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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

ProgressandPossibilitiesforMichigan’sBioeconomy November2010FutureScenariosforMichigan’sBioeconomy

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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


16

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


17

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


19

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


21

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?


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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.


24

APPENDIX B: SCENARIO PRICE SCHEDULE Foreachofthescenarios,theShepherd/ProductCenterteamdevelopedapricescheduleforseveralvariables,includingpetroleum,apotentialcarbonorgastax,cornbushels,andgasolineandethanolcoststoproduce.Thepriceschedulewasusedtoverifyandvalidatethescenariosandidentifykeyvariablesthatwouldinterplaytocreatecertainaspectsofthescenarios.

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