUProductCenterforAgricultureandNaturalResourcesonthe“StatusofMichigan’sBioeconomy:Progress&EvolvingPotential.”ThiswhitepaperpresentsthefindingsandanalysisofanextensivescenarioplanningeffortdonebytheProductCenterandShepherdAdvisorsthatexaminescharacteristicsandpotentialoutcomesofdistinctscenariosforMichigan’sbioeconomyfuture.Thepurposeofthepaperistopaintavividstoryaboutapossiblefuturestateoftheworldthatisbothbelievableandplausible(thoughnotnecessarilyprobable).Thescenariosprovidearangeofpotentialoutcomesthatarisefromdifferentresolutionsofkeyuncertaintiesinthebioeconomymarket.Theanalysisalsodescribesapproachesthatdecision‐makers(publicandprivate)couldusetodevelopstrategiesthatallowthemtorespondtoandoperateineachofthegivenscenarios.Theanalysisisnotintendedtosuggestaparticularscenariothatisidealorismoreorlesslikely,buttopresenttherangeofpossibilitiestohelpdecision‐makerstargetdesiredoutcomes–andprepareappropriatelyforallofthem.
WithextensiveinputfromMSUandexternalbioeconomystakeholdersregardingkeytrendsandforcesinthebioeconomy,theProductCenterandShepherdAdvisorscreatedfiveplausiblescenariosforthebioeconomythatcanbedescribedasfollows:
Scenario1–ThrivingBioeconomy:Everythingrelatedtothebioeconomyworks;technologysavestheday;advancesintheharvestingandprocessingofbiomass;foodvs.fuelresolvedthroughimprovementsinlandproductivityandcropefficiency;biobasedproductsareverycost‐competitivewithfossilfuelcounterparts–buyingbioisanaturalchoiceeconomically.Scenario2–BusinessasUsual:Noradicalchangesfromthepathwe’reontoday;petroleumstillthelifeblood;bioeconomystillexistswithsomemarginaladvancements;technologyadvanceshelpbothimprovebiomassharvestingandprocessingANDpetroleumprocessing/use;policyandmarketsupportforbioeconomyisdecentralizedandnotcomprehensive;cornethanolstillprimarybiofuel,butdampenedbycontinuedfoodvs.fueldebate.Scenario3–Climate‐DrivenBioeconomy:Climatechangedisruptsfoodproduction,andsointhefoodvs.fueldebate,foodwins;publicpolicyplaysalargeroleinshapingthisfuture;engineefficiency,electrification,andpublictransitdrivedownoveralldemandforfuel,yetthedemandforbiofuelsisstrongandmakesupalargershareoftheoverallfueldemand;cornethanoldeclines;dismissedasaviablealternative,butcellulosicbiofuelsgrowinimportance;renewableandnuclearenergyplayalargerrole,withpolicysupports;biobasedmaterialsandchemicalsfindastrongnichemarket.Scenario4–StrategicBiofuelsImperative:Domestichomegrownenergysecurityisprimaryissue;antipetroleumviewprevails;governmentpoliciesagainstimporting
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petroleumaredrivingthesuccessofbiofuels,forcingcostcompetitivenessofbiofuels;littlemarketactivityinbiomaterialsandchemicals;foodvs.fuelstillanissue.Scenario5–Deathanol:Bioeconomyisdead;technologyadvancestomakeitcompetitivenevermaterializedandpolicysupportsaregone;advancesinvehicleelectrification,alternativeenergyallowustoweanoffouruseofforeignoil;chemicalsandmaterialsstillpredominatelymadefrompetroleum–sourceddomestically;Overallcarbonfootprintisbetter
Table 1 in the report summarizes the key implications for various sectors of the bioeconomy under each scenario. InordertobetterunderstandsomeoftheseimplicationsforthestateofMichigan,theProductCenterandShepherdcreatedanExcel‐based,regionalbiofuelmodelthatprovidesabaselinecomparisonofMichigan’sbioeconomyresourcesvs.surroundingGreatLakesstates.Themodelisprimarilybiofuels‐oriented,butprovidesinsightintothestrengthandinterplayofthevariousdriversthatshapenotonlythebiofuelsmarket,butthebroaderbioeconomyaswell.Themodeloutputsdemonstratethatunderthescenarioswherethecurrentcorn‐ethanol‐dominatedbiofuelsmarketcontinuedtopredominate,MichiganwouldbenefitlesscomparedtoneighboringGreatLakesstatesbecauseithasthelowestlevelofcornethanolproductionintheGreatLakes.However,inscenariosthatrequiresignificantfutureproductionofcellulosicbiofuels,Michigan’ssignificantforestryresourcesgivesthestateanopportunitytobearelativelystrongbioeconomyleaderamongGreatLakesstates.Ascellulosicbiofuelsbecomeagreaterpartofthemarket,andparticularlyunderascenarioinwhichcellulosicbiomaterials(chemicals,otherproducts)alsogainprominence,Michigan’ssubstantialforestryresourcesprovideopportunitiesforrelativelygreaterbioeconomysuccess.
UsingthebioeconomyscenariosandthemodelingdatathathelpillustratesomeoftheresourceandsectorimplicationsforMichigananditsneighboringstates,publicandprivatedecision‐makersinMichigancanbegintodevelopappropriatestrategiestolowerriskandincreaseopportunitytothriveunderdifferentscenarios.Withstrategiesinplace,stakeholderscanthenmonitorvariablesrelatedtokeydriverstobetterunderstandwhichscenarioisactuallyunfoldingovertime.Thekeydriversfordifferentbioeconomyscenariosidentifiedinthisanalysisarebroadlycategorizedas1)technologybreakthroughs,2)levelofinvestment,3)policies,4)consumervaluesandbehavior,and5)biomassavailability.Asdecision‐makersdevelopstrategiestobothencourageandrespondtodifferentscenarios,andthentrackwhichscenarioisactuallydevelopingovertime,theywillberelativelybetterpositionedtobothsurviveandthriveasMichigan’sbioeconomyunfolds.
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INTRODUCTION “FutureScenariosforMichigan’sBioeconomy:PlanningyourStrategicResponses”isthethirdintheseriesofwhitepaperreportspreparedbytheMSUProductCenterforAgricultureandNaturalResourcesonthe“StatusofMichigan’sBioeconomy:Progress&EvolvingPotential.”Thiswhitepaperpresentsthefindingsandanalysisofanextensivescenarioplanning1effortdonebytheProductCenterandShepherdAdvisorsthatexaminescharacteristicsofdistinctscenariosforMichigan’sbioeconomyfuture.Thepurposeofthepaperistopaintavividstoryaboutapossiblefuturestateoftheworldthatisbothbelievableandplausible(thoughnotnecessarilyprobable).Thescenariosprovidearangeofpotentialoutcomesthatarisefromdifferentresolutionsofkeyuncertaintiesinthebioeconomymarket.Theanalysisalsodescribesapproachesthatdecision‐makers(publicandprivate)couldusetodevelopstrategiesthatallowthemtorespondtoandoperateineachofthegivenscenarios.Theanalysisisnotintendedtosuggestaparticularscenariothatisidealorismoreorlesslikely,buttopresenttherangeofpossibilitiestohelpdecision‐makerstargetdesiredoutcomes–andprepareappropriatelyforallofthem.
Tofurtherfacilitatetheconstructionandevaluationofthepotentialscenarios,theProductCenterandShepherdrefinedanexistingShepherd/ProductCenterbiofuelmodelforMichigantoreflectsomeoftherelevantmaterialaspectsofthepotentialscenarios,andprovideinsightsabouthowMichigan’sfuturebioeconomymaycomparewiththoseofneighboringGreatLakesstates.(Forinformationaboutthecurrentbioeconomyinthesestates,pleaseseewhitepaper2:“Michigan’sPositionintheU.S.BiofuelandBioenergyMarket.”)
Morespecifically,theexpandedbioeconomymodelandthepotentialscenariosdescribe(1)factorsthatshapevariousscenarios,(2)presentarangeoffuturebioeconomyinputsandproductsthataremorelikelyunderdifferentscenarios,and(3)identifycross‐cuttinganduniquestrategiesforincreasingopportunitiesforMichigantomorefullyrealizeitsbioeconomypotential.
Forthepurposesofthisreportseries,theProductCenterdefinesthebioeconomyas“anycommercialorindustrialeffortthatisbasedontheconversionofgrowing,renewablebiomaterialsintoproductsthatreplacepetrochemicalorfossilfuel‐basedproducts.”
1TheProductCenterandShepherdconductedamodifiedversionofthescenarioplanningprocessdevelopedbytheRoyalDutchShellCompany.Formoreinformationonthistypeofscenarioplanningsee:http://www.shell.com/home/content/aboutshell/our_strategy/shell_global_scenarios/
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BIOECONOMY SCENARIO PLANNING – METHODOLOGY
TheinitialpurposeofdevelopingandmodelingthefivescenarioswastohelpMSUfacultymembersandleadersbetterunderstandtheopportunitiesforandconstraintsinadvancingthestate’sbioeconomy.Scenarioplanningisastrategicplanningmethodintendedtodescribefuturescenariosthatarepossibleandplausible.PrimarilydevelopedforbusinessapplicationsbyRoyalDutchShellinthe1970s,scenarioplanningisaprocessforgeneratingandevaluatingstrategicoptions.Itisnotintendedtopredictthefuture.Whenacompanyororganizationemploysscenarioplanning,thecompanycancreateflexiblelong‐termplansadaptedforthevariousplausiblefuturescenarios.Figure1belowoutlinesthescenarioplanningprocesstheProductCenterandShepherdAdvisorsadaptedforthiseffort.
ThescenarioplanningeffortfirstgatheredinputfromMSUinternalandexternalbioeconomystakeholderstohelpidentifykeydriversthatwouldshapethebioeconomyscenariosandtodevelopandverifydatapointsforthebioeconomyplanningmodel.ShepherdAdvisorsinterviewednineMSUfacultymembersandexternalstakeholdersregardingtheirviewsontheevolvingpotentialofthebioeconomyingeneral,andinMichiganspecifically.Theinterviewswerestructuredtosolicitinformationregarding:
howstakeholdersdefinedthebioeconomy
thetwoorthreefundamentalforcesshapingMichigan’sbioeconomyoverthenext15years
thedirectionofthosekeyforces
FIGURE1:BIOECONOMYSCENARIOPLANNINGPROCESS
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theroleofsomespecificdriverssuchasthemacroeconomy,consumerpreferencesforgreenproducts,andtechnologyadvancements
AsummaryofkeyobservationsfromtheinterviewsisattachedinAppendixA.InitialinputfromthediscoverystageandsignificantinternaldiscussionswiththeShepherd/ProductCenterteamwerethenusedtodevelopasetoffivedistinctbioeconomyscenariosforthenationalbioeconomy.Inordertofurtherrefineandevaluatetheplausibilityandbelievabilityofthescenarios,theyweregiventoagroupofmorethan30facultymembersassociatedwithMSU’sBioeconomyNetwork.ThefacultymembersweregivenachancetoreviewthescenariosandthentheywereusedasthefocalpointforaworkshopdiscussionregardingMSU’sroleinengagingwithindustrytoadvanceMichigan’sbioeconomy.
Thesescenariosaredescribedindetailinthenextsectionofthepaper.Inaddition,foreachofthescenariostheShepherd/ProductCenterteamdevelopedapricescheduleforseveralvariables,includingpetroleum,apotentialcarbonorgastax,cornbushels,andgasolineandethanolcoststoproduce.Thepriceschedulewasusedtoverifyandvalidatethescenarios,andidentifykeyvariablesthatwouldinterplaytocreatecertainaspectsofthescenarios.ThepricescheduleisincludedinAppendixB.
Thefacultyparticipantsallagreedthateachofthedistinctscenarioswerebothbelievableandplausible,andtheparticipantsagreedthattherewereconditionsunderwhicheachofthescenarios,oracombinationofscenarios,couldbemorelikely.Therewerealsominorchangesmadetothescenariostoreflecttheworkshopdiscussion,includingafullerrecognitionoftheroleofabundantcoal.
BIOECONOMY SCENARIOS 2029 ThescenariosbeginwithashortintroductionoftheBaselineFuturethatlaysouttherelativecertainties(vs.thosethingsthataretrulyuncertain)relatedtothefivevariablesthatcutacrossallfivescenarios,derivedfrominterviewsofnumerousexpertsinthefield.Thisisfollowedbysummariesoftheindividualscenariosofthefuturebeingconsidered,andadescriptionofhoweachfuturescenarioaffectsthevariousaspectsofthebio‐economy.BaselineFuture Thepriceofoilhasbeensteadilyrising,albeitwithconsiderablevolatility,sincetheearly2000sandcontinuestodosothrough2030.Themagnitudeofthisriseisunclearandthejuryisstilloutonthepeakoildebateasworldwidesupplieshaveonlybarelybeguntoflattenout.Technologyadvanceshavebeensteadyacrossmanysectorsofthebioeconomy,alternativeenergy,andautomotivesectors.AU.S.carboncap‐and‐tradeprogramhasbeenineffectforanumberofyears,althoughthegreatestemissionsreductionstandardsarejustbeginningtobephasedin.Consumerawarenesshasalsomovedmarketstowardsmoresustainablegoods,aspeoplechosetobuymoreenvironmentally‐friendlyitems.Despitethismovement,however,priceisstillparamount.
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SCENARIO1–THRIVINGBIOECONOMY
TheWestTexaslandscapeisdottedwithwitheredspectersofabygoneera.Toweringrigs
thatwereonceasymbolofthewealthandpowerofAmericawilleventuallybereclaimedbytheland,consumedinafieldofenergycrops.ThisisthedawnoftheAgeoftheBioeconomy.HumanscannowlookbackontheAgeofOilasaperiodofhistory,beginningwiththefirstdroptakenfromthemountainsofTitusville,Pennsylvaniain1859andendingwithawhimperthroughthe2010swiththeriseofplantandanimal‐basedtransportationfuels,electricity,materialsandchemicalsfarmedandprocessedintheUnitedStates.Thebioeconomysolutionswerewelcomedwithopenarmsbyconsumerswhowereunwillingtoputupwiththevolatilityofthemarketafterdrasticspikesinthepriceofoil,aswellastheadverseconsequencesofburningfossilfuels.Whilethehumanpursuitoftechnologyinthepreviouscenturysoughttoshelterusfromnature,toguardagainstitseffects,thisnewageseesamovebacktonature.Wehavefinallydevelopedthetechnologiestoprovidesustenancetopeoplenotbyseekingdominionovernaturalprocesses,butbymimickingthem.
Inthisfuture,technologyhassavedus.Whilepolicyprescriptionsandchangingconsumer
valueshavehelpedtoacertaindegreetomakethesebioproductsmoreattractiveinthemarket,thisfuturemainlyowesitsexistencetogreatbreakthroughsintechnologythathaveallowedbioproductstocompeteveryeffectivelyontheopenmarketwithpetroleum‐basedproducts.Duetothesustainedhighpriceofoilintheearlyyearsand,morerecently,apolicy‐drivenpricefloorandenvironmentalpolicieslimitingtheuseofotherfossilfuelssuchascoal,theeffectivepriceofpetroleum‐basedproductscausesthemtoloseouttobioproducts.Thesebioproducts,derivedfromrenewablebiomass,arebeingproducedanddeployedthroughouttheU.S.andindeedmuchoftheglobe.
Onadeeperlevel,allaspectsofthebioeconomysupplychainexperiencesuccessas
industriesformerlyinvolvedinthepetroleumindustrynowsupplythebioeconomy.Companiesthatonceseparatedhigh‐valuechemicalsandmaterialsfrompetroleumnowdothesameforbiobasedfeedstock.Newentrantsalsohavebeensteadilyenteringthemarketforyearsasthetechnologyprogressesandfinancinghasbecomemoreavailableduetoastrongernationalandinternationalmacroeconomy.
Onekeyobstacle,theseeminglyintractablefoodvs.fueldebate,hasalsobeenresolved.
Populationgrowthisslowing.Arablelandareaincreasesoratleastremainsconstantandagriculturalefficiencyrises,ensuringlong‐termavailabilityoffeedstocksforbothfoodandbioproducts.Additionally,thebiofuelsupplychainhasinherentsustainabilityacrossallmetrics(energy,water,carbon,toxicsetc.).Technologyplaysalargerolehereasthecontinueddevelopmentofmoreproductivelandandnutrient‐efficientfeedstocks,aswellasfeedstocksthatdonotrequirearableland,allowboththefoodandfuelindustriestothrive.Thereisalsoheightenedsupportasprivatelandownerscooperateonalargescaletoopenupvastnewtractsofarableland,partneringwithlocalcompaniestosupplybiomass.Thistrendpresagesamovetowardsmoreregionallysustainableeconomies.Biofuelsarenolongershippedacrossthecountry,butratherareproducedonamoreregionalscale,withlocalfarminginterestssupplyinglocalbiorefineries,whichinturnsupplylocalfueldistributors.Thisregionalsustainabilityisnotcompletebyanystretch,butthereisaclearmovementinthisdirection.
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SCENARIO2–BUSINESSASUSUAL
Thebusiness‐as‐usualfuture,asbeliesthename,looksalotliketheworldoftoday.Whilepocketsofbioeconomicinnovationpersistincertainpartsofthecountryandtheworld,westillliveintheAgeofOil.Petroleumisstillthelifebloodoftheworldeconomyanditsabundancecontinuestodefyallexpertswhoportendedacatastrophicdeclineinworldreserves.Indeed,asthebioeconomyhascontinuedtofindwaystousetechnologytoharnessthepowerandefficiencyofnaturalprocesses,sotoohavetechnologicaladvancementsgivenusthetoolstoaccesspreviouslyunrecoverableandnewoilreserves,tocontinuetogenerateelectricityfromcoalinanevercleanermanner,andtoincreaseproductionofliquidfuelsfromcoal.Technologyisatonceoursaviorandournemesis,providingfueltobothsidesofthefire.
Bioproductsoccupynichemarketsandmaintainpricecompetitivenessinmostareasdue
topolicy‐drivenpricesupports.Thesteady,ifunremarkable,expansionofflexfuelvehiclemarketshasallowedforsomegrowthinthebiofuelsmarkets,althoughthesuccessoftheelectrifiedcarhasimpededthatmodestgrowthevenmore.Theuseofbiobasedmaterialsandbiobasedchemicalsisdrivenmostlybyenvironmentalandvaguenationalsecurityconcerns,notprice,limitingtheirgrowth.Modestamountsofelectricityfrombiomasspersistasaresultofrenewableportfoliostandards(RPSs)andamoderatelyimplementedcarbonprice.
Oilreservesandsupplieshavekeptupwithrisingglobaldemandduetosteady
technologicaladvancementintheextractionofoilfromtarsands,improvedmethodsofdeepsearecovery,andbetterrecoveryratesfromcurrentfields.Softeningdemandduetoincreasesinthefuelefficiencyofthevehiclefleetalsorelievespressureonexistingreserves.Whilethesedonotpreventoilpricesfromincreasing,theyhavesuppressedcatastrophicpriceincreasesandhaveallowedoiltoremainthelifebloodoftheeconomy.
Thebioeconomypictureunderthisscenarioisnotdire,justsomewhatslowand
unremarkable.Environmentalandinternationalstrategicconcernshavestillprovidedsteadysupporttopoliciesaimedathelpingthebioeconomytosucceed.Whilelawmakershavegraduallyacceptedthatglobalwarmingisarisingthreatandhaverespondedwithresearchanddevelopmentsubsidies,RPSs,andevenacarbonpricingsystem,thesepolicieshavenotbeencomprehensive,andarenotrigorouslysupportedorenforced.Eachyear,theUnitedStatesstrugglestoproduceenoughbiofueltomeettherenewablefuelstandardtargetspassedin2007.CornethanolstilldominatesthebiofuelsspaceduetolobbyingbyMidwesternfarminginterests,despiteconflictsregardingfoodsupplyandenvironmentaleffects.Strategically,thesupportthatoilgivestorogueregimesaroundtheworldhaspromptedlawmakerstocontinuetoencourageexpandeduseofbiofuels.Concernsaboutthepricesthattheirconstituentspayforenergy,however,havemadelawmakersloatheimplementingpolicieswithrealteeth.
Onemajorissuethathaskeptthebioeconomyfromtrulysucceedingisthenegativeeffect
thattheproductionofbiomass,asanenergyfeedstock,hashadonthefoodindustry.Withouttrulyrevolutionarytechnologicalinnovationsinagriculturalprocessesandfeedstockprocessing,theuseofeverlargertractsofpublicandprivatelandtocreatebioproductshasaninflatingeffectonfoodprices,andviceversa,duetolandcompetition.Thishastheperverseenvironmentalconsequenceofencouragingland‐usechangeathomeandabroad,asforeststhatactascarbonsinksarecutdowntomakeroomformoreagriculturalland.Thishassuppressedsupportforpoliciesthatencouragetoomuchexpansioninthebioproductmarkets.
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Inthisfuture,thebioeconomyiscomplicatedandmanyissuessurroundingthecontinuedproductionofbioproductshavenotbeenresolved.Thereiscontinuedpublicsupportforenvironmentally‐friendlyenergyandmaterials,butotherrenewablesourcesofenergysuchaswindandsolardominatetheelectricityproductionsectorandrecyclingimprovementsareviewedasabetteroptionformaterialsustainabilitythanbiobasedmaterials.Thereisstillhopeforthebioeconomyhere,buttechnologywillneedtoprovideasilverbulletifitistotrulysucceedfurtherdowntheroad.
SCENARIO3–CLIMATE‐DRIVENBIOECONOMY
Thenay‐sayershavequieted.Theworldhasbecomeincreasinglywarm.Ourclimateisinperilandpolicymakers(withthesupportoftheirconstituents)nolongerwanttowaitandsee.Globalwarminghasproceededatafasterpacethanmostanticipatedandpublicopinionhasshiftedinfavorofmakingsignificantsacrificestoquellthisthreat.Publicpolicyhasbeenstronglysupportingavarietyofnewtechnologiestoweanthecountryofffossilfuels–forbothtransportationfuelsandelectricityproduction.
Whiletheoverallconsumptionoffuelisdownunderthisscenario,theratioofethanolto
fossilfuelsismuchhigher.Cornethanol,however,hasbeendismissedasagreenfuelalternative.Despitethecornlobbyists’bestefforts,cornethanolhasnotbeenendorsedundertheclimatechangepoliciesbecauseoftheenergyintensityrequiredtoproducecornethanolandthedisplacementofrainforestsasaresultofcornethanolcrops.Inaddition,climatechangehasreducedtheamountoftraditionallyarableland,significantlyincreasingthecompetitionforandexpenseoffoodcrops,makingcornethanolfartooexpensivetoproduce.Inshort,foodwinsinthisscenario.
Fortunately,inpartbecauseoflargeandtargetedresearchanddevelopmentinvestment,
significantprocessingandyieldadvancementshavebeenmadewithcellulosicbiofuels,greatlyincreasingtheirmarketsharecomparedtopetroleum‐basedfuels.Furthermore,acomprehensiveapproachtopublictransit,batteries,andelectrificationhasdrasticallyreducedoverallfuelconsumption.TheUnitedStatesalsofollowedtheEuropeanexampleforelectricityproduction,pavingthewayforbothrenewableandnuclearenergytoproducemoreofitselectricity.
Underneaththesurface,however,cornisthrivinginotherareasofthebioeconomy.While
mostconsumersneverreallyseethechemicalsandmaterialsindustries,thesehelpsupportthebackboneoftheAmericaneconomy.Ascostsforfossilfuelshavesteadilyrisen,biobasedchemicalsandmaterialshavebeguntoreplacepetroleum‐basedproducts.Whilecornpricesarehighduetofood‐drivendemand,relativelyhighervaluecorn‐basedbiomaterialsandbiochemicalshavebecomeasolid,growingnichemarket.Inthisscenario,agriculturalandwoodycellulosicbasedfuelissteadilyreplacingpetroleumastheliquidtransportationfuelofchoice,growingruraleconomiesandsignificantlyacceleratingtheoverallreductionofgreenhousegasemissionsfromthetransportationsector.
SCENARIO4–STRATEGICBIOFUELSIMPERATIVE
Thereisoneprimarydriverinthestrategicbiofuelsimperativescenario:energysecurity.Nuclearproliferationhasworsened,theMiddleEasthasonceagaindescendedintoviolence,andthedevelopingworldischurningoutroguedictatorsasiftheywerecarsonanassemblyline.
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Despitethebesteffortsofthedevelopedworldtoengageindiplomacyandpeacemaking,theworldisbecominganincreasinglyunsafeplace.
Afterfinallycomingtothefullrealizationthatrelyingonoildroveupitspriceand
enrichedtheverycountriesthatwerelocatedattheepicenterofthedestabilizeddevelopingworld,theUnitedStatesandothermajorinternationalplayersdecidedtolaunchattacksagainstwalletsinsteadofarmies.Consumervaluesalsoshifteddrastically,makingpetroleumuseasrevoltingasadvertisingcigarettestominorsandtheAmericanpeopleforcedtheirpoliticianstoact.TheU.S.governmentenactedpoliciesstipulatingthatthecountrybecomeforeignoilneutralasquicklyaspossible.Thecosttothecountryofengaginginconflictsabroadwasfargreaterthantheincreasedcostofusingmoreexpensivealternativestooil.Sowebegantowageawarofattritionagainstthesepetro‐authoritarianregimesbystarvingthemofoilrevenues.
Asdemandhasfallen,sohaveinternationaloilprices.Butthedeterminationtoswitch
fuelshasemboldenedU.S.policiestoplacehardlimitsontheamountofoilthatcanbeimported.Abundantcoalresourceswereinitiallyviewedasaprimaryenergysubstitute,butthelackoftechnologyadvancesandconsumers’environmentalconcernsaboutconvertingcoaltoliquidfuelhavelimitedtheirviabilityasanalternativetooil.Assuch,governmentpolicieshavemandatedthatremainingfueldemandbemetprimarilybybiofuels.Whileimpressivetechnologicaladvanceshavebeenmadeinthebiofuelsarena,resultinginlowercostsforbiofuels,theyhavestillnotreachedpriceparitywithoil,whichhasfallenincostasdemandhasshrunk.Assuch,thegovernmentimposesalargetaxonoilandusesthetaxrevenuestoinvestfurtherinbiofuelsandkeepaceilingonbiofuelpricessothatU.S.taxpayersdonotpaytoohighapriceforthisstrategicpolicy.
Thishasaperverseaffectonotherareasofthebioeconomy,specificallythebiobased
materialsandbiobasedchemicalssectors.Policyandresearchanddevelopmentfundinghasbeensofocusedonreducingtheuseofforeignfuelsthattherehasbeenlittleattentiononorinvestmentindevelopingimprovedbiobasedchemicalsandmaterials.Sincefeedstockcostsarestillhigh,thesebioproductscannotsurviveonpricealoneandwhentheyareproducedasbiofuelbyproducts,theycannotbesoldatalowmarginsincepricecontrolsdepressthemarginsofbiofuelsthemselves.Thismeansthatwhilebiofuelsthrivethroughartificialmarkets,biobasedmaterialsandbiobasedchemicalsremainasmallfractionofthepetroleum‐basedmarket.ThishasnotcausedgreatpublicoutcrybecausetheUnitedStatescanmanufacturepetroleum‐basedmaterialsandchemicalswithnationally‐sourcedoil.
Biomassproductionissteadilyrampedupnationwide,whichhasaninflatingeffecton
foodprices,andthecostoffeedstocksisfairlyhighasaresult.Whileincrementaltechnologicaladvanceshavebeenmadeinadvancedfeedstocksandproductionmethods,nomajorbreakthroughshavebeenmadetofullyaddressthefood‐versus‐fuelandland‐usechangedebates.However,oursocialandpoliticaldrivetoridforeignoilfromourshoresisahigherpriority.
Itisthroughthisconvolutedprocessthatbiofuelshavewonandbiobasedmaterialsand
chemicalshavelost,despitethelatterbeinghighervalue‐addedproductsfromthesamefeedstock.Isthisfair?Doesitmatter?
SCENARIO5–DEATHANOL
Theethanolrefinerslowertheirheadsindefeat;thebioeconomyisdead.Thisdoesnotmeanthatenvironmentalismhasfollowedsuit,however.Electriccarsdotthehighwaysinever‐
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increasingnumbers.Inadditiontoanaugmenteduseofcoal,electricityisincreasinglyproducedthroughwind,solar,andnuclearenergy.Whilephotovoltaicsaretherage,wewereneverquiteabletoharnessthepowerofphotosynthesisinawaythatcouldsignificantlybenefitusinourproductionofenergy,materialsandchemicals.Thebiorefineriesthathadoncebeenasymbolofourreturntonaturehavebeentorndown,replacedwithadvancedtechnologycoalgenerators,windturbines,solarpanels,andnuclearreactors,andvisionsofbuildingsandcarsmadefromcornstarch‐basedplasticsseemquaintnow.
Technologyisamaindriverofchangeinthisfuture,butadvanceshappenoutsideofthe
bioeconomy.Windandsolarenergyhaveproducedbreakthroughsthatputthemevenfurtherdownthecostcurve;coalremainscheapandtechnologyadvancesallowgenerationfacilitiestoburnitwithfewerenvironmentalimpacts;andeventhepetroleumindustryfindslessexpensivewaystoextractoilfromshale,tarsands,andthedeepseabed.Batterytechnologycontinuestoholdmorepowerinsmallerpackagesandtheexpansivevehiclemarkethasmadethetechnologyaffordable.
Becauseofalackoftechnologicaladvancesinthebioeconomy,bothontheagricultural
andprocessingsides,expertshavecometotheconclusionthatthescalesimplydoesnotworktoaccommodatebothfoodandenergyfeedstocks.Assuch,thereisamajorpushtomakeelectricitythetransportfuelofchoiceandpoliciesareenactedthatputusonthebrinkofthisreality.Majorinvestmentsinthesmartgridandelectricvehiclesareencouragedwithtaxincentivesandothermarketdistortingpolicies,andalargeexpansioninrenewable,cleancoal,andnuclearenergy,excludingbiomasselectricity,ispursuedtomakeuptheextrademandcreatedbytheseelectricvehicles.Asconsumersandpolicymakerswaitfortheelectriccartodominatethemarketanditsrequiredparallelinfrastructuretocomeon‐line,majorimprovementsinthefuelefficiencyofinternalcombustionengineshaveallowedthetransportationsectortosignificantlyreduceitsenvironmentalimpact.
Onthematerialsandchemicalsside,petroleumalsohaskeptitspreeminence.
Environmentalistsdonotprotesttheuseofpetroleumintheseprocessessincethecarbonembeddedintheoilisnotreleasedintotheatmosphere,butistiedupinthematerials.Thepriceofoilhadbeenrisingthroughoutthe2010sand2020s,buttheextremesofteningindemandcausedbythepushforelectricvehiclesdepresseditspriceconsiderablyinthelastcoupleofyearsandithassettledintoarelativelystablemarketprovidingrawmaterialsandchemicalscheaplytoAmericanindustryusingexistinginfrastructure.
Tosome,thedeathofthebioeconomymightbecauseforalarm,butinsomesense,this
futurehassomesustainabilityadvantages.Eventhoughtechnologyhasfailedtoprovidebreakthroughsthatallowustotaptheimmensepotentialofnaturalprocessessuchasphotosynthesis,wearestillabletoweanourselvesoffofoilbymovingtowardselectrifyingthedrivetrainsofourvehiclesandpoweringthemwithincreasingamountsofrenewableandnuclearenergy,andcleanercoaltechnology.Thisalsohasrequiredustofindcomplexsolutionstoland‐usechangebothathomeandabroad,whichwassignificantlyretardingtheenvironmentaladvantagesofbiofuelsandcreatingdistortingpriceeffectsonfoodproducts.Assuch,ourcarbonfootprintisreducedandwenolongerfunnelmoneytopetro‐authoritarianstates.Wearestillabletomanufacturechemicalsandmaterialsfromnationally‐sourcedoilwithminimalenvironmentalimpact,butthisisthelimitoftheoilmarketasidefromjetfuel.Thisfutureisnotanobjectivefailure;itjustpicksdifferentwinners.
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IMPLICATIONS Therearedifferencesintherelativeroleofthedriversandhowtheuncertaintiesresolvethemselvesacrosseachofthescenarios;asaresult,thepotentialoutcomesforvariousbioeconomyproductsarequitedifferentaswell.Table1belowprovidessomesenseoftheimpactsthatwemightseeonthekeybioeconomyproductsundereachofthepotentialscenarios.AppendixB:ScenarioPriceSchedulesgivesafurtherpictureofvariationsamongthedriversundereachscenario.
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TABLE1:POTENTIALBIOECONOMYIMPACTSUNDEREACHSCENARIO
1:ThrivingBioeconomy 2:BusinessasUsual 3:Climate‐DrivenBioeconomy
4:StrategicBiofuelsImperative
5:Deathanol
Biofuels
Biofuelsbeatoutpetroleum‐basedfuelsonprice,performanceandenvironmentalsustainability,andhaveessentiallyreplacedgasolineanddiesel.Theelectriccarhasmadeinroads,butliquidbiofuelsaretheprimarytransportationchoice.
Biofuelsoccupyasimilarorslightlylargermarketshareasthepresentday.Theyarestillsignificantlysupportedbysubsidies.
Biofuelshavelargelyreplacedfossilfuelsasaliquidtransportationfuel.Atthesametime,drivetrainelectrificationandadvancedbatterytechnologieshavereducedoverallliquidtransportationfuelneeds.
Biofuelsareartificiallysupportedinthismarketforstrategicandenvironmentalreasons,irregardlessofthepriceofoil.Electrifiedvehiclesareagrowingshareoftheautomarket,butlargeamountsofbiofuelsarestillnecessary
BiofuelsarephasedoutoftheU.S.economy.Technologynevergivesthemthebreakthroughstocompetewithoilonprice,andthegovernmentisnotwillingtopropupthemarketsforstrategicorenvironmentalpurposes
‐CornEthanol
Corn‐basedbiofuelsarenotdominantinthismarketduetorisingfoodpressures
Stilldominatesthemarketdespiteadvancesinotherfeedstocksduetoextensivelobbyingandampledomesticfeedstocksupply
Corn‐basedbiofuelsarenotdominantinthismarketduetotheirclimatefootprintandrisingfoodpressures
Stilldominatesthemarketdespiteadvancesinotherfeedstocksduetoexpandedsubsidies,extensivelobbyingandampledomesticfeedstocksupply
Ceasestomatter
‐CellulosicEthanol
Agriculturalandwoodycellulosicfeedstocks,however,havebecomeamajornewsourceofbiofuelsupplies
Stillplaysminorroleduetolackoftechnologybreakthroughsincellulosicandalgaebasedfeedstocks
Agriculturalandwoodycellulosicfeedstocks,however,havebecomeamajornewsourceofbiofuelsupplies
Agriculturalandwoodycellulosicfeedstocks,however,havebecomeamajornewsourceofbiofuelsuppliestoaugmentcornandmeetdemand
Ceasestomatter
BiomassElectricity
Mixedsuccessasotheralternativesourceslikewind,solarandnuclearpowerbecomemoredominant,aswellascontinueduseofcoal.Growingmarketinoff‐gridproduction,particularlyinruralareas
EnjoysanichemarketshareduetoRPSpolicies,acarbonpriceandco‐located,off‐gridgeneration.Coalremainsverycompetitive,however,andbiomassfeedstockisrelativelyexpensive
Biomasselectricityhasn'tfullyreachedgridparityonprice,butenjoysamoderatemarketshareduetotargetedRPSpoliciesinvariousstates.Fossilfuelelectricityislimitedduetonewenvironmentalregulations,andelectricityisincreasinglysuppliedbynuclearandmanyrenewableenergysourcesincludingbiomass.
Inasomewhatsimilarpositionasthepresent.Thepushforbiofuelshascausedthepriceofbiomassfeedstockstoriseconsiderably,makingbiomasselectricitylessattractiveonprice.SurvivesbecauseofRPSpolicies
Biomasselectricitylosesmarketsharetootherformsofenergyasothersourcesofenergyfallinpricefasterthanbiomasselectricity.
Bio‐BasedProducts
Plastics,rubbers,adhesivesandotherrawmaterialsfromrenewablebiomassarecheaperandmoredurablethanpetroleum‐basedproductsduetotechnologyadvancesandrisingpriceofoil
Bio‐basedmaterialshavemadestridestowardspriceequalitywithpetroleum‐basedmaterials,buttheydonothavealargesliceoftherawmaterialsmarket.
Majorbreakthroughshavebeenmadeintheproductionofbio‐basedmaterials,andthedecreasingcornpricesmakebio‐basedmaterialproductsincreasinglymarketable.
Bio‐basedproductsmakeveryminorgainsinthisscenarioastheartificialdemandgiventobiofuelsisnotextendedtobio‐basedmaterials.Petroleum‐basedandothernon‐renewablematerialsstilldominate.
Bio‐basedmaterialsloseinthisscenarioastheyaredeemedinferioronpriceandqualityascomparedtopetroleum‐basedmaterials.Nopoliciesareinstitutedtopropupthismarket.
Bio‐BasedChemical
Bio‐chemicalsgaingreatershareofthechemicalsindustry.Althoughtheycannotreplaceallpetroleumornon‐renewableproducts.
Traditionalbio‐basedchemicalsmarketscontinuetoenjoysuccess,butnomajorinroadsmadeintothepetroleum‐basedchemicalsmarkets
High‐valuebio‐chemicalshavemadesteadyinroadsintothetraditionalchemicalmarkets.SignificantR&Disdevotedtothis,andtechnologicalbreakthroughsallowchemicalextractionfrombiomasscheaperthanmanypetro‐chemicals
Similartobio‐basedmaterials,theeconomicsofbio‐basedchemicalsarehurtbyalackoftechnologyandhighfeedstockprices
Theeconomicsofbio‐basedchemicalsarehurtbyalackoftechnologyandhighfeedstockprices,sothesemarketsneveremerge
BIOECONOMYPRODUCTS
SCENARIOS
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MODELINGTHEBIOECONOMYSCENARIOSTOBETTERUNDERSTANDTHEIMPLICATIONS
AkeytooltovisualizetherelativeroleofthedriversandunderstandtheimplicationsforthebioeconomyundereachscenarioisaGreatLakesbioeconomymodeldevelopedbyShepherdAdvisorsandtheProductCenter.ThemodelprovidesabaselinecomparisonofMichigan’sbioeconomyresourcesvs.surroundingGreatLakesstates.Itillustratesbiofuelproductionineachofthescenariosandisprimarilybiofuels‐oriented,butprovidesinsightintothestrengthandinterplayofthevariousdriversthatshapenotonlythebiofuelsmarket,butthebroaderbioeconomyaswell.Figure2isagraphofthecurrentethanolcapacityineachofthesixstatesanalyzedinthemodel.Allproductioncapacityiscurrentlyfromcorn,astherearenocommerciallyviablecellulosicplantsintheGreatLakesstates.
FIGURE2:2009GREATLAKESCORNETHANOLCAPACITY:4.3BILLIONSOFGALLONSPERYEAR(BGY)
Currently,theGreatLakesregionhascapacitytoproduce4.3BGYofethanol,whichrepresentsabout25percentofthenation’s12.3BGYcapacity.Figure3showstotalprojectedethanoloutput–bystateandtypeoffeedstockunderabest‐casescenario(thrivingbioeconomy)in20years.Asthegraphillustrates,aslongascornisstillaviableethanolfeedstock,thelargestcorn‐producingstatescontinuetodominateethanolproduction.
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FIGURE3:2029GREATLAKESETHANOLPRODUCTION:15.2BGY(THRIVINGBIOECONOMY‐BASELINESCENARIO)
Withthebaselinemodelinplaceandthekeyscenariosdeveloped,Shepherdappliedtogglestothreevariablestohelpillustratethechangesthatwouldlikelytakeplaceundereachsetofcircumstances.Thethreetogglesthatchangedineachscenarioarecroplandareaallocations,cropyieldimprovements,andethanolyieldimprovementsbasedonthevariousscenarios.Thesetoggleswereappliedtothebaselinescenariotopredictbiofuelproductionundereachscenario.
Forexample,inthethrivingbioeconomyscenario,thepercentageofcorngoingtoethanolstaysconsistentat2008levels(approximately30percentofeachstate’scorngoestoethanol).However,intheclimate‐drivenbioeconomy,thepercentageofthecorncropgoingtoethanoldropstoaround10percentbecauseofconcernsregardingcornethanol’sclimatefootprint.
Figure4isagraphofaggregateethanolproductionintheGreatLakesundereachscenario.Asthegraphshows,thevariouspoliciesandmarketsupportvastlychangehowmuchandwhichtypeofethanolisproduced.
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FIGURE4:2029GREATLAKESETHANOLPRODUCTIONSCENARIOS
ThegraphbelowshowsonlyMichigan’sethanolproductionundereachscenario.SimilartotheGreatLakesasawhole,Michigan’sbestopportunitiesforexcellinginthebioeconomyareunderthestrategicbiofuelsimperativeandtheclimate‐drivenbioeconomyscenario.
FIGURE5:2029MICHIGANETHANOLPRODUCTIONSCENARIOS
Thesemodeloutputsdemonstratethatunderascenariowherethecurrentcorn‐dominatedbiofuelsmarketcontinuedtopredominate,Michigan,whichhasthesmallestcornharvestandthe
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lowestlevelofcornethanolproductionintheGreatLakes,wouldbeatastrategicdisadvantageinthebioeconomy.
However,asthebioeconomycontinuestoexpandandnext‐generationcellulosicbiofuelsstartbeingproducedinlargeramounts,Michiganhasanopportunitytobeamoresignificantleaderinthebioeconomy.Ifcellulosicbiofuelsbecomeagreaterpartofthemarket,particularlyunderascenarioinwhichcellulosic‐basedbiomaterials(chemicals,otherproducts)alsogainprominence,Michigan’srelativesuccessinthebioeconomywouldsignificantlyincreasebasedonthestate’ssubstantialforestryresources.AsFigure4illustrates,MichiganwouldproducesignificantlymoreethanolfromwoodybiomassthantheotherGreatLakesstates.
Todothiswouldrequirerampingupproductionofwoodybiomasscropsoverthenext20years,includingwoodyenergyplantations,energycrops,cornstover,andwheatstraw(whilenotexceedinganymorethan30percentharvestrateforanygivencropforethanolproduction).AchievingthisincreaseinproductionandbuildingacompetitiveadvantagewithintheGreatLakesregionoverthenexttwodecadeswouldrequirepolicydecisionsandinvestmentsincellulosicethanoltobecomeanimmediatepriorityforthestate.
DEVELOPING STRATEGIC RESPONSES
Thefivebioeconomyscenariospainttherangeofpossiblefutures.Thefutureorcombinationoffuturesthatactuallyhappenultimatelywillbedeterminedbyhowtheuncertaintiesunderlyingthescenariosareresolvedoverthetrajectoryofthenext15to20years.Buthowcandecision‐makersusethesescenariostodaytoplanfortheirorganizations’futures?Withoutsomeconsiderationofstrategicresponse,thescenariosareusefultoprovokediscussionandunderstandingbutnotaction.Decision‐makerscanusethescenariostoguidetheirstrategic(action)choicestodaysotheyarereadyasthefutureunfolds.Basedonthecharacteristicsofeachorganization(privateorpublic),eachdecision‐makermustdecidehowtorespondtothescenarios.Inprinciple,therearethreewaystousethescenariosinindividualorganizationplanning.First,ifonescenarioisparticularlydesiredbyanorganization,itsdecision‐makerscandevelopandimplementstrategiesdesignedtocreatethatfutureandnotmerelyrespondtoit.Forexample,anorganizationcouldpursuepublicpolicyadvocacyorconsumermarketingconsistentwithcreatingthedesiredoutcomesratherthanwaitforthegovernmentorconsumerstochange.Second,anorganizationcouldchoosedistinctstrategiesthatpositiontheorganizationforeachofthemoreprobablescenarios.Thenasthefutureunfolds,theorganizationcannarrowitseffortstostrategiesmostlikelytoachievesuccessbasedonthescenariothatactuallyhappens.Forexample,adecision‐makerchoosesasetofstrategiestorespondtoscenariooneandaseparatesetforscenariothree.Basedonkeyindicatorsofhowtheuncertaintiesareresolvedovertime,theorganizationshiftsfromthescenarioonestrategiestothescenariothreestrategiesifscenariothreeemergesasthelikelyoutcome.Pursuingdistinctstrategiesfordistinctfuturescanbeexpensive,soitisimportanttolayoutstrategyimplementationasasetofoptionsthatareexercisedaskeyindicatorsormilestonesintheresolutionofuncertaintyarereached.Third,thescenarioscanhavecommonelementsacrossallofthemorthevastmajorityofthem.Totheextentthisistrue,strategiesbasedonthesecommonelementsmaybedevelopedandimplementedsothatorganizationissuccessfulnomatterwhichscenarioactuallyunfolds.These
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areobviouslyhighlyvaluablestrategiesiftheyexist.Withoutthescenarios,suchrobuststrategiesmightmerelybechosenbyaccidentratherthanchosenwithintent.Typically,therearethreetypes ofstrategicresponsedevelopedforscenarioplanningexercises:
optimalstrategy(ies)toleadtoadesiredscenario
optimalstrategy(ies)givenaparticularscenario(s)
robuststrategy(ies)relevantacrossmultiplescenarios
Usingthebioeconomyscenariosdevelopedforthiseffortasanexample,Figure6highlightsthedifferenttypesofstrategiesanorganizationmightpursuedependingonwhichscenariositdecidesneedstrategiesthataredesired,moreprobable,orrobust.Thesearejustexamplestoillustratetheprocess,notwhattheProductCenterdeemsasactualdesiredorprobablescenarios.
Strategy Type: Thriving
Bioeconomy
Scenario
Business as
Usual Scenario
Climate Driven
Scenario
Strategic
Biofuels
Imperative
Scenario
Deathanol
Scenario
Optimal to Lead
to Desired
Scenario
Desired
Optimal Given a
Particular
Scenario
More Probable More Probable
Robust over
Multiple
Scenarios
Robust Robust Robust Robust
Optimalstrategy(ies)toleadtoadesiredscenario
Whilegainingabetterunderstandingofsomeoftheplausiblescenariosthatmayaffecttheirorganizations,stateandcorporatedecision‐makersmaywanttofocustheirstrategiesonmovingtowardaparticulardesiredscenario.Inthiscase,leadersmustclearlydefinethekeymanagementdecisionstheywilllikelyfaceduringthescenario‐planningperiod–whatwillliterallyorfigurativelybeontheiragendas.Evaluatinghowthesekeymanagementissueslookundereachscenariowillallowdecision‐makerstofocusonwhichscenariomaybethemostdesiredandthenplanparticularstrategiesthatwillhelpthemshapethefutureformaximumimpactoncreatingaparticularscenario.
Forexample,inFigure5above,anorganizationmightdeterminethatthethrivingbioeconomyscenarioismostdesiredgiventhespecificmanagementorpolicyissuesitwillbeaddressinginthenext15years.Decision‐makersmightconsiderstrategiesthat:
Leadtoincreasedinvestmentincellulosicethanol,includingexpandedresearchanddevelopment,feedstockdevelopment,andinvestmentinscale‐upofcellulosicfuelplants.
FIGURE6:TYPESOFSTRATEGIESFORSCENARIOPLANNING(FORILLUSTRATIONPURPOSESONLY–NOTACTUALSTRATEGIES)
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Increaseprice/costparitybetweenbiofuelandfossilfuelproduction,suchasalteringthesubsidystructure,orimprovingthecostsofproductionforbiofuels.
Increaseconsumeracceptanceofbiobasedproductsthroughoutreach,education,orincentivestotrybioproducts.
Optimalstrategy(ies)givenaparticularscenario(s)Bybetterunderstandingthedecisionstheywillneedtomakeduringthescenario‐planningperiod,decision‐makersalsomayfocusoncreatingastrategy(ies)thatwilloptimizetheirabilitytorespondtoandsucceedunderoneormoreparticularscenariostheyfeelconfidentcouldoccur.Thisapproachrequiresidentifyingthescenario(s)thataremostlikelyandthendeterminingwhatvariousorganizationaldecisionsshouldbeunderthosestrategies.Decision‐makersmustthenidentifythestrategiesthatwillallowthemtooptimizeoutcomesofthosedecisionsunderthatparticularscenario.
AgainintheexampleinFigure6,anorganizationmayevaluatethescenariosanddeterminethatthestrategicbiofuelsimperativeandthebusinessasusualscenariosarethemostlikelytohappen.Subsequently,leadersmayfocusoncreatingstrategiesthat:
Expandthestate’scornethanolindustry,suchasinvestmentstoincreasecornyield,improveefficienciesofcornethanolplants,orimprovethesupplychaininfrastructure.
Capitalizeonnicheopportunitiesforbiomasselectricityproduction,suchasco‐generationopportunities,orsmaller,community‐ownedbiomasspowerfacilities.
Continueorexpandsubsidiesforethanolproduction.
Robuststrategy(ies),relevantacrossmultiplescenariosFinally,decision‐makersalsocanlookacrossmultiplescenariosanddevelopstrategiesthatarerobustacrossscenarios.Theintentistominimizeriskbydevelopingstrategiesthatwillallowtheorganizationtosafelyandeffectivelycopewithallthealternativeoutcomesratherthanaimingtooptimizeperformance(profitsorsales,forexample)bygamblingononeparticularscenario.
Forexample,anorganizationmightdeterminethatitneedstohavestrategiesthatarerobustacrossallofthebioeconomyscenarios(exceptdeathanol)inordertominimizeitsrisk.Inthatcase,decision‐makersmightpursuestrategiesthat:
Increasethelevelofinvestmentincellulosicethanol.
Improvetheefficienciesofthebiofuelsupplychaintoreduceproductioncosts.
Allowthemtopursueproductionofhighervaluebiobasedproductsusedbythechemicalindustry
Theexamplesprovidedherearenotexhaustive,butprovidesomeillustrationofthedifferenttypesofstrategiesthatacompany,community,orthestatemightpursueunderthevariousscenarios.Eachentitymustevaluateitsownneedsandgoalsindeterminingthespecificstrategiestopursue.Becausethesescenariofuturesareinherentlyuncertain,thegoalofdevelopingthestrategiesisnot
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toensuretheoutcomeofparticularscenarios.Rather,itisintendedtohelporganizationsdevelopplansforpositioningthemselvestothriveunderagivenscenarioorscenarios.
MONITORING KEY DRIVERS OF THE SCENARIOS Indevelopingthefivescenarios,theProductCenterandShepherdidentifiedandevaluatedthekeydrivingforcesforshapingbioeconomyfutures,including:
technologybreakthroughs levelofinvestment policies consumervaluesandbehavior biomassavailability
Eachofthebioeconomyscenariosisdefinedinpartbythesedrivingforcesandtherearesignificantuncertaintiesrelatedtothemintermsofthedirectionandmagnitudeoftheirroleinshapingthefuturescenarios.Inscenarioplanning,itisimperativethatdecision‐makersmonitorwhatishappeningwiththevariousdriversinordertounderstandwhichscenariopaththeyareonandmakeanycorrectionstothestrategicresponses.Forexample,someofthebioeconomyscenarios,particularlytheclimate‐drivenbioeconomyandthethrivingbioeconomy,aremorefavorableforMichiganbasedonthestate’sdiverseresourcebase,substantialamountofwoodybiomass,andaccesstootherrelevantresources,suchaswater.IfMichiganhopestoadvanceitsbioeconomy,itmakessensetomovetowardthesescenarios,bothintermsofitsownbioeconomyanditsimpactinshapingthenationalandglobalbioeconomy.Todothisrequiresleaderstounderstandandmonitorthetrajectoryofthebioeconomy.Giventheuncertaintiessurroundingthesedrivers,itisimportanttoidentifymeasuresforeachoftheseuncertainties.Whilethespecificmonitoringmeasureswilldependonwhatdecision‐makers’strategicresponsesare,theProductCenterandShepherdhaveidentifiedsomepotentialvariablesorsignalstowatchthatcanhelpidentifywhichtrackthebioeconomyistakingsodecision‐makerscancontinuetoacceleratetowardthatpathormakecorrections.Variablestomonitorforeachofthedriversaresummarizedbelow.
TechnologybreakthroughsTwopotentialmeasuresofinnovationandtechnologicalbreakthroughinclude:
numberofbioeconomyrelatedpatents(trackingifgoingupordown) numberofnewcommercial‐scalebiofuelandbiomaterialsfacilitiesusingnon‐food
feedstocks
Thecurrentbioeconomy,particularlycorn‐basedethanolandbiodiesel,doesnotrequiresubstantialtechnologicalinnovation.Ahighernumberofpatentswouldlikelyindicatetechnologicalbreakthroughsinnon‐foodfeedstockproductsand/orfacilityandsysteminnovationsthatreducetheproductioncostsforbiofuelsandbiomaterials.Morecommercial‐scalefacilitiesalsowouldbeindicativeoftechnologybreakthroughsthatallowforincreasedefficienciesandcostcompetitivenessofbiobasedproducts.
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LevelofinvestmentIdeally,levelofinvestmentwouldbetrackedby:
corporateresearchanddevelopmentexpendituresonbioeconomy‐relatedscienceandengineering
capitalflowtobioeconomy‐relatedfacilitiesorotherventures
Thefederalgovernmenttracksprivatesectorresearchanddevelopmentexpenditures,butwithverylittlegranularity.Asdataarereportednow,itwouldbedifficulttotrackbioeconomy‐specificresearchanddevelopmentbytheprivatesector.Similarly,thereareorganizationsthattrackventurecapitalflows,buttheleadinggroupsdonotspecificallymonitorbioeconomyrelatedinvestment.Giventheimportanceofbothpublicandprivatesectorinvestmentinadvancingthescienceofdevelopingandrefiningbioeconomyproducts,aswellassupplyingnecessaryfundingforstart‐upoperationsandfacilityexpansions,itwillbeimportanttodevelopmechanismstotrackbioeconomy‐relatedinvestmentdatatoresolvesomeofthescenariouncertainties.PoliciesTherearenumerouspoliciesthatcouldaffectthepaceandprogressofbioeconomygrowth.Policiescanhaveanimpactbyofferingincentivesforbioeconomyresearchanddevelopment,technologyadvances,andinfrastructuredevelopment.Theyalsocansignificantlyaffectthebioeconomymarketthroughregulationsthatlimitbioeconomy‐relatedactivitiesorcompetitortechnologiesandefforts.Whilemanyofthesepoliciescouldplayastrongroleinadvancingthebioeconomy,thebestwaytomonitorpoliciesistocreateanindexofgovernmentsupportforthebioeconomythatcomparesstatesintermsofpolicysupports.Forexample,theindexcouldinclude:
mandatedrenewableenergystandardsize
amountofsupportforrenewablefuels,suchasfleetmandatesandrenewablefuelstandards
stateorfederalpoliciesthatencouragethesitinganddevelopmentofbioenergyfacilities(digesters,wood‐firedboilers)
ConsumerbehaviorTherateofadoptionofbiofuels,bioenergy,andbioproductsislargelydrivenbythepriceoftheseitemscomparedtofossil‐fuelcounterparts,aswellasconsumers’perceptionsoftheproducts'qualityandsustainability.Variablesthatcouldprovideproxymeasurementsforconsumerbehaviorinclude:
relativepriceindexofgasoline/dieselversusbiobasedcounterpartsperBritishthermalunit(BTU)todetermineoilprice
percentageofethanol/biodieselcapacityinproduction(capacityutilization)
amountofbiofuelssoldannuallyatcommercialpumps
amountofelectricityproduced(inmegawatts)frombiomassfuel
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Anotheroptionwouldbetodevelopaconsumerbehaviorsurvey(similartoaNielsonsurvey)tocollectannualdataonconsumerbehavior.Resultswouldshowbothtrendsinconsumerbehavioraswellasanymajor,discontinuousjumpsorchanges.BiomassavailabilityBiomassavailabilitydependsonnotonlybiomassresources,butalsotheinfrastructuretoextractandtransportbiomasssoitisavailableforuseinbiofuels,bioenergy,andbiomaterials.Again,therearemanyindicesthatcouldbeusedtomonitorbiomassavailability,butthosethataremostfocusedondrivingthescenarios(versusbeingaffectedbyadriver)willprovidethemostinsightintothebioeconomytrajectory.Somepotentialindicatorsinclude:
acresofnewplantingsofshortrotationwoodycrops(indicatinganemergenceoftrueenergycropping)
acresofforestryresources
bushelsofcornconvertedtoethanolannuallyWhichevervariablesaremonitored,theymusthelptrackthetrajectoryofthebioeconomysothatleadersknowthestepstotaketosupportorshiftthattrajectory.CONCLUSIONS Thescenariospresentedinthispaperrepresentfiveplausiblefuturescenariosforthebioeconomy.TheydescribepotentialpicturesofwhatthebioeconomyinMichiganandelsewheremightlooklikeinthenext20yearssopublicandprivatedecision‐makersmightimprovethestate'sabilitytosucceedandeventhriveunderanyofthescenarios.Theanalysisisnotintendedtosuggestaparticularscenariothatisidealorismoreorlesslikely,buttopresenttherangeofpossibilitiestohelpdecision‐makerstargetdesiredoutcomes–andprepareappropriatelyforallofthem.Usingthesefivescenarios,thestatecannowbetterevaluatetheimportanceofdecisionsrelatingtoMichigan’sbioeconomyinthecomingyearsanddevelopappropriatestrategiesforoptimizingthosedecisionsunderdifferentscenarios.TheMSUProductCenter/ShepherdAdvisorsbioeconomymodeldemonstratesthatMichigan’sbioeconomywillexpandunderallofthecontemplatedscenariosexpectfordeathanol.ItalsosuggeststhatMichigan’sbioeconomydoesrelativelybetterinfuturescenarioswherecellulosicbiofuelshavealargershareofthemarket.Thisimpliesthatscenariosthataccommodateandpromotefuturecellulosicbiofuelproductionwillberelativelymorebeneficialtothestateandstrategiesthatencouragesuchscenarioswillbemateriallymorebeneficial.Ofcourse,identifyingandassessingstrategiesthatstrengthenMichigan’sbioeconomyunderotherfuturebioeconomyscenariosisequallyimportant,especiallystrategiesthataremorerobustacrossscenarios.AsMichigan’sstrategicresponseiscreated,stategovernmentcantrackvariablesofkeytechnology,investment,policy,consumerbehavior,andbiomasssupplydriverstomonitorandbetterunderstandtheactualevolvingtrajectoryofthebioeconomy.Withstrategiesinhand,publicandprivatesectordecision‐makerswillthenbewellpositionedtoimplementthestrategiesthatmostfavorMichigan’sbioeconomysuccess.
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APPENDIX A: SUMMARY OF STAKEHOLDER INTERVIEWS InMarchandApril2009,ShepherdAdvisorsinterviewednineinternalandexternalstakeholderswhoareinvolvedinbioeconomyresearchandindustrytogetinputonkeybioeconomytrendsanddrivers.Stakeholdersinterviewedwere:
BryanRitchie MSU– MSUBioeconomyNetwork
BobbiBringi MBI
BrettSmith CenterforAutomotiveResearch
DonnaLaCourt MichiganEconomicDevelopmentCorporation
DougGage MSU–OfficeoftheVicePresidentforResearchandGraduateStudies,andMSUBioeconomyNetwork
RayMiller MSU– DepartmentofForestry
StevePueppke MSU–MichiganAgriculturalExperimentStation,andOfficeoftheVicePresidentforResearchandGraduateStudies
SteveRapundalo MichBio
WallyTyner PurdueUniversity
Questionsposedtostakeholderswere:
1. Whatdoesbioeconomymeantoyou?Whatisincludedinyourdefinition?
2. WhatdoyouseeasthetopthreefundamentalforcesshapingMichigan’sbioeconomyinthenext15years?
a. Whatarethetrendsassociatedwiththosefundamentalforces?b. Inwhichdirectionarethosetrendsmoving?c. Howcertaindoyouthinktheyare?
3. Towhatextentdoesthestateoftheworld’smacroeconomyactasadrivingforcein
shapingthebioeconomy?
4. Whatistherelationshipbetweentheprice/availabilityofoilandtheadvancementofthebioeconomy?
5. Whatroledoyouthinkconsumerpreferencestowardssustainability/desireforgreenproductsandenergywillplayinthefuturestateofthebioeconomy?
ProgressandPossibilitiesforMichigan’sBioeconomy November2010FutureScenariosforMichigan’sBioeconomy
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6. Whatdoyouseeasthemostlikelyrolethattechnologyplaysinshapingthebioeconomy?
7. Basedonyourviewoftheabovedrivingforces/trends,whatimplicationdoesthishavespecificallyforMichigan’sabilitytoexcelinthebioeconomy?
Keyobservationsfromthestakeholderinterviews:
Trend/Force Direction Certainty
Consumer preference increasing interest and public understanding.
Upward trend, but slope is unclear.
Uncertain ‐ cost will always be a big
factor.
Cost of biofuels/materials: relative to
oil/fossil fuels
Continued volatility. Price of fossils fuels
trending up; biofuels/ biomaterials likely
trending down.
Certain that it will be a primary force re:
biofuels; uncertain about actual oil
prices.
Economy: transitioning to knowledge‐based Continue to move toward more knowledge‐
based economy.
Uncertain.
Economy: urgency to diversity our economy increasing urgency and interest in expanding
and diversifying our economy
Confident.
Improved efficiency of bioproducts:
integration of products/processes to
improve efficiency and economics
Increased integration has to happen in order to
achieve efficiency and price parity.
Uncertain ‐ dependent on policy
changes that reward efficiencies.
Natural resource availability: MI's strengths
in natural resource availability
Increasing understanding and ability to
sustainably use our natural resources for the
bioeconomy.
Uncertain ‐ will depend on whether and
how we can utilize resources
sustainably.
Political support/action: for biofuels Probably increasing, but direction of political
support can go both ways.
Uncertain ‐ a lot of fractionation within
the agriculture community. Probably
will have political support and action.
Political support/action: GHg/carbon and
renewable energy policies
Increasing regulation and government political
intervention.
Confident.
Strong base of assets/talent in Michigan Flat now, or declining, but could reverse the
brain drain that has been happening by
promoting ourselves and creating vibrant
communities where people want to live.
Uncertain ‐ some people get this, many
don't.
Technology advancements increasing advancements, complexity, and
efficiency gains ‐ there has to be some
technology breakthroughs that improve
efficiencies/costs.
Confident that technology
advancements will impact bioeconomy,
but could also see a technology leapfrog
that negates our need for biofuels.
Technology will also play a role in
advancing markets for bio‐
pharmaceuticals and therapeutics
Venture capital availability Increasing. Uncertain ‐ in the short term, more
certain in the long term.
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APPENDIX B: SCENARIO PRICE SCHEDULE Foreachofthescenarios,theShepherd/ProductCenterteamdevelopedapricescheduleforseveralvariables,includingpetroleum,apotentialcarbonorgastax,cornbushels,andgasolineandethanolcoststoproduce.Thepriceschedulewasusedtoverifyandvalidatethescenariosandidentifykeyvariablesthatwouldinterplaytocreatecertainaspectsofthescenarios.
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