MN Bio Industrial Processing Roadmap - FULL REPORT

Minnesota RoadMap:
Recommendations for BioIndustrial Processing

MaRch 2012
with contributions by
Table of Contents Table of Contents

Executive Summary I: Building the Next-Generation Biorefinery II: Downstream Market Development Biobased Chemicals III: Downstream Market Development Biofuels IV: Agricultural-based Supply Chain Partnerships V: Forest-based Supply Chain Partnerships VI. Policy Development for Bioindustrial Processing Appendices Acknowledgements and Contact Information 1 8 24 36 51 62 73 88 96
Executive Summary
intRoduction
The advanced biofuels and biobased chemicals industry is poised for rapid growth as the markets grow for alternatives to petroleum. Minnesota has an opportunity to be a global leader in bioindustrial processing and the emerging biobased products industry. The state can build from its current assets and channel its legacy in adding value to agriculture and forest resources. For the last century, Minnesota has proven itself to be a global leader in the sustainable growth of the conventional biobased industry, including the manufacturing of food, feed, and fiber. In fact, sawmills and flour mills provided an initial basis for the economic growth of Minneapolis, St. Paul, and the rest of the state in the latter half of the 1800s. More recently, the state pioneered the development of the ethanol and biodiesel industry. The capabilities and infrastructure of the conventional biobased industry provides a base to build upon for the growth of the emerging biobased industry. Minnesota companies will continue to see opportunities to secure investment for expansions into production of advanced biofuels and biobased chemicals.
Critical Definitions
Bioindustrial processing industry The advanced biofuels and biobased chemicals industry, where industrial biotechnology is used to process biobased resources into valuable fuels and chemicals. Conventional biobased industry The industry manufacturing traditional agriculture and forest products such as food, feed and fiber and the value chain associated with manufacturing these products. Also includes the manufacturing of corn ethanol and soy biodiesel. Emerging biobased industry The industry manufacturing advanced biofuels, biobased chemicals, bioenergy, biopolymers, bioplastics and the value chain associated with manufacturing these products. Renewable materials The chemicals, biofibers, polymers, and materials that can be derived from renewable, biological resources including agriculture, forestry and other biobased resources. Sustainable bioeconomy Economy based on sustainable use of renewable resources to meet the growing food, material, and energy needs of the world.
Additionally, the state has already emerged as a leader in the growth of company headquarters within the biobased chemicals industry.
Background
The following roadmap is designed to provide a pathway to accelerate the industrys development. The report details factors influencing the development of the global advanced biofuels and biobased chemicals industry, identifies opportunity areas for Minnesota, and sets forth strategic recommendations. The roadmap was developed under the guidance of The BioIndustrial Partnership of Minnesota, a group of businesses, government officials, and academics who are committed to realizing Minnesotas potential as the center of development for the advanced biofuels and biochemicals industries.
The Minnesota Roadmap: Recommendations for BioIndustrial Processing
These efforts will accelerate industry growth, job creation, and value-added manufacturing that build upon Minnesotas agriculture and forest-based resources. These recommendations, if followed, can lead to the addition of 12,000 direct and indirect jobs in bioindustrial processing by 2025 across Minnesota, as detailed in Appendix E.1
GloBAl TRENDS
Factors influencing industry development
Advanced biofuels and biochemicals combine forces in a drive to replace the whole barrel of oil not just fuels. In todays oil refinery industry, 3 percent of the volume of feedstock is used for a wide array of chemicals, while another 70 percent is used for fuels. However, the total revenues from each category are equal. For this reason, industry development for the emerging biobased industry must proactively include the production of biobased chemicals, as well as biofuels, in order to create maximum value. However, years of research and development and commercial development will be required before a product in the emerging biobased industry can be viable in the marketplace, creating significant high-technology jobs. Additionally, manufacturing of advanced biofuels and biobased chemicals is capital intensive, making it important to ensure funding availability across the spectrum. The opportunity is large for successful companies, however. Partnerships are critical factors to consider in the growth of companies in the emerging biobased economy. Categories of partnership will include
Figure 0.1, Oil Barrel Breakdown into Products
Historical and Projected Crude oil Prices

250 200 $/barrel 150 100 50 0 High Oil Price Projection Reference Case Projection Low Oil Price Projection Historical Prices Year
Figure 0.2
Composite of Petroleum Product Prices, Reference Case, High Oil Case, and Low Oil Price Case. (2011) US Department of Energy: Energy Information Administration. Annual Energy Outlook. Imported Low Sulfur Light-Crude Oil. Retrieved February 10, 2012 from http:// www.eia.gov/oiaf/aeo/tablebrowser/ Historical data from Spot prices from crude oil and petroleum products. (2012). Retrieved February 14, 2012, available from: http://www.eia.gov/dnav/pet/pet_pri_spt_s1_a.htm
Downstream buyers of products, to ensure that a market exists for biobased chemicals, and The conventional biobased industry, to minimize capital requirements and ensure biomass supply.
Downstream market development: Biobased chemicals

Biobased chemicals are being used in an increasing array of products, including everyday items such as plastics and cleaning agents. The global market value of biobased chemicals is projected to reach $483 to $614 billion across a broad range of chemicals by 2025, as detailed by the USDA.2 This represents more than a 20 percent market share of the global chemicals industry.3 A variety of factors are driving growth in market demand. First, petroleum prices are on a long-term upward trajectory, in part due to the increasing difficulty of extraction and transportation of crude oil. Between 2000 and 2010, the average cost of bringing a new oil well to production doubled.4 For chemicals dependent on petroleum-based feedstocks, supplies have been squeezed, and as a result, prices have increased. These market dynamics are creating an opportunity for biobased chemicals to provide a cost-effective alternative.5 Additionally, consumer demand is growing for safer, more environmentally friendly products. Chemical regulation is becoming more stringent, and renewable materials that perform well in final products are helping fill the markets demand for safer materials. These products provide clear value to their customers in terms of functionality and sustainability.
Downstream market development: Biofuels

Global demand for biofuels is projected to increase from $82.7 billion in 2011 to $185.3 billion by 2021.6 Policies requiring consumption of advanced biofuels across the globe continue to be implemented, and over time, these will likely continue to result in increased requirements for environmental performance. Additionally, development of the technology and required supply chains for cellulosic biofuels are expected to advance quickly.
Agriculture supply chain development

The conventional biobased industry stands to benefit significantly from additional markets, revenue, and profit that bioindustrial processing can provide. Agriculture is well-positioned to meet increasing demand for food, feed, fiber, and fuels. Growth in yields for existing crops can enable the growth of new markets to utilize agricultural feedstocks, even while meeting existing demand. Additionally, the harvesting of agricultural residues will lead to added value from the land. In some cases, new crops will be developed for industrial purposes, such as diversified prairie grasses and energy beets. Bioindustrial processing could have profound impacts on agriculture production.
Forestry supply chain development

The forest products industry has been battered by economic turmoil in the past five years. Declining forest products output, and the resulting decline in timber production in Minnesota, has resulted in a systematic underutilization, an inability to manage some areas of the forest, and lost economic
activity. Advanced biofuels and biobased chemicals provide an opportunity for growth that leverages existing infrastructure, established supply chains, and Minnesotas rich forest resource.
MINNESoTAS STRENGTHS
The states bioindustrial processing industry is strong and growing, and Minnesotas economy has an opportunity to benefit from its development. Minnesota is well on its way to being a global leader in bioindustrial processing. Within the state, companies are supported by research and education from worldclass universities, a supportive public sector, and a strong history for industry creation in the development of the first generation ethanol and biodiesel industries. Additionally, there are four general categories of strengths listed below.
1. Emerging cluster of bioindustrial processing company headquarters

The state has a critical mass of companies on the cutting edge of the development and implementation of new bioprocessing technologies. The state continues to drive toward the development of a sustainable industry cluster. Nearly 2,000 direct and indirect jobs have already been created through this economic activity. The availability of talent is among the primary reasons for the growth of this new cluster, along with local biomass resources. Minnesota has Experienced executives in an array of biobased industries, Scientists and engineers with superior expertise in the production and conversion of biobased feedstocks, as well as the design and manufacturing of final products, and Accomplished service providers, such as lawyers, engineers, and accountants.
Figure 0.3, BioIndustrial Processing Companies with headquarters or major operations in Minnesota
The map is intended as a list, not an indication of location.
Assuming Minnesotas industry can grow at a rate similar to global market growth, direct and indirect employment in bioindustrial processing company headquarters is projected to total 7,000 by 2025.7
2. Feedstocks
Another advantage for Minnesota is that the state has sufficient agricultural and forest resources available to provide a diverse set of feedstocks for manufacturing advanced biofuels and biobased chemicals. Key assets include:
Biorefinery Infrastructure Map for production of corn, and third in the nation for soybeans, and is
the top producer of sugar beets.
Strong agriculture production. The state ranks fourth in the nation
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At least 3.2 million green tons of surplus wood available in northern Minnesota.8
3. Existing infrastructure
A third advantage for Minnesota is the states strong conventional biobased industry, which provides necessary infrastructure for integrated biorefinery development. Facilities in the ethanol, biodiesel, and forest products industry have the potential to develop additional revenue streams. In partnership with the emerging biobased industry, existing biorefinery infrastructure can be repurposed for the advanced biofuels or biobased chemicals markets, which is the case for three shuttered oriented strand board (OSB) facilities in northern Minnesota. The manufacturing of advanced biofuels and biochemicals could result in the employment of over 6,000 people by 2025 in a combination of partnerships with existing biorefineries as well as new construction. The impact for rural communities in Greater Minnesota could be considerable, just as it was in the recent emergence of the conventional biofuels industry.
Figure 0.4, Minnesotas ethanol, biodiesel, pulp and paper mills, large sawmills, and engineered wood products facilities
4. Established base of large companies in related industries

200 km 100 mi
Finally, Minnesota is home to 20 Fortune 500 companies.9 Several of these large companies could be drivers in the value chain for renewable materials, including Cargill, 3M, Ecolab, H.B. Fuller, Target, and CHS. Within these companies exist established capabilities that could be leveraged to provide logistics systems for commodity supply chains, formulation and manufacturing of products using biobased chemicals and biobased intermediates, and distribution and sales of goods to end users. Mutually beneficial relationships along this value chain can solidify the favorable market position of downstream partners, while enabling growth in the advanced biofuels and biobased chemicals industry.
A STRATEGY FoR MINNESoTA

Given Minnesotas advantages in resources, knowledge, and infrastructure, industry development is expected to occur across all stages of company growth, from early-stage development through manufacturing scale-up and global market growth. The following strategies provide a roadmap to allow Minnesota to realize its potential as a world leader in bioindustrial processing. 1. Ensure availability of funding options for bioindustrial processing Financing will be of critical importance to the industry. A full spectrum of investment is needed, from seed and angel funding to venture capital and long-term debt capital. Tactics include: Educating investors and financial institutions about the unique opportunity to develop the bioindustrial processing industry in this region, and Ensuring awareness, availability, and access to federal and state financial support to accelerate research and development through full-scale manufacturing 2. Communicate Minnesotas competitive advantages to the global industry Minnesotas unique combination of assets provides opportunities to actively position the region and individual biorefineries as strong places to develop business opportunities. Other geographies are aggressively competing in this space, including other U.S. states, Brazil, and Southeast Asia. Outcomes would include the attraction of companies, business leadership, and investment. A second tactic would be to provide support to individual facilities that have the desire and financial interest in partnering with advanced biofuels and biochemicals companies. Identification of viable partners and navigation of federal policy programs are two major areas of need. 3. Enable production and development of end markets for bioindustrial processing Continued improvement of the regulatory environment in Minnesota is critical for the development of manufacturing in the state. Adjustments in policies must be designed to include considerations to accelerate speed of time to market and minimizing costs for companies. Additional details are provided in the policy section of this document. Furthermore, policies must be developed in a fashion that ensures inclusivity for all types of biofuels. This can ensure the overall biofuels market continues to grow for various applications. For renewable materials, education will play a role in ensuring that parties across the value chain understand the factors behind demand. For example, a manufacturer who understands how to take advantage
of market growth from green-conscious consumers, perhaps through the use of biobased materials, can stand to benefit significantly from new market opportunities. 4. Organize industry-led efforts to develop a voice for the industry Successful implementation of the strategy described above will rely on the development of a stable voice for the industry. The focus of the organization would be industry growth. Harnessing collective efforts to develop and communicate clear and concise messages can raise the profile of bioindustrial processing, providing multiple benefits in terms of developing supportive policies and driving investment and business partnerships to the industry.
CoNCluSIoN
The advanced biofuels and biobased chemicals industry is set for strong growth, and Minnesota has the assets to sustain a global leadership position. Implementation of the prior recommendations will serve to accelerate this growth.
endnotes
1. 2. BBAM analysis. Includes direct and indirect employment. Please see Appendix E for detailed explanation. A majority of this value is derived from specialty and fine chemicals. U.S. biobased products market potential and projections through 2025. (2008) Washington DC: U.S. Department of Agriculture, Office of the Chief Economist. OCE-2008-1. February 2008. Retrieved on March 12, 2011 from www.usda.gov/oce/reports/energy/biobasedreport2008.pdf. U.S. biobased products market potential and projections through 2025. (2008) Washington DC: U.S. Department of Agriculture, Office of the Chief Economist. OCE-2008-1. February 2008. Retrieved on March 12, 2011 from www.usda.gov/oce/reports/energy/biobasedreport2008.pdf. Dobbs, R. et. Al. (2011) Resource Revolution: Meeting the worlds energy, materials, food, and water needs. McKinsey Global Institute, McKinsey Sustainability & Resource Productivity Practice. Pg 45. November 2011. Retrieved on November 23, 2011 from http:// www.mckinsey.com/en/Features/Resource_revolution.aspx. Additional details in Downstream Market Development-Biobased Chemicals. Production has shifted to a reliance on natural gas feedstocks, squeezing the market for certain petrochemicals. Pike Research, Inc. ( 2011). Global biofuels market value to double to $185 billion by 2021. October 11, 2011. Retrieved on February 27, 2012, from http://www.pikeresearch.com/ newsroom/global-biofuels-market-value-to-double-to-185-billion-by-2021. BBAM analysis. Includes direct and indirect employment. Please see Appendix E for detailed explanation. Deckard, Don. (2010) Economic Opportunities for Minnesotas Wood. Unpublished Document. May 2010. The surplus assumes a small reserve capacity to remain in the forest for market stability. Fortune 500 Ranking of Americas Largest Corporations (2011). CNN. Retrieved on October 1, 2011 from http://money.cnn.com/magazines/fortune/fortune500/2011/states/MN.html.
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I: Building the Next-Generation Biorefinery

intRoduction
Minnesota has been a national leader in the development and implementation of conventional biorefineries to produce ethanol and biodiesel from regionally grown agricultural feedstocks, primarily corn and soybeans. These conventional biofuels have achieved broad acceptance and have created a significant economic impact in Greater Minnesota. Attention is now turning to the scale-up and commercialization of advanced biofuels, such as cellulosic ethanol and isobutanol, and other biobased chemicals. Prospects for growth are strong. To fully capitalize on this growth, Minnesotas next generation of biorefineries must become more versatile to produce a variety of drop-in and novel biofuels and biobased chemicals, accept diverse biomass feedstocks, partition and/or break down more biomass components (e.g., cellulose), and ensure the quality of high-value co-products (e.g., distillers grains) for food and feed. Industry development efforts will require both a strong cluster of companies commercializing technology for the production of fuels and chemicals, and manufacturing capacity for emerging products that leverage the conventional biobased industrys infrastructure. We project that industry growth enabled by these recommendations would create 12,000 direct and indirect jobs across Minnesota by 2025, increasing from 2,000 jobs created by the industry today. Of the total, 7,000 jobs would be created by the establishment of company headquarters of advanced biofuels and biochemicals companies, with another 6,500 jobs added through development of partnerships with existing biorefineries and construction of next generation biorefineries.10 Additional details on job creation numbers can be found in Appendix E.
Critical Definitions
Bioindustrial processing industry The advanced biofuels and biobased chemicals industry, where industrial biotechnology is used to process biobased resources into valuable fuels and chemicals. Conventional biobased industry The industry manufacturing traditional agriculture and forest products such as food, feed and fiber and the value chain associated with manufacturing these products. Also includes the manufacturing of corn ethanol and soy biodiesel. Emerging biobased industry The industry manufacturing advanced biofuels, biobased chemicals, bioenergy, biopolymers, bioplastics and the value chain associated with manufacturing these products. Renewable materials The chemicals, biofibers, polymers, and materials that can be derived from renewable, biological resources including agriculture, forestry and other biobased resources. Sustainable bioeconomy Economy based on sustainable use of renewable resources to meet the growing food, material, and energy needs of the world.
Industry Background and Definition

Biomass is created through the conversion of air, water, sunlight, and soil into the simple and complex carbohydrates, proteins, oils, and lignin that make up our food and animal feed, as well as materials for clothing, craft, construction, and fuels. Humans have applied bioprocessing organisms such as yeasts, molds, and bacteria to biomass feedstocks for millennia to produce beer, bread, wine, cheese, and yogurt, among other foods. The majority of these products are relatively non-toxic and biodegrade in a short amount of time to air, water, and soil. Fossil fuels, including petroleum and natural gas, are essentially ancient prebioprocessed biomass. A crowning achievement of 20th century science and technology breakthroughs has been the conversion of fossil fuels to create fuels, fibers, plastics, building materials, and useful chemicals that make up consumer products used in modern life. However, economic and geopolitical concerns and long-term damage to environmental and human health make the resulting dependence on petroleum a major challenge. Biorefining to manufacture biofuels and biobased chemicals is the marriage of bioprocessing organisms with chemical and industrial engineering to convert contemporary biomass into building blocks that can replace those derived from petroleum. Figure 1.1 shows a typical manufacturing cycle for manufactured biobased products, from the harvesting of raw materials through sale to end users. A more detailed representation of the value chain is included in Appendix A.
Figure 1.1, Renewable Materials Value Chain
This report details the factors influencing the development of the advanced biofuels and biobased chemicals industry across the globe, explains opportunity areas for Minnesota, and sets forth strategic recommendations. Implementation of these recommendations can accelerate industry growth, job creation, and value-added manufacturing that leverage Minnesotas agriculture and forestry resource.
industRy tRends
Advanced biofuels and biobased chemicals markets poised for rapid growth
Advanced biofuels and biobased chemicals have gained traction in the broader fuels and materials industry over the past decade, leading to the availability of funding flowing to the industry. Market drivers pushing the industry forward include: demand for safer materials that are regulatory compliant, unfavorable petroleum price dynamics, materials shortages resulting from shifts in the chemical manufacturing industry, increasing consumer demand for green products, and policies requiring consumption of advanced biofuels. For more detail, see the following chapters: II: Downstream Market Development Biobased Chemicals, and III: Downstream Market Development Biofuels.
Advanced biofuels
The global market for biofuels is projected to increase from $82.7 billion in 2011 to $185.3 billion by 2021.11 The U.S. market is expected grow in step with global market demand, buoyed by the drive to implement the Renewable Fuels Standard 2 (RFS2), which mandates a total of 36 billion gallons of biofuel consumption by 2022.12 In 2011, biorefineries across the U.S. produced over 13 billion gallons of ethanol,13 and over 1 billion gallons of biodiesel.14 Moving forward, satisfying existing mandates for advanced biofuels will require an aggressive build-up of capacity. According to an analysis from the U.S. Department of Agriculture, this could require 528 commercial-scale cellulosic ethanol refineries located across the United States, with capital requirements totaling $168 billion. 15, 16 However, commercial-scale production of cellulosic biofuels has developed more slowly than expected, and uncertainty about the technology continues today. For production to continue developing, production incentives and strong mandates will remain critical.
Biobased Chemicals
The 2010 market value for biobased chemicals was estimated to be between $130 billion and $180 billion, and is projected to grow up to 9 percent annually.17 The global market value of all types of biobased chemicals is projected to reach $483 to $614 billion across a broad range of chemicals by 2025 as detailed by the USDA.18 This represents more than a 20 percent market share of the global chemicals industry. 19, 20 Employment in this sector across the United States totaled 5,700 in 2007.21
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For companies developing platform chemicals and plastics, rapid growth is necessary because the petrochemicals being displaced by biobased chemicals are typically produced and sold in high volumes; bioindustrial processing companies will be expected to go big or go home to be credible players. Rapid ascension to gain economies of scale will be necessary to be competitive. Emerging manufacturers of biobased chemicals are projecting annual production of 5 billion pounds by 2015, a 25-fold increase from 200 million pounds manufactured in 2011.22 Such rapid development will continue to rely on equity events, traditional bank financing, and diffusion of risk through some level of government support.
Capital investment fueling growth

Increasing demand is giving rise to encouraging signs of momentum for capital investment into bioindustrial processing. From 2004 to 2009, $1.48 billion was invested into the industrial biotechnology sector, which largely encompasses bioindustrial processing.23 Capital funding for clean technology companies, used as an indicator of venture investors interest in green and clean products, has increased significantly over the last decade. Since 2006, $16.3 billion in venture investments have gone into clean technology, compared to $1.6 billion dollars between 2001 and 2005.24
Clean Tech Venture Capital Investments

$4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Amount Invested (millions)
Year More recently, a series of initial public offering (IPOs) have brought inFigure 1.2 vestment into the advanced biofuels Pricewaterhouse Coopers/ National Venture Capital Association (2011). Total U.S. investments by year Q1 1995- Q2 2011. Retrieved October 3, 2011, from http://www.nvca.org/ and biobased chemicals industries. index.php?option=com_docman&task=doc_download&gid=773&Itemid=93 Since December 2009, 13 industrial biotechnology companies have filed for an IPO.25 Of these, six have been listed on public stock exchanges, and these equity events have yielded a total of $727 million of investment.26 When combined with venture capital investments, public financial markets are propelling businesses toward commercial-scale manufacturing capability.
Risk diffusion critical for industry development

While private capital support is available, the industry remains an especially capital-intensive endeavor. In general, private sources of investment and lenders cannot handle the required risk to bring biobased fuels and chemicals to the marketplace. Significant research and development must occur for a product in the advanced biofuels and biobased chemicals space to reach the market, with the time from concept to commercialization extended over many years of research with teams of highly skilled experts.27
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Additionally, hundreds of millions of dollars are required to build commercialscale processing facilities. Therefore, opportunities to minimize the capital required for scale-up are aggressively pursued. Viable strategies to diffuse risk in the pursuit of commercial-scale production include developing partnerships with the conventional biobased industry and leveraging of government support.
Partnerships for Growth: Minnesotas Biobutanol Manufacturing

Minnesota has emerged as a leader in the commercialization of biobased isobutanol. The state is projected to be the home for two of the first commercial-scale facilities in the country, both of which involved strategic partnerships that have enabled conversion of existing infrastructure to produce biobased isobutanol. First, in September 2010, Gevo, a Colorado-based renewable chemicals and advanced biofuels company, purchased Agri-Energy LLC, an ethanol manufacturer in Luverne, Minnesota.1.1 More recently, in November 2011, Highwater Ethanol LLC in Lamberton, Minnesota, signed a letter of intent to produce isobutanol using technology developed by Butamax Advanced Technology LLC, which is a joint venture between BP, the global oil and gas company, and DuPont, one of the worlds largest chemical companies. In each case, the local partnership provided a small commercial-scale facility to prove the emerging technology and bring products to market, while enabling the biofuels facility to maintain production and grow through accessing advanced biofuels and biobased chemicals markets.1.2
Breaking new ground: Agri-Energys purchase by Gevo leads to innovation. (2011) The Daily Globe. Retrieved on January 15, 2011 from http://www.dglobe.com/event/article/id/47248/. 1.2 Butamax discusses biobutanol commercial activities including early adopter initiative. (2011) Butamax Advanced Biofuels. Retrieved on December 3, 2011 from http:/www.highwaterethanol.com/documents/2011_butamax.pdf http://www.highwaterethanol.com/documents/2011_butamax.pdf.
1.1
Partnerships with the conventional biobased industry

Existing biorefineries include facilities operated by companies in the conventional biobased industry, such as biofuels facilities, agriculture processors, paper mills, and other bioprocessing facilities. These companies have already made investments into infrastructure critical to manufacturing biofuels and biobased chemicals, such as wastewater treatment, feedstock storage, and truck and rail access. An array of mutually beneficial partnerships can be developed to accelerate commercialization, including acquisitions, joint ventures, and licensing deals. For the local biorefinery, these strategic partnerships provide an opportunity to enter new markets and maximize value created locally from agricultural and forest resources. In many cases, these deals will include some form of local ownership or joint ventures. This ensures benefits to the local community and may provide pathways to raise capital from local investors.
Government Support to Diffuse Risk

Government support has proven to be a major contributor to successful advanced biofuels and biobased chemicals projects across the globe. Policies to provide financial assistance through grants and loan guarantees have been designed at the national, state, and local levels to diffuse risk for private investors and incent job growth. The petroleum industry has had 100
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years to reach economies of scale, and emerging biobased products are thus at a disadvantage for near term scale-up in the marketplace.28 Additionally, the potential for job creation throughout the value chain is significant.
Increasing interest in biobased chemicals across bioindustrial processing

As companies in the emerging biobased industry develop, they are increasingly shifting their technolFigure 1.3, Oil Barrel Breakdown into Products ogy suite to include the production and sale of chemicals, in addition to biofuels. This shift is enabled by factors cited above that are increasing the demand for biobased chemicals, combined with the high volume and lowervalue nature of fuels. Initial public offering (IPO) registration statements for companies primarily focused on biofuels have included significant attention to the production, or potential production, of valuable biobased chemical platforms using their proprietary technology.29 The high value of chemicals is demonstrated in the analogous petroleumrefining business. Total revenues for fuels and chemicals are identical, though only 3 percent of the volume from a barrel of oil is used for a broad range of petrochemicals, and 70 percent of the barrel is made into refined fuels. The remainder goes to products such as fuel oils, gases, and asphalts as detailed in Figure 1.3.30 Thus, relatively smaller scales are required to gain significant revenues in the production of biobased chemicals as compared to biofuels.
case study: BioAmber

BioAmber, a Minnesota company commercializing biobased succinic acid and other platforms, provides a clear example of a company aggressively pursuing partnerships to accelerate their capability to grow. This company has entered into multiple partnerships that illustrate the importance of such alliances, including the following examples: Natureworks LLC: Joint venture on commercialization of new biopolymers based on PLA and PBS, a derivative of succinic acid. BioAmber can leverage Natureworks established global market presence to accelerate commercialization, while allowing Natureworks to provide additional material solutions for their customers. Cargill: Joint development of yeast strains that can result in lower production costs and lower capital costs, while building toward an organism that processes cellulosic materials. Lanxess: The most recent deal in a suite of partnerships involves the development of commercial products. Lanxess, a specialty chemicals company, is a downstream partner on joint development and commercialization of biobased plasticizers to displace phthalates.
Partnerships. (2011) BioAmber. Retrieved on February 27, 2012 from http://www.bio-amber.com/bioamber/en/ company/partnerships.
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Emerging companies are leveraging the favorable price dynamics in the biobased chemicals market to diversify production and accelerate returns on investment. However, as with all aspects of bioindustrial processing, downstream strategic partners drive a companys market, and fuels remain the largest volume market for many downstream partners interested in biobased feedstocks. Additionally, the biobased chemicals market has a broader range of market segments, limiting the addressable market for individual biobased chemicals manufacturers. To summarize, the industry is moving toward inclusivity of biobased chemicals in most bioindustrial processing business plans to maximize value.
Commercialization pathways dependent on chemical outputs

Two major categories of products have emerged in the biobased chemicals industry that demonstrate likely commercialization pathways for biobased chemicals companies. First, manufacturing capability is being developed for advanced biofuels and biobased chemicals that are chemically identical to those derived from petroleum. Alternatively, novel proprietary chemicals from biobased sources are providing unique functionality.
Drop-in chemicals and fuels

Supply and demand changes in the petroleum industry are opening opportunities for cost-effective biobased drop-in chemicals that serve as alternatives to petroleum based fuels and chemicals. Since the product and performance are inherently identical to the incumbent chemical, drop-in replacement chemicals must compete on a cost basis. Certain biobased chemicals can expect favorable price dynamics compared to petroleum-based chemicals due to the increasing costs for fossil fuels, an expectation of stable prices for chemicals through the diversification of feedstock sources, and declining focus on petroleum for chemical feedstocks in favor of natural gas.31 Minimal product development and capital costs will be incurred for the downstream manufacturer if the replacement is identical to the incumbent molecule; existing equipment can be used in identical processing methods. Some examples of biobased molecules nearing commercialization include isobutanol, n-butanol, acrylic acid, succinic acid, butanediols, polyols, and the range of molecules found in diesel, gasoline, and jet fuels. For these products, downstream partners are critical for commercialization, as these arrangements reassure investors of market demand and adequate technical performance. Renewability and life cycle greenhouse gas (GHG) assessment have the potential to provide additional competitive advantage for some markets, though these attributes are unlikely to sustain a premium price for the product. Thus, cost competitiveness and rapid expansion to economies of scale are critical.
Novel proprietary chemicals

In addition to drop-in chemicals, development of novel, biobased chemicals with new functionality can provide a clear value proposition for customers.
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Among the properties that can be improved through the use of novel proprietary biobased chemicals are environmental and toxicity profiles, strength, flexibility, and biodegradability. Such improvements can provide a strong competitive advantage for the owners of proprietary chemicals, especially if the molecule provides a platform for multiple applications. In certain applications, regulatory policies can ban or discourage the use of incumbent petroleum-based chemicals due to product safety or toxicity concerns. Such regulations can reduce the barriers of entry to new chemicals with an improved toxicity profile by giving final-product manufacturers an incentive to use alternative materials. However, the pendulum on regulation can go against the commercialization of new chemistry. Regulatory uncertainty on the approval of new chemicals can hamper a companys ability to cost effectively develop and manufacture new biobased chemicals, thus limiting commercial adoption. In addition to regulatory hurdles, successful market entry can entail switching costs for the end user. In some cases, these costs can crowd out the value of new functionality. Though there are exceptions, these factors combine to cause market penetration to require extended time for chemicals new to the materials industry. Thus, partnerships with downstream partners are even more critical, as joint development for specific applications is necessary for market adoption. These partners can confirm the value of physical properties and toxicity impacts, as well as sharing resources for application development. In summary, commercializing a new chemistry entails a need to understand unique business risks associated with the product. Significant losses can be accrued while functionality and marketing is proven, making commercializing new chemistries a potentially risky endeavor for capital-constrained start-ups. However, should commercialization be successful, a differentiated molecule provides a strong competitive position for growth.
Bioindustrial processing moving toward cellulosic feedstocks

As the advanced biofuels and biobased chemicals industry grows, so too will the demand for fermentable sugars beyond what is available from starch. Cellulose is an abundant source. Several factors are leading to reliance on cellulosic biomass, including the food-versus-fuels debate, efforts to minimize life cycle GHG emissions, concerns about genetically modified organisms, and a constant drive to minimize costs as commodity prices increase. Bioindustrial processing that leverages cellulosic feedstock is expected to add value to agricultural and forest-based resources. Cellulosic biomass from agricultural supply chains, including corn cobs, corn stover, soybean straw, and wheat straw, is projected to provide a benefit to farmers through the addition of a new revenue stream. However, the supply chain for agricultural residues has not been developed at the industrial scale. Significant efforts over multiple years are needed to establish these supply chains. Relationship-building with farmers and harvesters is necessary in order to ensure delivery of biomass with specifications and efficiencies required for
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large commercial operations.32 For the supply chain to be sustainable, opportunities must be clear for farmers to gain a profit. Thus, biomass prices must be sufficient to cover cost and nutrient value removed with biomass. In Minnesota, the supply chain logistics for wood are well known as a result of the states vast experience in building the lumber and pulping industry. Increasing interest in the harvest of tops and limbs of trees will continue as demand for woody biomass continues to grow. However, attention must be paid to factors that influence competitive impacts on existing industries, such as the location and scale of operations, species of trees required, and if tops and limbs of trees can be processed. The assurance of a reliable supply is among the most critical factors for costeffective production of advanced biofuels and biobased chemicals. Creative business models that ensure mutually beneficial relationships across this supply chain can accelerate the markets growth.
Biorefinery Infrastructure Map
oPPoRTuNITIES AND CHAllENGES
Search
leverage Minnesotas existing biorefinery infrastructure

For the last century, Minnesota has proven itself to be a global leader in the sustainable growth of the conventional biobased industry, including the manufacturing of food, feed, and fiber. More recently, the state pioneered the development of the ethanol and biodiesel industry. The capabilities and infrastructure of the conventional biobased industry provides a base to build upon for the growth of the emerging biobased industry. Minnesota companies will continue to see opportunities to secure investment for expansions into production of advanced biofuels and biobased chemicals.
Agriculture industry
Minnesota has over 26 million acres of high-quality farmland, ranking fourth in the nation for the production of corn, and third in the production of soybeans.33 In 2008, there were nearly 150,000 direct and indirect jobs in Minnesota from agriculture production and processing, making up approximately 5 percent of employment across the state.34
Figure 1.4, Minnesotas Ethanol, Biodiesel, Pulp and Paper Mills, Sawmills, and Engineered Wood Products Facilities
Additional facilities, such as sugar refineries and food processing facilities, are also relevant for the emerging biobased industry, but are not shown on this map.

200 km
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The seeds for rapid growth in the U.S. conventional biofuels industry in the 1990s and 2000s were planted in Minnesota, giving the state relevant experience on industry creation. This growth was achieved through the leadership of farmers in setting up cooperative businesses, the surplus production of corn, and policy support from the state and federal government. The industry increased farm incomes and revitalized rural communities. Today, Minnesota has 21 ethanol plants with 1.1 billion gallons of production capacity, which is the fourth highest in the U.S.35 Total direct and indirect employment is over 8,000.36 Biodiesel capacity totals 63 million gallons per year, putting Minnesota in the top 10 states in the U.S. for the production of biodiesel.37 By leveraging the need for companies to use capital-efficient commercialization models, Minnesotas conventional biofuels facilities are well-positioned to establish mutually beneficial partnerships. This is generally done by retrofitting existing biorefineries or co-locating new technologies with the existing facility to process by-products.
Forest products
In the northern half of Minnesota, the forest products industry has served as a bellwether in the states economy for decades. Direct and indirect employment across Minnesotas forest products industry totaled 31,300 statewide in 2009.38 Of this total, over 5,500 individuals were directly employed in the logging industry and manufacturers of paper mills, engineered wood products, and lumber.39 Minnesotas forest product manufacturing ranks 10th of all states in value-added per capita.40 In 2008, 6.57 million green tons of wood was harvested.41 Of this total, 75 percent of wood processed in Minnesota was used in pulp and paper and OSB production, while 17 percent went into lumber and specialty products markets. The final 8 percent of the annual harvest, primarily made up of logging residues and mill by-products, was used to produce heat and electricity.42 According to a Minnesota Department of Natural Resources analysis completed in 2010, todays harvest level leaves at least 3.2 million green tons of surplus wood available before the market reaches its economic maximum harvest.43 A vast majority of the surplus is made up of pulpwood and logging residual.44
Figure 1.5, Minnesotas Renewable Materials Family Tree. Many Minnesota companies draw their lineage of technologies or leadership to the set of companies listed above.
In the next decade, advanced biofuels and biobased chemicals provide opportunities to increase employment in this sector.45 As an example, three former
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oriented strand board (OSB) facilities are primed for redevelopment in the emerging biobased industry.
Expand Minnesotas emerging bioindustrial cluster

In addition to the feedstock supply and processing that provide the basis for bioindustrial processing, Minnesota has been a leader in the development of new companies in the renewable materials industry. As shown in Figure 1.5, the state is on its fourth generation of strong biobased materials companies and is well on its way to the development of a regional cluster. The primary reason for the clusters development is the talent available to companies in Minnesota. Below are some categories of strength: Leading-edge agriculture and forestry scientists and bioproducts and biosystems engineers who understand the characteristics of the feedstocks and the opportunities for conversion. Skilled chemists, chemical engineers, and materials scientists who design valuable products from biobased chemistries. Experienced executives who have been groomed to understand the unique strategies for bioindustrial success. Accountants, engineers, and legal professionals who provide a rich business ecosystem, having premier experience in the agriculture, forestry, and bioindustrial processing industries.
Figure 1.6, BioIndustrial Processing Companies with headquarters or major operations in Minnesota
The map is intended as a list, not an indication of location.
STRATEGIC RECoMMENDATIoNS
Ensure availability of funding options for bioindustrial processing
For emerging companies, availability of capital is a high priority for developing the industry as it is the tool that can most quickly accelerate growth. Funding across the stages of company development is necessary for industry growth, including seed, angel, venture capital, and long-term debt capital. However, financing tightened significantly during the recent recession, as demonstrated by a 36 percent decline in venture capital investment in biotechnology between 2008 and 2009.46 As a result, start-up companies in emerging industries have had difficulty raising necessary funds. Programs to accelerate capital flow and diffuse risk are critical to ensure the viability of the industry. The following tactics have been identified as most critical:
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Investor education on the unique opportunity to develop industry opportunities in this region. Ensuring awareness and providing assistance to companies in pursuit of federal grants and loan guarantees. Providing state support in the form of grants to support research and pilot-scale development. Enable manufacturing capacity development through the development of loan guarantees as well as a favorable tax environment for long term capital investment. Developing an incubation and acceleration system to prepare entrepreneurs for market success.
Communicate Minnesotas competitive advantage as a global leader for bioindustrial processing

It is important for Minnesota to be recognized for its position as the No. 1 place in the world to build companies that manufacture products in the emerging biobased industry. Minnesotans need to tell their own story and share experiences of industry growth to communicate assets that provide the state with a competitive advantage, including: Minnesotas agricultural and forestry resources and conventional biobased industry provide a strong base for industry growth. Existing industries provide a complete value chain necessary for developing a cluster of companies that can manufacture biobased chemicals. A cluster of companies has been developing for the past 10 years, and all indications are that this industry will continue to grow. Minnesota is home to scientists and engineers who understand both the production and conversion of feedstocks and the design and manufacturing of final products, as well as experienced business leadership that propels Minnesota ahead of the pack. In the implementation of these recommendations, which will entail a collaborative effort among state agencies, economic development organizations and other nonprofits, results will be shown in three key areas: Attracting companies to the region for manufacturing partnerships and location of operations in Minnesota. Attracting leadership talent to the region. Fostering investment from outside partners into Minnesota. There is a compelling story to tell about Minnesota if the state can make a commitment to telling it. Bioindustrial processing, just like any other industry relying on a knowledge-based economy, thrives in places with Minnesotas assets.
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leverage and expand academic-industry partnerships

Innovations from the states higher education system provide a pipeline of technology and talented people to drive industry development. Training the next generation of high-tech business leadership can solidify Minnesotas position as a global leader. The University of Minnesota and the Minnesota State Colleges and University system play a crucial role in the development of bioindustrial processing. Multiple factors are critical strengths to build upon: Minnesota has world-renowned programs in the broad categories of chemical engineering, materials science, and bioproducts and biosystems engineering, and bioproducts marketing, as well as technical programs in such areas as nanotechnology, biotechnology, biofuel production, and chemical technology. A steady stream of talent is provided to companies developing technologies for bioindustrial processing in Minnesota. Industry development to leverage this talent is important to retain graduates in Minnesota, allowing the state to capture the exponential growth in economic activity enabled by knowledge-based businesses. A concerted effort to facilitate collaboration between industry and academia strengthens the ecosystem of new technology development in Minnesota. Additionally, companies in Minnesota can leverage other nearby universities, including the University of Wisconsin-Madison, Iowa State University, North Dakota State University, and the University of North Dakota. This importance of collaboration between industry and academia was also highlighted in a study on biobased products completed by Agricultural Utilization Research Institute (AURI) in 2011.47
Develop partnerships to improve the regulatory environment

Delayed production due to permitting issues can be detrimental to the economics of bioindustrial processing facilities. Efficient and clear policies for obtaining permits to build facilities need to be set forth and maintained over time at the state and local level. Investments into facilities are more likely to occur if the regulatory risk can be mitigated through clarity on expected cost and timeline for the business. Developing mutually beneficial relationships between industry and regulators is critical. Minnesota should prepare itself to be considered in the top 10 states for business-friendly regulatory environments in the country, even while maintaining the natural resources of the state. Over the past two years, progress has been made in acceleration of the permitting processes.48 In January 2011, an executive order was signed by Governor Mark Dayton to ensure permits are issued within 150 days.49 A similar recommendation is also included in the above-mentioned study on biobased products completed by AURI in 2011.50
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organize industry-led efforts to develop a voice for the industry

Successful implementation of the strategy described above is likely to rely on the development of a stable voice for the industry. Given Minnesotas existing strengths in the industry, trade group capabilities will be critical, with the overall driver of the organization centering on industry growth. Leveraging collective efforts to develop and communicate clear and concise messages to raise the profile of bioindustrial processing would provide multiple benefits. Investment would be accelerated within Minnesota and from sources of funding outside of the state as institutional and individual investors became comfortable with the opportunity and understand Minnesotas competitive position. A strong network and understanding of different segments of the value chain would help businesses build successful business partnerships. Prudent policies would build opportunities for existing and emerging Minnesota businesses. Diverse interests must be brought together, including the advanced biofuels and biobased chemicals industry, existing agricultural and forestry industries, and downstream users of fuels and chemicals. The audience for education efforts includes investors, businesses, and policymakers. In summary, building trade group capabilities to organize the industry could accelerate industry development by ensuring access to partnerships and nurturing a supportive community.
endnotes
10. 11. BBAM analysis. Pike Research, Inc. (2011). Global biofuels market value to double to $185 billion by 2021. October 11, 2011. Retrieved on February 27, 2012, from http://www.pikeresearch.com/ newsroom/global-biofuels-market-value-to-double-to-185-billion-by-2021. Passed in the Energy Independence and Security Act of 2007, the current Renewable Fuels Standard (RFS2) requires 15 billion gallons of corn based ethanol, 1 billion gallons of biodiesel, 4 billion gallons of advanced biofuels, and 16 billion gallons of cellulosic biofuels. See Chapter III, Downstream Market Development- Biofuels for details. Renewable Fuels Association. (2011). Building bridges to a more sustainable future: 2011 ethanol industry outlook: Renewable Fuels Association. Pg. 2. Retrieved on November 30, 2011 from http://www.ethanolrfa.org/page/-/2011%20RFA%20Ethanol%20Industry%20 Outlook.pdf?nocdn=1. US biodiesel production surpasses 1 billion gallons in 2011 (2012, January 30, 2011). Biodiesel Magazine. Retrieved on February 27, 2012 from http://www.biodieselmagazine. com/articles/8310/us-biodiesel-production-surpasses-1-billion-gallons-in-2011. A USDA regional roadmap to meeting the biofuels goals of the renewable fuels standard by 2022 (2010). Washington, DC: United States Department of Agriculture.
12.
13.
14.
15.
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Assuming that technological innovation to produce cellulosic ethanol can occur quickly, increasing capacity and decreasing capital costs, the Brattle group estimates total capital expenditure to total $58.3 billion, including corn ethanol, cellulosic ethanol, and fuel distribution. Celebi, Metin, Evan Cohen, Michael Cragg, David Hutchings, and Minal Shankar. (2010). Can the U.S. congressional ethanol mandate be met? The Brattle Group. May 2010. Retrieved on Mady 26, 2011 from http://www.brattle.com/_documents/uploadlibrary/upload849.pdf. Securities and Exchange Commission (2011) Myriant S-1 Page 58 http://www.sec.gov/ Archives/edgar/data/1485026/000095012311054952/b86680sv1.htm. A majority of this value is derived from specialty and fine chemicals, which have an especially large range of end products within the category. U.S. biobased products market potential and projections through 2025. (2008) Washington DC: U.S. Department of Agriculture, Office of the Chief Economist. OCE-2008-1. February 2008. Retrieved on March 12, 2011 from www. usda.gov/oce/reports/energy/biobasedreport2008.pdf. U.S. biobased products market potential and projections through 2025 (2008). Washington DC: U.S. Department of Agriculture, Office of the Chief Economist. OCE-2008-1. February 2008. Retrieved on March 12, 2011 from www.usda.gov/oce/reports/energy/biobasedreport2008.pdf. It is important to note that the chemicals end markets are more fragmented, limiting the addressable marketplace for any particular product. This is why the fuels market remains a more valuable market at high volumes for many companies in this space. Biobased chemicals and products: A new driver for green jobs (2011). Washington DC: Biotechnology Industry Organization. Retrieved on March 12, 2012 from http://www.bio.org/ sites/default/files/20100310_biobased_chemicals.pdf. Cox, M. E., & Ritzentahller, M. J. (2011). Industrial biotech monthly: Bio-based chemicals embark on ambitious ramp. Industry Note. Minneapolis, MN: Piper Jaffray & Co. Battelle Technology Partnership Practice. (2010). Batelle/BIO state bioscience initiatives 2010. Washington, DC: Biotechnology Industry Organization. Pg. 49. Retrieved from http:// www.areadevelopment.com/article_pdf/id45428_Battelle_Report_2010.pdf. Pricewaterhouse Coopers/ National Venture Capital Association (2011). Total U.S. investments by year Q1 1995- Q2 2011. Retrieved October 3, 2011, from http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=773&Itemid=93. IPOs and IPO candidates includeCodexis, Amyris, Gevo, Solazyme, Kior, Myriant Corporation, Ceres, Petroalgae, Renewable Energy Group, Genomatica, Mascoma, Elevance, Fulcrum Biofuels BBAM analysis. Turning plants into products: Delivering on the promise of industrial biotechnology (2011). The Milken Institute. April 2011. Pg. 4-5. Retrieved from http://www.milkeninstitute.org/ publications/publications.taf?function=detail&ID=38801269&cat=finlab. Ibid. Unpublished BBAM analysis. Marshall, J. (2007) Biorefineries: Curing our addiction to oil. Retrieved on October 3, 2011 from http://www.newscientist.com/article/mg19526111.500-biorefineries-curing-our-addiction-to-oil.html. For details, refer to the Section II: Downstream Market Development Biobased Chemicals. Shaffer, David (2011). Harvesting a New Kind of Fuel. Minneapolis, MN: Star Tribune. August 10, 2011. Retrieved on September 2, 2011 from http://www.startribune.com/business/126850538.html. Ye, S. (2012). Minnesotas agriculture profile. Retrieved February 27, 2012, 2012, from http://www.mda.state.mn.us/~/media/Files/agprofile.ashx. Ye, S. (2011). Economic impact of Minnesotas agricultural industry. Saint Paul, MN: Minnesota Department of Agriculture. Renewable Fuels Association. (2011). Building bridges to a more sustainable future: 2011 ethanol industry outlook: Renewable Fuels Association. Pg. 2. Retrieved on November 30, 2011 from http://www.ethanolrfa.org/page/-/2011%20RFA%20Ethanol%20Industry%20 Outlook.pdf?nocdn=1 pg 2.
17. 18.
19.
20.
21.
22. 23.
24.
25. 26. 27.
28. 29. 30.
31. 32.
33. 34. 35.
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36. 37. 38. 39.
Minnesotas ethanol plants. (2011). St. Paul: Minnesota Department of Agriculture. Retrieved August 26, 2011, from http://www.mda.state.mn.us/ethanol/. Email Communication with Dave Ladd. February 3, 2012. Deckard, Don (2011) Minnesotas Forest Products Industry at a Glance. Saint Paul, MN: Minnesota DNR, Division of Forestry. Skurla, J.A. (2011) Northern MN Forestry Analysis. St. Paul: Minnesota Forest Resources Council. June 2011. Pg. 21. Retrieved on December 10, 2011 from http://www.frc.state.mn.us/ documents/council/MFRC_Report_NMN_Econ_Skurla_2011.pdf. Deckard, Don. (2011) Minnesotas Forest Products Industry at a Glance. Saint Paul, MN: Minnesota DNR, Division of Forestry. Calculated using a conversion factor of 2.25 Green Tons/ Cord of wood. Minnesotas forest resources 2010. (2010) Saint Paul, MN: Minnesota Department of Natural Resources. Pg. 19. Retrieved on October 15, 2011 from http://files.dnr.state.mn.us/forestry/um/forestresourcesreport_10.pdf. Minnesotas forest resources 2010. (2010) Saint Paul, MN: Minnesota Department of Natural Resources. Pg. 19. Retrieved on October 15, 2011 from http://files.dnr.state.mn.us/forestry/ um/forestresourcesreport_10.pdf. Deckard, Don. (2010) Economic Opportunities for Minnesotas Wood. Unpublished Document. May 2010. Deckard, Don. (2010) Economic Opportunities for Minnesotas Wood. Unpublished Document. May 2010. Minnesotas Forest Biomass Value Chain: A System Dynamics Analysis. (2010) Minneapolis, MN: The BioBusiness Alliance of Minnesota. November 2010. Retrieved on November 30, 2010 from http://www.biobusinessalliance.org/Northeast_Forest_Biomass.asp. Battelle Technology Partnership Practice. (2010). Batelle/BIO state bioscience initiatives 2010. Washington, DC: Biotechnology Industry Organization. Pg. 49. Retrieved from http:// www.areadevelopment.com/article_pdf/id45428_Battelle_Report_2010.pdf. Russel, C., & Bucholz, D. (2011). Biobased products, Minnesotas opportunity and challenge: A focus on BioPlastics. Crookston, MN: Agriculture Utilization Research Institute. Pg. 73-74. Retrieved on July 23, 2011 from http://www.auri.org/research/Biobased.Products.Report. pdf. Policy Committee Meeting. December 14, 2011. Dayton issues executive order to speed permitting process (2011). Retrieved December 15, 2011, from http://mn.gov/governor/newsroom/pressreleasedetail.jsp?id=9385. Russel, C., & Bucholz, D. (2011). Biobased products, Minnesotas opportunity and challenge: A focus on BioPlastics. Crookston, MN: Agriculture Utilization Research Institute. Pg. 73-74. Retrieved on July 23, 2011 from http://www.auri.org/research/Biobased.Products.Report.pdf.
40. 41.
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43. 44. 45.
46.
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48. 49. 50.
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II: Downstream Market Development Biobased Chemicals

intRoduction
Petroleum has been the basis for many of the products consumers use every day, though biobased materials are beginning to displace this dominance. Market forces are driving fundamental changes in the chemical industry, leading to increasing demand for biobased chemicals. Global market drivers that are pushing the industry forward include: Demand for safer materials that are regulatory compliant, Unfavorable petroleum price dynamics, Materials shortages resulting from shifts in the chemical manufacturing industry, and Increasing consumer demand for green products. The market pull created by these factors puts the renewable materials industry in a strong position for growth. By 2025, the global market value is projected to reach $483 to $614 billion across a broad range of chemicals as detailed by the USDA.51 This represents more than a 20 percent market share of the global chemicals industry.52 The market value for biobased chemicals was estimated to be between $130 billion and $180 billion in 2010, and is projected to grow up to 9 percent annually.53 Employment in this sector across the United States totaled 5,700 in 2007.54 Biobased chemicals can be used in a wide array of products, ranging from cleaning products, adhesives, plastic products, and cosmetics. The supply chain is complex with many players involved in the conversion of chemicals to final products, making partnerships a critical factor for commercialization. An overview of the path from field to a product is detailed in Appendix A. Minnesota communities that understand the factors leading to demand for renewable materials will be well-positioned to benefit from the development of the renewable materials industry.
INDuSTRY lEVEl TRENDS

Chemical regulatory regimes becoming more stringent
The chemical industry is increasingly under scrutiny from the public and governments due to concerns over possibility toxicity of chemicals. Multiple chemicals are being phased out across the globe as a result of increasingly stringent regulatory policies. In some cases, regulatory policies can ban or discourage the use of incumbent petroleum-based chemicals.
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The U.S. chemical product law, the Toxic Substances Control Act (TSCA), is under pressure for reform. Proposed changes to the law would make chemical manufacturers responsible for showing that their products, especially new chemicals, are safe. In addition, reforms would make it easier for the U.S. Environmental Protection Agency (EPA) to ban chemicals deemed dangerous to human health and the environment. Among states developing chemicals policy, California is leading the way in drafting regulations to demand safer alternatives for priority chemicals of concern. Additionally, advocates for stronger regulation point to Europes chemical regulatory frameworks, known as REACH, as a model because of its extensive toxicity testing and life cycle exposure assessment requirements for all chemicals. However, even if U.S. policy does not model itself after the European regulations, they are already having an impact for U.S. companies due to the global nature of the industry. In summary, regulation can provide final-product manufacturers an incentive to use alternative materials, significantly reducing barriers to entry for biobased chemicals that are competing with an alternative that is targeted in regulatory policies. Even in such cases, however, performance of emerging chemicals remains of prime importance, in addition to meeting increasingly stringent safety and toxicity standards and regulatory requirements.
case study: Minnesota Companies Answer the Call for New Chemistry
Phthalates are a class of chemicals commonly found in consumer products. These products are used as a plasticizer to make plastics flexible, with the most widely used plasticizer being diethylhexyl phthalate (DEHP). Studies have shown the chemical has impacts on cancer growth and reproductive health as an endocrine disrupter.2.1 A steady drumbeat to regulate the materials has followed, especially for toys and other products that come in contact with children. In 1999, the European Union placed a ban on using certain phthalates in toys made for children under the age of 3. In the United States, a phthalate ban in toys was implemented in California, setting the stage for the debate across the country and forcing companies to adjust. However, for bans of chemicals to reach successful outcomes, alternatives that perform well need to be on the market. Biobased alternatives are emerging for DEHP in consumer goods. A Minnesota-based company named Segetis is developing one of those alternatives with its Javelin technology. Their new-to-the-world molecule performs as well or better than the incumbent chemical in many applications, in addition to providing improved toxicity profiles over the petroleum-based plasticizers.2.2 Another company headquartered in Minnesota, BioAmber, is also replacing potentially harmful plasticizers by developing biobased succinate esters to replace adipate esters and general-purpose phthalate esters. BioAmber hopes to have a range of their new plasticizers for sale in 2012.2.3 A strategic partnership with Lanxess is expected to accelerate this development.
2.1 2.2 2.3
Case study: Phthalates. Retrieved October 15, 2012, from http://www.chemicalbodyburden.org/cs_phthalate.htm. Segetis applications: Plasticizers. Retrieved September 15, 2011, from http://www.segetis.com/app1.html. BioAmber products: Plasticizers. Retrieved January 15, 2012, from http://www.bio-amber.com/bioamber/en/. products/plasticizers
Regardless of whether the biobased chemical is chemically identical to a petroleum-based chemical or is a new chemical, the regulatory expectation is that
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there must be sufficient toxicity data to prove the safety of the chemical and its impurities. Unfortunately, it can be difficult for start-up companies to meet regulators demands for data about emerging biobased chemicals. The challenge for chemical regulators is to derive a balanced system that provides incentives or disincentives intended to mitigate negative health and safety impacts, while avoiding unintended consequences that hinder the ability for industry to deliver safer chemicals.
Petroleum prices driving demand for alternative chemical feedstocks

Fossil fuels are the primary feedstock for production of chemicals, and price volatility for those fuels has made it difficult for the chemical industry to manage production costs. Projections for raw material prices are critical components for long-term investments, and interest has developed to build alternative supply chains through biobased chemicals. There is unlikely to be a reprieve from high oil prices in the foreseeable future, making this trend critical to consider. A number of factors are at work. The sources of oil today are in deeper water, trapped in shale, or are otherwise more difficult to extract than a decade ago. This leads to a higher baseline cost of petroleum production. Between 2000 and 2010, the average cost of bringing a new oil well to production doubled.55 Supply disruptions of oil exports from politically unstable regions of the world periodically put upward pressure on prices. U.S. regulatory delays continue on construction of the Keystone XL pipeline, which is intended to transport emerging oil supplies from the Canadian Oil Sands to Gulf Coast refineries.56 Finally, the thirst for energy from emerging economies will continue to buoy demand, especially as the global economy recovers.

Figure 2.1
In addition to the overall upward movement in prices, a short history of crude oil prices demonstrates the trend toward rampant volatility. The price of oil rose from $60 per barrel in 2006 to $140 per barrel in 2008. The next cycle saw a return to $60 per barrel in 2010, only to reach another peak above $100 per barrel a year later.57
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The prospect of customers leveraging biobased chemicals as a hedge against the price volatility of petroleum-based products is often cited in Securities and Exchange Commission filings by initial public offering (IPO) candidates from bioindustrial processing companies.58 The hedging role of alternative feedstocks for chemical production can ensure a level of interest in demand for biobased chemicals in the traditional chemical industry, even when oil prices temporarily decrease.
u.S. Natural Gas Production and Sources

30 Natural Gas Dry Production (Trillion Cubic Feet) 25 20 15 10 5 0 2008 2009 2015 2020 2025 2030 2035 Year
Figure 2.2, U.S. Environmental Protection AgencyEnergy Information Administration.
Source: Annual Energy Outlook 2011.
Shale Gas Lower 48 Onshore (excluding Shale) Lower 48 Offshore plus Alaska
Supply and demand pressure for key petrochemical platforms

In addition to petroleum price increases, recent developments in natural gas production have contributed to production shifts in the traditional chemical industry. The natural gas industry has taken advantage of technological innovation to enable economically viable access to natural gas trapped in shale formations throughout the globe, even as petroleum becomes scarcer.59
Ratio
Ratio of Crude oil to Natural Gas Prices

35 30 25 20 15 10 5 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 Year 2011 Ratio of Crude Oil to Natural Gas Prices
Figure 2.3 Calculated by dividing the spot price for West Texas Intermediate Crude Oil by spot prices for Henry Hub Gulf Coast natural gas.
Natural Gas Spot Prices. (2012) Retrieved on February 14, 2011 from These innovations helped boost nathttp://www.eia.gov/dnav/ng/ng_pri_fut_s1_m.htm ural gas production 18 percent behttp://www.eia.gov/dnav/pet/pet_pri_spt_s1_m.htm tween 2005 and 2011,60 and enabled the United States to overtake Russia as the worlds largest producer of natural gas in 2009.61 According to the U.S. Department of Energys Energy Information Administration, U.S. production from shale formations stands at 3.28 trillion cubic feet per year, and is set to increase to 12.25 trillion cubic feet per year by 2035.62 In this time frame, shale gas is projected to make up 47 percent of U.S. production from virtually no production at the beginning of the decade.63
The subsequent decline in natural gas prices has changed the relative prices of natural gas and petroleum. The relatively low prices of natural gas accelerated the shift in chemical industry feedstocks away from naphtha, a crude oil derivative, toward using natural gas liquids found in shale gas, which include ethanes, propanes, and butanes. The dominance of natural gas feedstocks has been especially apparent for the production of ethylene, the largest-volume global chemical commodity. See Appendix B for an overview of the petroleum based chemicals industry.
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Additionally, this transition has made an impact on markets for chemicals with higher carbon content. By-products of naphtha cracking had provided sufficient supply of three-carbon and four-carbon molecule platform chemicals to satisfy demand (Examples include propylene and butylene). However, since natural gas-based production of ethylene does not produce these by-products in large quantities, the supply for these platforms has been squeezed in the process. The relative pricing increases for higher carbon intermediate molecules has then allowed biobased drop-in alternatives to be cost competitive. Example markets of intermediate chemicals with biobased alternatives being commercialized include isobutanol, n-butanol, polyurethanes, butanediols, and a range of organic acids. See Appendix C for more information on biobased chemicals being developed for particular markets.
Emerging bioplastics applications spur industry growth

Bioplastics, which comprise a prevalent market segment within renewable materials, are a major driver for the growth of bioindustrial processing. While bioplastics currently represent less than 1 percent of the overall plastics market, rapid growth is projected. A study by researchers at the University of Utrecht indicated that the market for bioplastics would quickly grow from 0.36 million metric tons in 2010 to 2.94 million metric tons in 2020. To this point, bioplastics have most commonly been used in packaging and single-use disposable goods. However, the industry is in a transition toward production of higher value durable goods, such as electronic casings and building products. By 2011, up to 40 percent of bioplastics produced were expected to be used in downstream manufacturing of durable goods, which is an increase from 12 percent in 2010.64 While bioplastics represent just one category of products made from renewable feedstocks, the transition toward more valuable durable goods is a sign of technological advances in the area of biobased chemicals and materials.65
case study: XlTerras Technology for Durable Bioplastics

XLTerra is developing a radically new bioplastic with exceptional properties that will allow for its entry to the markets of materials with durable applications. These properties include: high heat deflection, high tensile strength, ductility and optical clarity.
XLTerra Technology. (2011) Reluceo. Retrieved on February 28, 2012 from http://www.reluceo.com/technology_xlterra.htm.
Increasing consumer interest in renewable materials

Consumer perspectives
At the end of the value chain, retail consumers are demanding products that utilize green chemistry principles, where these principals are intended to reduce
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or eliminate the use or generation of hazardous chemicals.66 One of the practices that qualify a chemistry process as green is the use of biobased materials.67 Additionally, the market for green products is large. So-called LOHAS (lifestyle of health and safety) consumers are a subset of the marketplace that tends to favor products with green properties, including products based on green chemistry, due to the perception that they are safer for both consumers and the environment.68 These consumers spend $300 million per year on green products.69 An indicator of the strength of this consumer subset is the growing number of green products being found on the market. A study by TerraChoice, a marketing consulting firm focused on green products standards, evaluated the green marketing claims of consumer products. The study found that between 2009 and 2010, there was a 73 percent increase in the number of consumer products on the market that claimed green attributes on their labels.70 It is important to consider that only in the near term consumers may prefer biobased and green materials given equal properties and performance. However, a premium price or acceptance of compromised performance is unlikely to be sustained for green and biobased products.71
case study: Nalgene Bottles Removed due to Consumer Pressure

In 2007, news of the dangers of Bisphenol A (BPA) exposure and the resulting consumer outcry led to Nalgene pulling their polycarbonate bottles from the market. The company did not wait for regulation or a definitive scientific study to make this move; in response to consumer demand, it voluntarily replaced the product with BPA-free plastic alternatives.
Austin, Ian. (2008). Bottle Maker to Stop Using Plastic Linked to Health Concerns. http://www.nytimes.com/2008/04/18/business/18plastic.html.
Certification regimes emerging

Marketing of sustainable products is complicated by the fact that few products satisfy all concerns that may allow a product to legitimately be considered green. In response, a range of certification regimes has developed to distill manufacturers claims of green attributes. Certification labels are designed to provide objective confirmation of products deserving of any recognition for a green attribute. Examples of parameters for biobased products include: the proportion of the product made with biobased materials, compostability for disposable products, and sustainable feedstock production. By using certifications as a tool to counteract false and misleading green claims in the market, consumer confidence in the purchase of sustainable products can be improved. This can strengthen a competitive advantage for biobased products.72 As one example in the building products market, certification standards set forth by the U.S. Green Building Council through its Leadership in Energy Efficiency and Design (LEED) certification program can forge a clear path to the market for biobased products due to their renewability.
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In addition, government programs have been developed to support growth in demand for biobased products. For example, beginning in 2002, the BioPreferred Program requires federal government agencies to purchase biobased products rather than petroleum-based products when price and performance parameters are met. The program further expanded in 2010 to develop a label certifying biobased content. This provides an established market for manufacturers of final products using renewable chemicals to sell to, as well as establishing clear standards for biobased content across the industry.73
Maintaining and improving environmental impact

The environmental record of the renewable materials industry is not without public scrutiny, however. Subsets of consumers have concerns about feedstock sources relying on genetically modified organisms (GMO), agricultural practices that impact water quality, and diversion of food and feed to industrial products. Companies have developed strategies to address the concerns, whether perceived or real, in recognition that doing so will be critical to their ability to access the green-consumer market. As an example, investments have been made to develop sustainable and nonfood biomass supply chains across bioindustrial companies to circumvent debates over food versus fuels, GMOs and indirect land use change (ILUC). For the industry to be economically viable, consumer education must be clearly delivered, and investments in response to consumers shifting environmental concerns must continue.
Market development driven by brand owner leadership

In response to the growth of a green consumer base, large companies are beginning to lead initiatives that drive renewable products forward. Coca-Cola, PepsiCo, Nestle, Danone, Ford, Toyota, Mazda, Procter & Gamble, and AT&T all are using biobased materials in their product lines, with more companies expected to follow suit.74 Walmart and other retailers are helping to drive this trend as well, putting healthy pressure on their suppliers to manufacture green products.75 Adoption and marketing of biobased materials by these large companies has a ripple effect across the industry. Brand owners who bring a renewable material to the market are likely to have high standards of quality and performance, upping the ante for performance of biobased materials. The benefits of brand ownership of biobased products include: Increasing consumers comfort with new materials by using them in products associated with a trusted brand.76 Spurring innovation to develop new products and creating incentives for the biobased chemicals industry to increase scale and drive down costs.77 Driving supply chain development through large companies recognition of the need to pay a premium for a short period of time to bring new supply chains to full-scale production.78
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In an example of this trend taking hold, Coca-Cola and PepsiCo are competing to be the first to sell soda in bottles made from 100 percent biobased PET (polyethylene terephthalate), which is the plastic used throughout the industry to bottle carbonated soft drinks. The companies collective decision creates opportunities to spur significant research and development spending by supply-chain partners that are eager to participate in this new value stream.

leverage downstream industries
Minnesota has an opportunity to leverage private-sector and academic assets to become a leader in the design and engineering of materials from biobased materials. The state is home to numerous large companies that could be significant drivers in the value chain for renewable materials, including Cargill, CHS, 3M, Ecolab, Target, H.B. Fuller, and Valspar. Additionally, there are currently 20 Fortune 500 companies headquartered in Minnesota,79 and there are 300 plastics manufacturers located across the state who employ upwards of 15,000 people.80 Within these companies exists established capabilities that could be leveraged to provide logistics systems for commodity supply chains, formulation and manufacturing capabilities, and distribution of goods to end users. Furthermore, many Minnesota companies have already participated in initiatives to drive toward sustainability and green chemistry. The regions academic institutions have shown leadership in supporting development of final products. For instance, the University of Minnesota has established the Center for Sustainable Polymers to conduct basic research in conjunction with industry to make biobased plastics that perform. Additionally, the Bioproducts and Biosystems Engineering Department has a strong history of research and graduation of skilled students in the science of conversion of biobased resources into valuable products. Finally, the capability of the Minnesota State Colleges and University system to provide services that accelerate commercial opportunities is well established. One example that is of particular relevance to the renewable materials industry is the Composite Materials Technology Center (COMTEC) at Winona State University, which provides testing and product development services to industry.
Traditional chemical manufacturing outside of Minnesota

While Minnesota is home to many companies that are large consumers of chemicals, the industrys growth in Minnesota is challenged in another way because the chemical manufacturing industry is largely centered outside of the state. Chemicals manufacturers continue to maintain positions close to their feedstocks, and this continues to be dominated by petroleum and natural gas supply centers. As shown in Figure 2.4, most of the petrochemical manufacturing industry resides outside of the Midwest, and is especially
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concentrated on the Gulf Coast. Texas alone accounts for 71 percent of U.S. employment in petrochemical manufacturing.81 However, these formulators and refiners are key pieces of the downstream value chain for renewable chemical production. Thus, access to the downstream market is a critical issue for biobased chemicals manufacturing in Minnesota, strong transportation infrastructure is required for biorefineries to reach chemical manufacturing and formulation facilities across the industrial Midwest and the Gulf Coast. In some cases, existing oil refineries within the upper Midwest could be well positioned to differentiate themselves through cost-effective access to locally produced biobased chemicals.
Figure 2.4, Map of Oil Refineries

http://www.energysupplylogistics.com/map/
End-of-life issues slowing market growth for bioplastics

Market growth for bioplastics is a critical component for the development of bioindustrial processing. An emerging issue is that a recycling infrastructure for these materials has yet to be built, and this could slow growth in demand. Barriers have been demonstrated during the adoption of PLA, the worlds most ubiquitous biobased plastic. Similar issues will need to be confronted as other biobased polymers enter the market. Since there is a lack of separation capability for emerging biobased polymers, the recycling stream for petroleum-based plastics can then be contaminated, making the existing recycled plastic supply chains less valuable.82 Studies are under way to develop separation technology, but some environmentally conscious consumers and businesses pause at the purchase of PLA because of this issue. An array of businesses would need to collaborate to build a recycled biopolymer supply chain, including the manufacturers of the biopolymer, downstream molders of plastic products, waste management companies, product designers, and the manufacturers who use the biopolymer for end products. If successful, the development of capacity to separate and recycle PLA could help a region differentiate itself as a place for biobased materials innovations. Solutions could be on the horizon. First, independent companies are increasingly interested in developing PLA recycling capability as the bioplastic becomes more ubiquitous. Secondly, PLA has some advantages in recyclability over traditional polymers. The product can be hydrolyzed back to its base components, building a virgin polymer from the recycled materials, preserving the original materials quality. Biodegradation is another option for disposal. However, this also relies on the build-out of infrastructure, as it requires high-heat composting for the product
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to biodegrade. Only 113 industrial composting facilities exist across the country, and the average consumer of PLA may not have access to these facilities.83
leverage regional industry to access markets
For bioindustrial companies to grow, whether in the fuels or chemicals industry, existing petroleum companies and large chemical companies are needed to validate and use the products. Development of the bioindustrial processing industry can be accelerated by building a community of players and potential partners that occupy space throughout the value stream. Minnesota already has strengths across many parts of the value stream, including the availability of feedstock and technology developers. The state is home to many large downstream companies that could extend Minnesotas position as a leader in the expansion of bioindustrial opportunities. In addition, since bioindustrial processing is working in the context of a global industry, partnerships cannot stop at the Minnesota border. Creating a supportive environment for developing partnerships with companies across the globe would certainly accelerate the industrys growth in the state.
Develop support capability for testing and product development

The initial investment required for businesses to replace petroleum-based products with biobased materials is a significant barrier in the development of products that use renewable materials. Depending on whether the material being used is a drop-in product or new chemical, manufacturing processes need to be refined, and in some cases, new molds and chemical formulations need to be designed. These switching costs can be prohibitive for small manufacturers. To support the development of a market, and the capability to use biobased materials in an assortment of applications, identifying and organizing the resources available to assist in this transition could help move companies along the product development chain. In addition, the state may need to consider providing resources to companies interested in using biobased and green materials. Continued growth of technical assistance is recommended, such as the services provided by the Agriculture Utilization Research Institute (AURI) and university partners.
Provide information to businesses on consumer perspectives about biobased materials

Market development efforts for biobased materials start with an understanding of the industry and the value proposition for biobased materials. The factors that lead to market success for a green product, and consumers concern for the environment, are very complex. In the past decade, such information was not something the average manufacturer needed to know. Thus, it will be critical to provide businesses with information on this market to ensure wise investment decisions are made.
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There is a wide array of organizations that already understand the need to bring information forward on the marketing of renewable products, and they have begun to hold forums and events on the topic. Collaboration across industry, academia, and government on clarification of this value proposition for consumers must continue. Private-sector leadership must prevail, and information provided to entities along the value chain must be relevant to be effective.
endnotes
51. A majority of this value is derived from specialty and fine chemicals, which have an especially large range of end products within the category. U.S. biobased products market potential and projections through 2025. (2008) Washington DC: U.S. Department of Agriculture, Office of the Chief Economist. OCE-2008-1. February 2008. Retrieved on March 12, 2011 from www. usda.gov/oce/reports/energy/biobasedreport2008.pdf. U.S. biobased products market potential and projections through 2025. (2008) Washington DC: U.S. Department of Agriculture, Office of the Chief Economist. OCE-2008-1. February 2008. Retrieved on March 12, 2011 from www.usda.gov/oce/reports/energy/biobasedreport2008.pdf. Securities and Exchange Commission (2011) Myriant S- Registration.1 Page 58 http://www. sec.gov/Archives/edgar/data/1485026/000095012311054952/b86680sv1.htm. Biobased chemicals and products: A new driver for green jobs. (2011) Washington DC: Biotechnology Industry Organization. Retrieved on March 12, 2012 from http://www.bio.org/ sites/default/files/20100310_biobased_chemicals.pdf. Dobbs, R. et. Al. (2011) Resource Revolution: Meeting the worlds energy, materials, food, and water needs. McKinsey Global Institute, McKinsey Sustainability & Resource Productivity Practice. Pg 45. November 2011. Retrieved on November 23, 2011 from http:// www.mckinsey.com/en/Features/Resource_revolution.aspx. Solomon, D., & Meckler, L. (2011). Obama says no, for now, to Canada pipeline. New York, NY: Wall Street Journal, Retrieved on January 30, 2011 from http://online.wsj.com/article/ SB10001424052970204468004577168892140746430.html. Spot prices from crude oil and petroleum products (2012). Retrieved February 14, 2012, available from: http://www.eia.gov/dnav/pet/pet_pri_spt_s1_a.htm. BBAM analysis. Shale formations described as geologic structures deep under the earths surface with low permeability, where hydraulic fracturing below the surface is required to extract oil and gas. Shale gas: An unconventional resource. Unconventional challenges (2008). Halliburton. Retrieved on March 2, 2011 http://www.halliburton.com/public/solutions/contents/shale/ related_docs/H063771.pdf. Tracy, T. (2011) Companies seek to export U.S. gas in wake of production boom. New York, NY: The Wall Street Journal. August 12, 2011. Retrieved November 1, 2011 from http://online. wsj.com/article/SB10001424053111903918104576502554089821220.html. Alesci, C. and Ken Wells. (2011) The Underground Solution. New York, NY: Bloomberg Business Week. November 7-13. Pg. 66-72. Annual energy outlook 2011, with projections to 2030 (2011). Washington, DC: US Department of Energy: Energy Information Administration. No. DOE/EIA-0383(2011)). Pg. 143. Retrieved on November 1, 2011 from www.eia.gov/forecasts/aeo/pdf/0383(2011).pdf. Annual energy outlook 2011, with projections to 2030 (2011). Washington, DC: US Department of Energy: Energy Information Administration. No. DOE/EIA-0383(2011)). Pg. 79. Retrieved on November 1, 2011 from www.eia.gov/forecasts/aeo/pdf/0383(2011).pdf. Li, Shen, Haufe, Juliane, and Patel, Martin K. (2009) Product overview and market projection of emerging bio-based plastics. Utrecht, The Netherlands: Copernicus Institute for Sustainable Development. Utrecht University. June 2009. Pg. iii. Lunt, Jim. (2011) The Future of Bioplastics. Presented April 27, 2011 in Moorhead, MN.
52.
53. 54.
55.
56.
57. 58. 59.
60.
61. 62.
63.
64.
65.
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66. 67. 68. 69. 70. 71.
Green Chemistry (2011) U.S, Environmental Protection Agency. Retrieved December 4, 2011 from http://www.epa.gov/greenchemistry/. Introduction to the Concept of Green Chemistry (2012). U.S. Environmental Protection Agency. Retrieved on March 12, 2012 from http://www.epa.gov/greenchemistry/pubs/about_gc.html. LOHAS: What is it? (2011) LOHAS. Retrieved on December 7 from http://www.lohas.com/. Ning, T. (2011) Presentation given June 22, 2011 at LOHAS 2011, Boulder CO. The Sins of Green Washing, Home and Family Edition 2010 (2010). TerraChoice. Pg. 11. Retrieved on September 1, 2011 at http://sinsofgreenwashing.org/. Russel, C., & Bucholz, D. (2011). Biobased products, Minnesotas opportunity and challenge: A focus on BioPlastics. Crookston, MN: Agriculture Utilization Research Institute. Pg.16. Retrieved on July 23, 2011 from http://www.auri.org/research/Biobased.Products.Report.pdf. Greenwashing is defined as making false and misleading green claims, and is present in some degree in up to 95 percent of consumer products marketed as green. The Sins of Green Washing, Home and Family Edition 2010 (2010). TerraChoice. Pg. 16. Retrieved on September 1, 2011 at http://sinsofgreenwashing.org/. Procurement (2011) Biopreferred Program. Retrieved on September 1, 2011 at http://www. biopreferred.gov/FederalProcurementPreference.aspx. Guzman, Doris (2011) Brand owners rally on bioplastic use. ICIS Chemicals. November 18, 2011. Retrieved on September 15, 2011 from http://www.icis.com/ Articles/2011/11/21/9509806/brand-owners-rally-on-bioplastic-use.html. Walmart is formalizing their expectations in the development of a Sustainability Index for their products, immediately driving their 60,000 suppliers to evaluate the sustainability of their products. Sustainability Index (2011) Walmart. Retrieved September 15 from http:// walmartstores.com/Sustainability/9292.aspx. Davies, Steve (2011) Presented April 27, 2011, Moorhead, MN. Davies, Steve (2011) Presented April 27, 2011, Moorhead, MN. Guzman, Doris (2011) Brand owners rally on bioplastic use. ICIS Chemicals. November 18, 2011. Retrieved on September 15, 2011 from http://www.icis.com/ Articles/2011/11/21/9509806/brand-owners-rally-on-bioplastic-use.html. Fortune 500 Ranking of Americas Largest Corporations (2011). CNN. Retrieved on October 1, 2011 from http://money.cnn.com/magazines/fortune/fortune500/2011/states/MN.html. 2007 Economic Census Data-Minnesota. Plastics Manufacturing: NAICS 3261. (2009) Retrieved on March 5, 2011 at www.census.gov. 2007 US Economic Census Data. NAICS 22511: Petrochemical Manufacturing. Retrieved on September 1, 2011 from www.census.gov. Royte, E. (2006). Corn Plastic to the Rescue. http://www.smithsonianmag.com/sciencenature/plastic.html?c=y&page=2. Royte, E. (2006). Corn Plastic to the Rescue. http://www.smithsonianmag.com/sciencenature/plastic.html?c=y&page=2.
72.
73. 74.
75.
76. 77. 78.
79. 80. 81. 82. 83.
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III: Downstream Market Development Biofuels

intRoduction
Conventional biofuels boomed in the last decade, driven by long-term market trends and policy support. In the next decade, a similar boom in production and demand for advanced biofuels will be required to satisfy existing national mandates for consumption of advanced biofuels set forth in the federal Renewable Fuels Standard 2 (RFS2).84 Consumers and policymakers remain interested in alternatives to petroleum that ensure energy independence, maximize local wealth creation, and reduce greenhouse gas (GHG) emissions. As a result, the global market for biofuels is projected to increase from $82.7 billion in 2011 to $185.3 billion by 2021.85 Minnesota is in an advantageous position to benefit from market development in the fuels sector due to an abundance and variety of biomass feedstocks that are currently underutilized. For example, woody biomass and crop residues are two natural Net Import Share of liquid Fuels Supplied resources that will be used to replace petroleum-based fuels and chemicals 60 in next-generation biorefineries. 58 Moreover, the biodiesel and ethanol infrastructure built in the past decade provides a strong base to build upon for bioindustrial processing capacity. Given the high levels of U.S. fuel consumption, the market will likely support production of both the emerging biobased industry as well as conventional biofuels for years to come, and Minnesota is positioned to be a leader in both market segments.
56 54
Percent
52 50 48 46 44 42 40
High growth Normal growth Low growth
Figure 3.1
Net Import Share of Product Supplied. (2011) US Department of Energy: Energy Information Administration. Annual Energy Outlook. Retrieved February 10, 2012 from http://www.eia.gov/oiaf/aeo/tablebrowser/
industRy tRends
Support for biofuels maintained, though challenged
Energy Independence
After decades of rising dependence on foreign oil, the portion of overall U.S. oil consumption derived from oil imports decreased from 60 percent in 2005 to
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47 percent in 2010.86 Factors driving this shift include a drop in demand as a result of the economic downturn along with increasing production of biofuels and fossil fuels. To continue progress in displacing demand for petroleum, the transportation sector will play a major role, since over 60 percent of global petroleum production is used for vehicle fuel.87 Biofuels hold great promise for reducing U.S. reliance on imports of fossil-based resources for transportation fuels. The biofuels consumption mandated in the RFS2 is expected to displace 13.6 billion gallons of gasoline and diesel and decrease oil imports by $41.5 billion. The U.S. Department of Energy projects this shift away from reliance on foreign oil will result in up to $2.6 billion in savings on defense spending.88 Also contributing to declining imports was a 10 percent increase in production of oil from domestic wells between 2008 and 2010.89 The increased domestic production of fossil fuels has been driven by higher prices, new extraction technologies, and new discoveries of oil and gas. Leading the growth is the Bakken oil field in North Dakota, where production has grown from 100,000 to 400,000 barrels of oil per day.90
u.S. Field Production of Crude oil

2,200,000 2,100,000 Thousand Barrels 2,000,000 1,900,000 1,800,000 1,700,000 1,600,000
Figure 3.2
U.S. Field Production of Crude Oil (Thousand Barrels) (2011) US Department of Energy: Energy Information Administration.. Annual Energy Outlook. Imported Low Sulfur LightCrude Oil. Retrieved February 10, 2012 from http://www.eia.gov/oiaf/aeo/tablebrowser/
u.S. Natural Gas Production and Sources

30 Natural Gas Dry Production (Trillion Cubic Feet) 25 20 15 10 5 0 2008 2009 2015 2020 2025 2030 2035 Year
Figure 3.3
Annual energy outlook 2011, with projections to 2030 (2011). No. DOE/EIA-0383(2011). Washington, DC: US Department of Energy: Energy Information Administration. Table A14. Pg. 143. Retrieved on November 1, 2011 from www.eia.gov/forecasts/aeo/pdf/0383(2011).pdf
Shale Gas Lower 48 Onshore (excluding Shale) Lower 48 Offshore plus Alaska
Meanwhile, natural gas production is on the rise, increasing 18 percent between 2005 and 2011.91 Scientific breakthroughs in the early 2000s enabled economic extraction of natural gas from shale rock over the last decade.92 Production from shale gas formations is projected to increase from 2.23 trillion cubic feet per year in 2009, to 12.25 trillion cubic feet per year by 2035, as seen in Figure 3.3.93 Overall, natural gas production is set to increase from 20.29 to 26.32 trillion cubic feet per day over the same time period.94 For the natural gas industry, the glut of supply that continues to grow combined with a mild 2011/2012 winter to cause natural gas prices to reach low prices of $3/ MMBTU, down from a high of $13/MMBTU in 2008.95 As a result of the trend toward lower prices, the use of natural gas for heat and power increased 18.7 percent between 2006 and 2010.96 However, the impact on the transportation fuels market has been less significant,97 largely due to
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the pervasiveness of petroleum-based fuels. For natural gas or non-liquid biofuels, such as hydrogen, to reach critical mass, a turnover in the vehicle fleet and significant investment in distribution infrastructure would be required.
economic
In the last decade, growth in the biofuels industry played a role in the 70 percent increase in U.S. farm incomes between 2001 and 2011, providing a lift to rural communities across the country.98 Overall, annual farm incomes are projected to increase $13 billion due to the production of biofuels required under the RFS2.99 The impact on rural jobs has already been significant as well. For example, 8,600 people were employed in the U.S. corn ethanol industry in 2010.100 The resulting economic activity supported an additional 70,000 indirect and induced jobs.101 Indirect jobs include business activity to supply the plant, while induced jobs refer to jobs in the community supported by increased spending by employees and the business.102 Most importantly, because jobs that rely on U.S. agriculture and forestry materials are not likely to be outsourced to other countries, the employment created by this industry is more likely to be stable over time. This contributes to sustained strength in the U.S. manufacturing sector. These factors together help generate both political backing and market demand for biofuels.
Environmental
The positive environmental impact of biofuels production continues to be a major driver of maintained interest in alternative fuels. Despite perceptions to the contrary, life cycle assessments for biofuels continue to show positive returns on energy balance and greenhouse gas emissions (GHG).103, 104 However, the magnitude of GHG reduction depends on feedstock source and processing methods.105 In the U.S., displacement of petroleum fuels with biofuels, under the assumptions defined by the RFS2, is projected to reduce greenhouse gases by 138 million metric tons by 2022.106 Ethanol demonstrates another example of positive environmental impact through reduction of certain pollutants, including nitrous oxides (NOx), volatile organic compounds (VOC), and carbon monoxide.107 For example, a 10 percent blend of ethanol in gasoline reduces carbon monoxide (CO) emissions by 25 percent.108 In Minnesota, an ethanol blending mandate played a significant role in the Minneapolis and St. Paul regions success in complying with all CO regulations in the winter of 1992-1993, the first time it had done so since 1975.109 The reduced emissions, which are the result of biofuels combustion temperatures being lower than gasolines, serve to improve air quality.110 However, education of the public on the benefits of biofuels continues to be critical. Uncertainty about factors influencing the greenhouse gas impact of biofuels has plagued the industry, contributing to declining political support for biofuels. Additionally, the environmental record will be improved as biofuel production efficiency increases and cellulosic biomass is leveraged to produce advanced biofuels. These developments can ensure the environmental impact of biofuels remains a positive driver for market growth.
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Policy development helps drive demand

History
Minnesotans used innovative policies and cooperative business models in the 1980s and 1990s to build the foundation of the conventional biofuels industry. The Minnesota Model is a case study in successful industry development. A number of factors contributed to this perfect storm. The agricultural commodities were readily available. Consumption mandates were put in place to create downstream markets. Private sector capital was leveraged through farmer-owned cooperatives. Technological innovation increased the efficiency of production. Financial incentives were available in the form of low-interest loans and a production subsidy.
Roots of the Minnesota industry

Mandated ethanol consumption has been a reality in Minnesota for nearly two decades. In 1991, the Twin Cities was designated a federal non-attainment area for carbon monoxide (CO) emissions under the Clean Air Act of 1990. One of the mitigation requirements was to mandate a gasoline oxygen content of 2.7 percent to be used over the winter months, as carbon monoxide emissions tend to increase with cold weather.111 To comply with the law, Minnesota had to include an additive in gasoline that would increase its oxygen content, known as oxygenates. In Minnesota, ethanol was chosen over the fuel additive being used in many other parts of the country, called methyl tertiary butyl ether (MTBE). The fact that this initial mandate was implemented without much pain or controversy reduced the opposition to statewide mandates for ethanol blending. In 1991, the Minnesota legislature passed a law expanding ethanol mandates to require a 10 percent blend across the entire state.112 The mandate was implemented starting in 1997.113 The biodiesel mandate passed the MN legislature in 2002, requiring that all diesel fuel sold in the state include a blend of 2 percent biodiesel by volume.114 These mandates created certainty to Minnesota biofuels producers.
The spread of biofuels to the nation

Supportive policies at the national level followed suit, as The Energy Policy Act of 2005 first set a national blending goal of 7.5 billion gallons of ethanol with gasoline by 2012, which represented 2.78 percent of 2006 gasoline consumption.115 Meanwhile, MTBE had been found to contaminate California groundwater in the 1990s, eventually leading to the product being phased out across the country. State-level bans began in 1999, and the EPA officially recommended use of MTBE be phased out completely by 2000.116
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Ethanol provided an attractive alternative to MTBE since it has high oxygen content and is non-toxic. As a result, national demand quickly grew,117 and production of corn ethanol easily exceeded the 2012 mandates of 7.5 billion gallons by 2007. It is important to note that functional requirements played a major role in the markets growth. The swift satisfaction of the initial mandate then spawned further policy development to speed growth and support next-generation technologies.118
Renewable Fuels Standard 2

In 2007, the original Renewable Fuels Standard 2 Renewable Fuels Standard 40 was updated and aggressively expanded in the 35 Energy Independence and Cellulosic Biofuel 30 Security Act. The RFS2 set Biomass-based diesel forth specific goals for the 25 consumption of fuels in the 20 Unspecified advanced United States, with a parbiofuel 15 ticular focus on supporting Conventional Biofuel markets for cellulosic ethanol 10 and other advanced biofuels. 5 The law requires producers 0 and importers of gasoline 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 and diesel fuels to purchase 36 billion gallons of renewFigure 3.4 Renewable Fuels Standard. (2010) Pew Research: Center on Global Climate Change. Retrieved on able liquid biofuels by 2022. September 1, 2011 from http://www.pewclimate.org/federal/executive/renewable-fuel-standard. Additionally, greenhouse gas targets were included to ensure positive environmental impact, as detailed in Figure 3.5. A portion of the mandate also required the use of non-food feedstocks.119 Biofuels that qualify for the cellulosic biofuel mandate must use qualified biomass feedstocks. The EPA requires identification and certification of the biomass source to qualify, and can include agriculture residues, municipal solid wastes, and forest biomass. 120 The policy is generally less restrictive for agricultural residues than for forest biomass. Provisions of the final rule designed to protect native forests limit qualified sources of woody biomass to: wood from trees planted on land that was cleared prior to December 2007, pre-commercial thinning, and logging slash from traditional logging operations.121 EPA clarification is needed regarding the eligibility of naturally regenerated aspen forests and northern hardwood forests that dominate Minnesotas forest resource. It is important that future changes to the RFS2 should take this sustainably managed resource into account. The policys implementation has also been hampered by a lack of advanced biofuels production capacity. In the past two years, the EPA drastically reduced the mandate for cellulosic biofuel because of a lack of cellulosic ethanol production capacity. In 2011, the RFS2 statute mandated that fuel distributors purchase 250 million gallons of cellulosic ethanol, though the EPA has enforced a
Billion gallons of Fuel
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mandate of only 2 percent of this, or 6.6 million gallons.122 Shifting the mandate in this manner has served to undermine its original purpose, which was to provide assurance of a certain level of demand for advanced biofuels.123 % Reduction in GHG from displaced gasoline/diesel
(2005 baseline)
Fuel
Definition
Renewable fuel Advanced biofuel
20% 50%
Fuel produced from renewable biomass and that is used to replace or reduce the quantity of fossil fuel present in a transportation fuel. Renewable fuel other than ethanol derived from corn starch. Includes both biodiesel (mono-alkyl esters) and non-ester renewable diesel (including cellulosic diesel). It includes any diesel fuel made from biomass feedstocks. However, EISA included three restrictions. EISA requires that such fuel be made from renewable biomass. The statutory definition of biomassbased diesel excludes renewable fuel derived from co-processing biomass with a petroleum feedstock. Renewable fuel derived from any cellulose, hemicelluloses, or lignin each of which must originate from renewable biomass.
Biomass-based diesel
50%
Cellulosic biofuel
60%
Figure 3.5, Renewable Fuels Standard 2 Chart

Renewable Fuels Standard (2010) Pew Research: Center on Global Climate Change. http://www.pewclimate.org/federal/executive/renewable-fuel-standard.
Since the building of production capacity is a limiting factor for enforcement of the mandates, it appears that government programs to support technology development and capital investment will continue to be required. Programs have been implemented at the federal level, and it will be critical for these programs to be available and improved going forward.124
overall policy outlook

However, in an era of increasing austerity, biofuels policy will be under scrutiny. Dollars flowing to biofuels will be more difficult to secure in Congress, as demonstrated by a July 2011 vote in the U.S. Senate to eliminate the federal subsidy for corn ethanol, known as the Volumetric Ethanol Excise Tax Credit (VEETC).125 Although the program was not immediately killed in July 2011, the VEETC was allowed to expire at the end of 2011.126 Industry groups had already supported the phase-out of the VEETC in favor of market expansion programs, such as blender pump investments. However, the sudden move to end the credit was symbolically important. The policy had been considered untouchable by U.S. senators and congressmen from the Corn Belt. Furthermore, the Senate vote demonstrated the risk of relying on policy, rather than market forces, to support successful bioindustrial development over the long term.
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Environmental issues create pressure for technological advances

While prospects for additional supportive policies may be grim, adjustments to policies are likely to include metrics of environmental performance. Policies are being developed with three major issues related to environmental impacts of biofuels production: life cycle greenhouse gas (GHG) emission, the food versus fuels debate, and indirect land use changes (ILUC).
life cycle greenhouse gas emissions

The RFS2 signaled a shift to provide incentives for biofuels environmental performance by installing thresholds for GHG reductions from the use of biofuels. California took this one step further with the adoption of a Low Carbon Fuels Standard, measuring alternative fuels by their CO2 intensity, with the overall mandate being a 10 percent reduction in carbon intensity of transportation fuels sold in California. California designed credits into the system for GHG reductions, the value of which is based on the degree to which an alternative fuels carbon intensity improves upon that of petroleum-based fuels.127 The drive to satisfy mandates and increase the value of biofuels through reducing carbon intensity is designed to impact investments made into the industry. For example, these policy mandates provide incentives for the existing biofuels industry to make investments in process efficiencies, alternative energy to power production facilities, and alternative co-products. However, alternative feedstocks hold the most promise for significantly reducing life cycle GHG emissions.
Food versus fuels

The debate over utilization of food crops to produce biofuels has posed a challenge for the conventional biofuels industry, heightened by the fact that the industrys most rapid growth coincided with a period of increasing prices for agricultural commodities. A major event that drove this debate was a spike in food prices in 2008. However, multiple studies have shown that biofuels production has had only a minimal effect on food prices.128 Research suggests that other factors played a greater role in the sharp increase in food prices than did biofuels. One such factor was financial speculation. Around this time period, significant new money entered the physical commodities markets, which inflated prices for agricultural products, energy, and metals.129 This is demonstrated by the financial sector holdings of commodities in index fund investments increasing five-fold between 2007 and 2008.130 A second factor was fossil-fuel prices. Increases in fossil fuel prices are tied to increasing input costs across the agricultural value chain, including fertilizers and fuels for producing and transporting grains.131 The reliance on petroleum across the agriculture supply chain has increased the correlation between prices
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for fuel- and food-based commodities, making this factor increasingly critical to consider.132 While biofuels likely solidified this relationship in the near term, the fossil fuel inputs of production are a critical reason for the correlation. Finally, ethanol production preserves 30 percent of the corn mass entering the plant as dried distillers grains (DDGs), a high-protein animal feed.133 Thus, a significant portion of the feed value is preserved. Since livestock feed consumed nearly 42 percent of 2011 U.S. corn production, the preservation of protein feed value mitigates the impact of first-generation biofuels production on overall food prices.134 As next-generation biorefineries develop, multiple food, feed, and fiber products can come out of the same facility, and many of these will leverage biomass feedstocks that do not intersect with the food value chain. These developments will further mitigate the impact biofuels have on other markets, while extracting maximum value from biomass resources.
Indirect land use change (IluC)

Deriving momentum from the food-versus-fuels debate, ILUC impacts are becoming critical factors for biofuels policy. In recognition that increased demand for corn and soybeans for biofuels displaces supply for export markets, ILUC assumes that an increase in agriculture production is required somewhere else in the world to satisfy growing demand for food and feed. Thus, any GHG emissions from induced changes in agriculture production, such as the clearing of forest land to expand agricultural land, are modeled and included in domestic biofuel life cycle analyses.135 However, the complexity of societal impacts on food choices, energy costs, values for feed by-products, and global agricultural productivity issues make the quantification of ILUC an inexact science.
Petroleum prices driving demand for alternative fuels

There is unlikely to be reprieve from high oil prices in the foreseeable future, making this trend critical to consider. A number of factors are at work. The sources of oil today are in deeper water, trapped in shale, or are otherwise more difficult to extract than a decade ago. This leads to a higher baseline cost of petroleum production. Between 2000 and 2010, the average cost of bringing a new oil well to production doubled.136 Supply disruptions of oil exports from politically unstable regions of the world periodically put upward pressure on prices. U.S. regulatory delays continue on construction of the Keystone XL pipeline, which is intended to transport emerging crude oil supplies from the Canadian Oil Sands to Gulf Coast refineries.137 Finally, the thirst for energy from emerging economies will continue to buoy demand, especially as the global economy recovers.
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Volatility has proven to be rampant. The price of crude oil rose from $60 per barrel in 2006 to $140 per barrel in 2008. The next cycle saw a return to $60 per barrel in 2010, only to reach another peak above $100 per barrel in 2011.138 Concerns over crude oil price trends demonstrate the need to continue fostering private-sector investments and developing government policies that can support the growth of biofuel production. Furthermore, these factors combine to make biofuels increasingly cost competitive with the petroleum incumbents, and providing opportunities for a return on investment.

Figure 3.6
Technology development increasingly focused on drop-in fuels

An increasing number of companies are developing technologies that focus on bringing fuels to the market that are chemically identical to existing petroleumbased fuels. By using these so-called drop-in biofuels, downstream capital expenditures can be minimized through leveraging existing petroleum refining and transportation infrastructure. As an example, the interest in biobased isobutanol is partially driven by the option to process the molecule into highperformance fuels that are chemically identical to petroleum-based resources. Aviation fuels provide another example of this trend taking hold. In addition to military activity (detailed below), large private-sector consumers of jet fuel are demonstrating keen interest in exploring these developments.139 By 2050, biofuels are expected to contribute 30 percent of the global market for aviation fuels. While performance specifications are more stringent, logistical barriers for aviation fuels are generally lower than automotive fuels because there are fewer vessels and refueling stations in the aviation market.140 The shift to develop technologies for production of drop-in fuels is enabled by the innovation and efficiencies developed in the mature biofuels industry. As such, the emerging biobased industry will seek partnerships with the conventional biobased industry to build capacity.
Military driving demand for high-performance fuels

The U.S. military has provided a significant boost to the drop-in biofuels industry. This has been driven by cost increases due to a reliance on petroleum, as well as a recognition that externalities associated with securing foreign supplies of oil makes the true cost of petroleum-based fuels significantly higher than the market value.141 For the biofuels industry, partnerships with the military are a significant catalyst for growth and innovation. The militarys consumption of biofuels provides an
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Investment- Millions of $
end market to achieve economies of scale, in addition to credible testing and certification capability of a fuels performance. This interest is set to extend into direct investments in strategic companies for national security.142
DoD Investment into Clean Energy-Mobility

9,000 8,000 7,000 6,000 5,000 4,000
3,000 Several military branches have set 2,000 goals for the use of alternative fuels, 1,000 0 providing the end-use market com2005 2010 2015 2020 2025 2030 panies desperately need to secure Figure 3.7, Figure 3.7. Department of Defense Investments for investments. The Air Force intends Clean Energy- Mobility to use alternative fuels for half of its From Barracks to the Battlefield. (2011) Washington DC: Pew Charitable Trusts. Pg. 25. Retrieved on October 1, 2011 from http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsdomestic aviation needs by 2016. The org/Reports/Global_warming/DoD-Report%20FINAL.pdf U.S. Marine Corps and the Navys Great Green Fleet plan to use alternative energy sources to meet 50 percent of their operational energy requirements by 2020. Finally, the Army is planning to increase the use of non-petroleum fuels by 10 percent annually in nontactical vehicles.143 This provides a very large market as the DoD used more than 375,000 barrels of oil per day in 2009. This level of fuel consumption is higher than all but 35 countries.144
To accomplish these aggressive goals, there has already been significant testing and certification of military vehicles using biofuels. For example, the Air Force was the first to fly a plane with a 50/50 blend of hydro-treated renewable jet fuel, made from camelina. Today, 99 percent of the Air Force fleet is certified to fly on biofuel blends.145 Military consumers have among the highest standards in the world for drop-in fuels, as the supply needs to be consistent across global operating parameters, and malfunctions can result in the loss of life in the field. Thus, passing certification from the military virtually assures commercial viability from a technical perspective. Finally, direct investment into the industry is being realized. In August 2011, President Obama announced that the Navy, Department of Energy, and the USDA would invest up to $510 million in alternative sources of energy. This set of strategic investment will co-finance the development of plants and refineries capable of producing large amounts of biofuels in the next three years.146 Thus, the military is taking a holistic approach: It is ensuring that the market has the capability to provide it with stable sources of fuels while also providing those same markets with a stable source of demand.

Market access issues are preventing further growth in demand
Ethanol from any feedstock will have a market barrier to overcome in the coming years. First, the blending laws of the country limit the amount of ethanol blended with gasoline. Second, the infrastructure to pump higher blends of ethanol is not available to consumers.
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Until recently, a mixture of 10 percent ethanol and 90 percent gasoline was the highest ethanol blend allowed by the EPA, and this created a ceiling for ethanols market penetration. At a 10 percent blend, the maximum demand for ethanol is projected to be 15.2 billion gallons by 2012. This market can be extended through significant growth in sales of E85, which is a blend of 85 percent ethanol and 15 percent gasoline. However, this would likely require infrastructure investment as well.147 Recent efforts by industry trade groups led the EPA to soften this policy to allow E15 for vehicles built in 2001 and later.148 However, this represents only about 50 percent of the vehicle market, making significant E15 penetration unlikely because of the high cost required to serve only a segment of consumers.149 Even to meet mandated levels of consumption for ethanol, significant infrastructure build-out will be required. By 2022, infrastructure investments totaling $12 billion will be needed to ensure sufficient consumer access to ethanol fuel. Installation of ethanol blender pumps are the primary tool, providing the consumer an array of options for ethanol fuel blends up to E85. Minnesota has taken a leadership position on pushing the issue. A statute requiring 20 percent of the fuel sold in Minnesota to be ethanol was passed by the state legislature in 2005.150 Additionally, Minnesota government programs played a significant role in leading the nation in concentration of E85 stations, having 385 stations across the state. Additionally, the state also has 68 blender pumps, and this number is expected to grow.151 Thus, the policy and infrastructure barriers are a cause for concern in the effort to satisfy mandated consumption of biofuels. Without higher blends of ethanol, other fuels will need to be relied on to satisfy mandated biofuels consumption. These will include advanced drop-in fuels and biodiesel.
STRATEGIC NEEDS
Parity among options for liquid fuel molecules
Policies to support biofuels must be agnostic to the molecule being used for fuel to be effective in driving the biofuels markets overall growth, while recognizing varying performance characteristics of biofuels where needed.152 A level playing field must be created for emerging drop-in and alternative biofuels, as various options for biofuels have properties that make market penetration advantageous in certain applications. For example, high-performance aviation fuels have properties that allow biofuels to enter markets not accessible to conventional biofuels. These fuels generally rely on the same feedstock and similar infrastructure. All types of biofuels will play a role to maximize the impact on local wealth creation, energy independence, and greenhouse gas reductions; an all of the above approach is required.
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Financial support needed to build infrastructure for higher blends of biofuels

While new fuels provided some opportunities for growth, investments into blender pumps for growth in ethanol consumption are likely to be required. Investments into such infrastructure have proven difficult from the private sector because of the generally low margins fuel stations operate under.153 Thus, investments into blender pumps that increase consumer choice are unlikely to occur without government support. Minnesota must maintain its leadership position on this issue.
endnotes
84. Passed in the Energy Independence and Security Act of 2007, the current Renewable Fuels Standard (RFS2) requires 15 billion gallons of corn based ethanol, 1 billion gallons of biodiesel, 4 billion gallons of advanced biofuels, and 16 billion gallons of cellulosic biofuels. Pike Research, Inc. ( 2011). Global biofuels market value to double to $185 billion by 2021. October 11, 2011. Retrieved February 27, 2012, from http://www.pikeresearch.com/ newsroom/global-biofuels-market-value-to-double-to-185-billion-by-2021. Urbanchuk, J. (2011) Contribution of the ethanol industry to the economy of the United States. Pg. 5-6. Retreieved on September 15, 2011 from http://ethanolrfa.org/page/-/Ethanol%20 Economic%20Contribution%202010%20Final%20Revised%20010411.pdf?nocdn=1. King, D. Inderwildi, O.R and Williams, A. (2010) The future of industrial biorefineries. Prepared by McKinsey and Company. Geneva, Switzerland: World Economic Forum. Pg. 24. Retrieved on July 15, 2011 from http://www3.weforum.org/docs/WEF_ FutureIndustrialBiorefineries_Report_2010.pdf. Renewable Fuel Standard Program (RFS2) 2010 and Beyond (2010). Office of Transportation and Air Quality, US Environmental Protection Agency. February 2010. Retrieved on February 29, 2011 from http://www1.eere.energy.gov/cleancities/toolbox/pdfs/ renewable_fuel_standard_program--2010_and_beyond.pdf. Oil production from the Bakken oil fields in North Dakota increased from 100,000 to 400,000 barrels of oil from 2003-2011. Source: Yergin, D. (2011) There will be oil. New York, NY: The Wall Street Journal. Retrieved on October 1, 2011 from http://online.wsj.com/article/SB10001424053111904060604576572552998674340.html. Ibid. Tracy, T. (2011) Companies seek to export U.S. gas in wake of production boom. New York, NY: The Wall Street Journal. August 12, 2011. Retrieved November 1, 2011 from http://online. wsj.com/article/SB10001424053111903918104576502554089821220.html. Shale formations described as geologic structures deep under the earths surface with low permeability, where hydraulic fracturing below the surface is required to extract oil and gas. Shale gas: An unconventional resource. Unconventional challenges (2008) Halliburton. Retrieved on March 2, 2011 http://www.halliburton.com/public/solutions/contents/shale/ related_docs/H063771.pdf. Annual energy outlook 2011, with projections to 2030 (2011). Washington, DC: US Department of Energy: Energy Information Administration. No. DOE/EIA-0383(2011)). Table A14. Pg. 143. Retrieved on November 1, 2011 from www.eia.gov/forecasts/aeo/pdf/0383(2011).pdf. Ibid. Strumpf, D. and Dezember, R.(2011). Natural Gas Ends 2011 at 27 month low. New York, NY: The Wall Street Journal. December 31, 2011. Retrieved on January 5, 2011 from http://online. wsj.com/article/SB10001424052970204720204577130482684060876.html. 85.
86.
87.
88.
89.
90. 91.
92.
93.
94. 95.
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96.
Demand for heat in 2011 has, of course, moderated with the mild winter. Table 16. Natural Gas Delivered to Consumers by Sector, 2006-2010, and by State and Sector, 2010 (2010). Washington DC: US Department of Energy: Energy Information Administration. Retrieved on September 15, from http://www.eia.gov/naturalgas/annual/pdf/table_016.pdf. Ibid. Farmer income forecast (2011). USDA Economic Research Service. Retrieved on September 20, 2011 from http://www.ers.usda.gov/briefing/farmincome/nationalestimates.htm. Renewable Fuel Standard Program (RFS2) 2010 and Beyond (2010). Office of Transportation and Air Quality, US Environmental Protection Agency. February 2010. Retrieved on February 29, 2011 from http://www1.eere.energy.gov/cleancities/toolbox/pdfs/ renewable_fuel_standard_program--2010_and_beyond.pdf.
97. 98. 99.
100. Urbanchuk, J. (2011) Contribution of the Ethanol Industry to the Economy of the United States. Pg. 5-6. Retrieved on January 15, 2012 from http://ethanolrfa.org/page/-/Ethanol%20 Economic%20Contribution%202010%20Final%20Revised%20010411.pdf?nocdn=1. 101. Ibid. 102. Ibid. 103. EPA Lifecycle Analysis of Greenhouse Gas Emissions from Renewable Fuels (2009). Retrieved on December 15, 2011 from http://www.epa.gov/oms/renewablefuels/420f09024.htm. 104. Wang, Michael, Ph.D. (2007) Ethanol: The complete lifecycle picture. Washington, DC: U.S. Department of Energy Office of Energy Efficiency and Renewable Energy. March 2007. Second Revised Edition. Retrieved on November 29, 2011 from http://www.transportation. anl.gov/pdfs/TA/345.pdf. 105. Ibid. 106. Renewable Fuel Standard Program (RFS2) 2010 and beyond (2010). http://www1.eere.energy.gov/cleancities/toolbox/pdfs/renewable_fuel_standard_program--2010_and_beyond.pdf. 107. M.J. Bradley & Associates LLC (2011) American Lung Association Energy Policy Development: Summary. Washington DC: The American Lung Association. Pg. 32. Retrieved on August 24 from http://www.lungusa.org/healthy-air/outdoor/resources/energy-overview.pdf. 108. Young, B.W (2008). Power for a Green Planet: How Renewable Energy is Ending the Age of Oil. April 24, 2008. Unpublished Work. Pg. 17. 109. Ibid. 110. Ibid. Pg. 15. 111. State Winter Oxygenated Fuel Program (2011). US Environmental Protection Agency. November 21, 2011. Retrieved on October 1, 2011 from http://www.epa.gov/otaq/fuels/gasolinefuels/winterprograms/index.htm. 112. Young, B.W (2008). Power for a Green Planet: How Renewable Energy is Ending the Age of Oil. April 24, 2008. Unpublished Work. Pg. 16-17. 113. About the Minnesota Ethanol Program (2011). Minnesota Department of Agriculture. Retrieved on February 1, 2012 from http://www.mda.state.mn.us/renewable/ethanol/about.aspx. 114. Biodiesel Mandate- Minnesota (2011) The New-Rules Project. Retrieved on March 2, 2011 from http://www.newrules.org/environment/rules/ethanol-and-biodiesel/ biodiesel-mandate-minnesota. 115. EPA Finalizes Regulations for a Renewable Fuel Standard (RFS) Program for 2007 and Beyond (2007). Retrieved on November 2, 2011 from http://www.epa.gov/oms/ renewablefuels/420f07019.htm. 116. Young, B.W (2008). Power for a Green Planet: How Renewable Energy is Ending the Age of Oil. April 24, 2008. Unpublished Work. Pg. 17. 117. McPhail, Lihong et. Al. (2011). The Renewable Identification Number system and U.S. Biofuel Mandates. Nobember 2011. USDA Economic Research Service. Retrieved on November 29, 2011 from http://www.ers.usda.gov/Publications/BIO03/BIO03.pdf.
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118. EPA Finalizes Regulations for a Renewable Fuel Standard (RFS) Program for 2007 and Beyond (2007). Retrieved on November 2, 2011 from http://www.epa.gov/oms/ renewablefuels/420f07019.htm. 119. McMartin, C., Noyes, G. (2010) America Advances to Performance-Based Biofuels. Copublished by Stoel Rives and Clean Fuels Clearinghouse. February 26, 2011. 120. For more information from the US Environmental Protection Agency, please visit http:// www.epa.gov/otaq/fuels/renewablefuels/index.htm. 121. United States Environmental Protection Agency. (2010) National Renewable Fuel Standard program overview. April 14-15, 2010. Pg. 18. Retrieved on November 1, 2011 from http:// www.epa.gov/oms/fuels/renewablefuels/compliancehelp/rfs2-workshop-overview.pdf. 122. Maron, D. (2011). Much-Touted Cellulosic Ethanol Is Late in Making Mandated Appearance. Retrieved on November 3, 2011 from http://www.nytimes.com/ cwire/2011/01/11/11climatewire-much-touted-cellulosic-ethanol-is-late-in-ma-13070. html?pagewanted=all. 123. Celebi, Metin, Evan Cohen, Michael Cragg, David Hutchings, and Minal Shankar. (2010). Can the U.S. congressional ethanol mandate be met? The Brattle Group. May 2010. Retrieved on May 26, 2011 from http://www.brattle.com/_documents/uploadlibrary/upload849.pdf. 124. Erickson, B. (2011) Out from Solynras Shadow. The Biofuels Digest. Retrieved on November 18, 2011 from http://biofuelsdigest.com/bdigest/2011/11/17/ out-from-solyndra%E2%80%99s-shadow/. 125. Spencer, J. (2011). Senate Deals Setback to Ethanol Industry. Retrieved on September 5, 2011 from http://www.startribune.com/business/124024559.html. 126. Amanda Bilek, Personal Communication. December 14, 2011. 127. Kahn, D. (2009). California Adopts Low-Carbon Fuel Standard. Retrieved on September 30, 2011 from http://www.scientificamerican.com/article.cfm?id=california-adopts-low-car. 128. Mueller, Sherry A. et. Al. (2009) Impact of biofuel production and other supply and demand factors on food price increased in 2008. Biomass and BioEnergy. Volume 35. Pg. 1623-1632. 129. Baffes, John. And Tassos Haniots. (2010) Placing the 2006/08 Commodity Price Boom into Perspective. The World Bank: Development Prospects Group. July 2010. Policy Research Working Paper 5371. 130. Mueller, Sherry A. et. Al. (2009) Impact of biofuel production and other supply and demand factors on food price increased in 2008. Biomass and BioEnergy. Volume 35. Pg. 1623-1632. 131. Ibid. 132. Baffes, John. And Tassos Haniots. (2010) Placing the 2006/08 Commodity Price Boom into Perspective. The World Bank: Development Prospects Group. July 2010. Policy Research Working Paper 5371. 133. Mueller, Sherry A. et. Al. (2009) Impact of biofuel production and other supply and demand factors on food price increased in 2008. Biomass and BioEnergy. Volume 35. Pg. 1623-1632. 134. Corn Use Table. (2012) U.S. Department of Agriculture, Economic Research Service. Retrieved on March 5, 2012 from http://www.ers.usda.gov/Briefing/Corn/Gallery/ Background/CornUseTable.html. 135. Marshall, E., Caswell, M., Malcolm, S., Motamed, M., Hrubovcak, J., Jones, C. and Nickerson, C. (2011). Measuring the Indirect Land-Use Change Associated With Increased Biofuel Feedstock Production. Retrieved on November 20, 2011 from http://www.ers.usda.gov/ Publications/AP/AP054/AP054.pdf. 136. Dobbs, R. et. Al. (2011) Resource Revolution: Meeting the worlds energy, materials, food, and water needs. McKinsey Global Institute, McKinsey Sustainability & Resource Productivity Practice. Pg 45. November 2011. Retrieved on November 23, 2011 from http://www.mckinsey. com/en/Features/Resource_revolution.aspx. 137. Solomon, D., & Meckler, L. (2011). Obama says no, for now, to Canada pipeline. Wall Street
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Journal. Retrieved on January 5 from http://online.wsj.com/article/SB10001424052970204 468004577168892140746430.html. 138. Spot prices from crude oil and petroleum products (2012). Retrieved February 14, 2012, available from: http://www.eia.gov/dnav/pet/pet_pri_spt_s1_a.htm. 139. Kinder, J. and Rahmes, T. (2009) Evaluation of Bio-Derived Synthetic Paraffinic Kerosene (Bio-SPK). The Boeing Company. June 2009. Retrieved on February 1, 2012 from http:// www.ascension-publishing.com/BIZ/Boeing-BioSPK.pdf. 140. King, D. Inderwildi, O.R and Williams, A. (2010) The future of industrial biorefineries. Prepared by McKinsey and Company. Geneva, Switzerland: World Economic Forum. Pt. 23. Retrieved on July 15, 2011 from http://www3.weforum.org/docs/WEF_ FutureIndustrialBiorefineries_Report_2010.pdf. 141. From Barracks to the Battlefield (2011). Washington DC: Pew Charitable Trusts. Pg. 34. Retrieved on October 1, 2011 from http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Global_warming/DoD-Report%20FINAL.pdf. 142. President Obama announces major initiative to spur biofuels industry. (2011) Washington DC: The White House Office of the Press Secretary. August 16, 2011. Retrieved on February 10, 2012 from http://www.whitehouse.gov/the-press-office/2011/08/16/ president-obama-announces-major-initiative-spur-biofuels-industry-and-en. 143. From Barracks to the Battlefield. (2011) Washington DC: Pew Charitable Trusts. Pg. 34. Retrieved on October 1, 2011 from http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Global_warming/DoD-Report%20FINAL.pdf. 144. Karbuz, S (2010). DoD Energy Use in 2009. http://karbuz.blogspot.com/2010/07/dod-energy-use-in-2009.html. 145. Yonkers, T (2011). Leading by Example: How Energy Innovation is Strengthening Americas Military. Briefing to Pew Charitable Trusts. Retrieved on November 12, 2011 from http:// www.pewtrusts.org/events_detail.aspx?id=85899361093. 146. President Obama Announces Major Initiative to Spur Biofuels Industry and Enhance Americas Energy Security (2011). Washington DC: The White House Office of the Press Secretary. August 16, 2011. Retrieved on November 15, 2011 from www.whitehouse.gov/the-press-office/2011/08/16/ president-obama-announces-major-initiative-spur-biofuels-industry-and-en. 147. Celebi, Metin, Evan Cohen, Michael Cragg, David Hutchings, and Minal Shankar. (2010). Can the U.S. congressional ethanol mandate be met? The Brattle Group. May 2010. Pg. 3. Retrieved on May 26, 2011 from http://www.brattle.com/_documents/uploadlibrary/upload849.pdf. 148. E15 (a blend of gasoline and ethanol) (2011). US Environmental Protection Agency. February 17, 2011. Retrieved on August 23, 2011 from http://www.epa.gov/otaq/regs/fuels/additive/e15/. 149. Celebi, Metin, Evan Cohen, Michael Cragg, David Hutchings, and Minal Shankar. (2010). Can the U.S. congressional ethanol mandate be met? The Brattle Group. May 2010. Pg. 3. Retrieved on May 26, 2011 from http://www.brattle.com/_documents/uploadlibrary/upload849.pdf. 150. Bailey, J. (2005). Minnesota Passes 20 Percent Ethanol Mandate. May 12, 2005. Retrieved on August 23, 2011 from http://www.newrules.org/energy/news/ minnesota-passes-20-percent-ethanol-mandate. 151. Connelly, C. and Groschen, R. (2011). Legislative Report on Ethanol: Review of E20. St. Paul, MN: The Minnesota Department of Agriculture. January 15, 2011. Retrieved on November 23, 2011. http://www.mda.state.mn.us/~/media/Files/news/govrelations/legrpt-e20-2010.ashx. 152. As an example, ethanol provides oxygenate properties to fuels that are critical to environmental and overall fuel performance. 153. Celebi, Metin, Evan Cohen, Michael Cragg, David Hutchings, and Minal Shankar. (2010). Can the U.S. congressional ethanol mandate be met? The Brattle Group. May 2010. Pg. 7. Retrieved on May 26, 2011 from http://www.brattle.com/_documents/uploadlibrary/upload849.pdf.
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IV: Agricultural-Based Supply Chain Partnerships

intRoduction
Bioindustrial processing, which includes the manufacture of advanced biofuels and biobased chemicals, provides an opportunity for growth in Minnesotas agriculture based economy. Collectively, these industries constitute a significant portion of the emerging biobased industry, which is set for rapid growth for products derived from agriculture and forest based resources.154 The state is home to significant production capacity for the conventional biobased economy, which includes agriculture and processing of agricultural products.155 Owners and operators of existing processing infrastructure can partner in the processing of those resources toward new markets. In total, the manufacturing of advanced biofuels and biobased chemicals has the potential to add 1,600 to 4,500 direct and indirect jobs across rural Minnesota, in addition to jobs created in forestry biorefineries and company headquarters. Additional details can be found in Appendix E. Over the next decade, the development of bioindustrial processing will bring opportunities for agriculture producers to sell their output to increasingly diverse markets. These additional markets will rely on growth in production of existing agricultural commodities and the development of emerging biomass supply chains.
case study: An Example of an Integrated Biorefinery

Investments at a corn wet mill in Blair, Nebraska, owned by Cargill provide one example of a model for a large, integrated biorefinery. The wet mill had primarily produced food products such as high fructose corn syrup. Today, however, the mill operates as an integrated biorefinery, providing an infrastructure base for an array of biobased chemicals. This includes the Natureworks product known as polylactic acid (PLA), which is based on fermentation of corn starch to lactic acid (PLA is the most ubiquitous bioplastic on the market today.) The addition of PLA manufacturing has diversified the revenue streams for the processing facility while adding value to the local corn crop, each of which are critical outcomes of future development of bioindustrial processing.
Stebbins, Christine. (2010) Big Cargill corn plant feeds green economy. Rueters. Retrieved on March 5, 2011 from http://www.reuters.com/article/2010/09/29/us-usa-biorefinery-cargill-idUSTRE68S4Y020100929.
Furthermore, many of these investments will leverage existing infrastructure. Innovation in such areas as precision farming equipment, agricultural biotechnology, and no-till farming is positioning the countrys agricultural sector for growth in supplying new industries. These innovations contribute to increasing yields while minimizing inputs, and improve the economic and environmental performance of
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farming. Agriculture has the capability to increase its output to meet the growing demand for sustainable supplies of food, feed, fiber, and chemicals. Bioindustrial processing can leverage the states strong assets, including farm production, industrial assets, and university research. With these assets in place, Minnesota is well positioned to add value through development of next-generation biorefineries.
Minnesotas agriculture supply

The state holds strong positions in its ability to supply the emerging advanced biofuels and biobased chemicals industries with key feedstocks, including corn, soybeans, and agricultural residues. Additionally, significant opportunities to partner with the conventional biofuels industry hold the promise of accelerating growth and minimizing capital expenditures for scaling up technologies. As of 2008, Minnesotas total direct and indirect employment in agriculture production was nearly 130,000.156 This level of employment is made possible by the strong resource base, as Minnesota has over 26 million acres of high-quality farmland, comprising over 50 percent of the states land area. Minnesota farmers rank fourth in the nation in production of corn, and third in the production of soybeans.157 Additionally, Minnesota is the top producer of sugar beets in the country.158 Production of agricultural commodities continues to increase, enabling the potential for large-scale manufacturing of advanced biofuels and biobased chemicals in rural areas of the state. In 2009, Minnesotas corn yields averaged 160 bushels per acre. By 2015, yields are expected to be 180 bushels per acre, reaching 300 bushels per acre by 2050.159 These increases in production are being realized even as agricultural inputs are minimized, including fuel and chemical fertilizers, which are critical factors for life cycle environmental impacts of downstream products. Since 2000, Minnesota corn yields grew 22.1 percent while nitrogen application only increased by 9.6 percent.160 Across the United States, the amount of fuel used per ton of grain produced decreased 64 percent between 1973 and 2005.161 With increasing yields for traditional commodities, the availability of agricultural residues is expected to increase as well. Furthermore, as biomass markets develop, opportunities for dedicated crop production are likely to materialize in Minnesota. Overall, the states leadership position in agriculture will be a critical factor in the growth of the emerging biobased industry in Minnesota.
industRy tRends
Bioindustrial processing positively impacts the agriculture industry
Growth opportunities in the advanced biofuels and biobased chemicals industry are large and clear in the next decade. Biofuels production under the Renewable Fuels Standard 2 (RFS2) will require a rapid increase in
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production to reach the 36 billion gallons of biofuel consumption mandated by 2022.162 Additionally, the market for biobased chemicals is projected to reach over $610 billion in market value by 2025.163 Traditional agricultural commodity producers and processers stand to profit from this growth.164 The development of the conventional biofuels industry provides a recent example of a new industrys impact on agriculture. Using cooperative business models and targeted policy support, innovative Minnesota farmers planted the seeds in the 1980s and 1990s for explosive growth in the ethanol industry across the country during the 2000s. This development increased farmer wealth and re-vitalized rural communities. Bioindustrial processing is set to maintain and build upon the impacts accrued by the economy through the growth of the conventional biofuels industry. Manufacturing of advanced biofuels and biobased chemicals provides opportunities to maintain and strengthen existing biorefineries through the addition of revenue streams. This represents a strategic option for long-term sustainability of the conventional biobased industry. These new products are not likely to displace the market for first-generation biofuels, but they will offer access to opportunities in the advanced biofuels and biobased chemicals markets for long-term business growth and profitability. Moreover, as the demand for agriculture-based products continues to fluctuate, the diversification of end markets through bioindustrial processing will be one way to ensure steady demand for local agricultural commodities. Farmers, and Minnesota as a whole, profited from the first ethanol boom, and with the right strategy, they will be well positioned to leverage this experience and infrastructure to advance the next generation of biorefineries.
Increasing agriculture commodity prices

Over the past seven years, nearly all commodity prices have increased significantly, with agricultural commodities following this trend. For example, the average price of both corn and soybeans doubled between 2005 and 2011.165 The factors giving rise to these price increases are unlikely to wane in the near term, possibly making todays prices a new normal for the commodity markets.166 These factors include both demand- and supplyside impacts. Demand-side impacts include:167 Global population growth,168
Historical Corn Prices

6 5 Dollars per Bushel 4 3 2 1 0 2003 2004 2005 2006 2007 2008 2009 2010 2011
Figure 4.1
Feed Grains Database. (2011) Washington, DC: Economic Research Service. Retrieved on December 14, 2011 from http://www.ers.usda.gov/Data/FeedGrains/download.htm
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Wealthier consumers in emerging economies demanding more and higher-quality food,169 and The emergence of biofuels manufacturing capacity. Supply-side impacts include: Rising prices of fossil fuels, The tightening of global grain reserves as agriculture logistics are optimized to minimize costs, increasing their susceptibility to market shocks, and Supply disruptions from adverse weather events, such as floods and droughts. The level and stability of feedstock prices are significant factors for profitable processing of agricultural commodities or biomass feedstocks. In the face of expected increases in costs, the following are some opportunities for biorefineries to maintain and grow profitability: Diversify and increase revenue through value-added products, including advanced biofuels and biobased chemicals manufacturing, and co-product utilization; Improve processing efficiency to minimize costs; and Explore alternative biomass feedstocks available from local producers. Additionally, it is important to consider the cost structure of feedstock supply in a mutually beneficial relationship with local agriculture producers. Cooperative business models that include supplier equity structure have allowed farmerowned facilities to more effectively manage feedstock input costs.
Biotechnology is impacting the agriculture industry

General adoption
To satisfy the growing global demand for food, feed, fuels, fiber, and materials, it will be critical to find ways to increase agricultural output. To do so farmers will need to find ways to increase productivity. Increasingly, biotechnology is being leveraged to increase yields through improved management of pests and weeds that in turn results in more efficient utilization of scarce nutrients and water.
u.S. Historical and Projected Corn Yields

200 180 160 Bushels per acre 140 120 100 80 60 40 20 0
Year
Figure 4.2
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Today, 88 percent of U.S. farmland acres use seeds with agricultural biotechnology traits, with 94 percent of soybean acres using herbicide-resistant crops.170 According to a USDA analysis, adoption of these technologies has enabled, but not necessarily caused, an increase in yields propagated by traditional breeding techniques, combined with a declining need for pesticides.171
50 45 40 Bushels per acre 35 30 25 20 15 10 5 0
u.S. Historical and Projected Soybean Yields
Year
Figure 4.3
It must be noted, that while agriculture biotechnology provides opportunities for increasing and efficient production, the technology is not accepted by all consumers. Market access and reduction in demand are potential risks from the use of GMO feedstocks.
Continued innovation in existing agricultural commodities

Building on 15 years of experience using genetically modified organisms, the next generation of technologies will continue to realize improvements from both an economic and environmental perspective. First, advances in genomics are supporting the development of increasingly precise methods of eliminating unwanted traits in plants that limit growth or increase susceptibility to disease.172 This has the potential to mitigate unintended consequences and alleviate some concerns from consumers who do not support the use of current genetic modification practices. Additionally, traits are being developed for drought tolerance, nitrogen efficiency, and an array of disease-resistant traits.173 These will very intentionally decrease the resource intensity of agriculture. First, negative environmental impacts of agriculture will be reduced; irrigation requirements, pesticide application, and fertilizer run-off will be minimized. Second, productivity is expected to increase even under sub-optimal soil and climate conditions, which is critical for farmers across the globe. Increasing production would play a role in mitigating the food-versus-fuels debate and indirect land use concerns. Moreover, life cycle environmental impacts of biofuels and biobased chemicals would be minimized through resource-efficient production.
Advanced traits for bioprocessing

Agricultural biotechnology can also be leveraged to design traditional grain and oilseed crops for specific industrial processes. These crops are tailored to increase the efficiency and quality of the manufacturing processes for advanced biofuels and biobased chemicals.
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Because of the unique specifications of these crops, contract growing will be a critical aspect for their commercialization to avoid negative impacts of contamination with supply chains for other products. Care must be taken in this regard, and concerns about liability for mistakes along the value chain must be established.
case study: Amylase Corn

Syngenta, a Swiss agribusiness company whose Agriculture Seeds division is based in Minneapolis, Minnesota, has developed and commercialized corn seed that directly produces an enzyme used in the ethanol industry to break starch into glucose that is particularly accessible to yeast. By introducing this corn output trait, Syngenta provides ethanol producers with the ability to decrease operating costs and water usage, which can be an important parameter for any product relying on conversion of corn starch to fuels and chemicals. Projecting into an industrial environment, amylase corn can save 450,000 gallons of water, 1.3 million kwh of electricity, and 244 million BTU of natural gas for a 100 million gallon per year (MGY) ethanol plant. An estimated 8 to 10 cents is shaved off the production costs for each gallon of ethanol by incorporating this feedstock into 10 percent to 20 percent of a plants total supply.4.1 However, there are risks, associated with amylase enzymes being included in corn processed in traditional applications. For example, introduction of additional amylase to a breakfast cereal manufacturer would result in soggy outputs. Thus, the value of the crop will only be realized by specific bioindustrial processing facilities, and closed loop supply chains will be critical to avoid contamination.4.2
4.1
Lane, Jim. (2011). USDA Deregulates Syngenta Seeds Amylase Corn for Enhanced Ethanol Productivity. http://biofuelsdigest.com/bdigest/2011/02/14/usda-deregulates-syngenta-seeds-amylase-corn-for-enhanced-ethanol-productivity/. Retrieved on November 18, 2011. 4.2 Lane, Jim. (2011). Trojan Corn, or 20 billion Reasons to Think Outside the Tank. http://biofuelsdigest.com/bdigest/2011/07/14/trojan-corn-or-20-billion-reasons-to-think-outside-the-tank/ Retrieved on November 18, 2011.
There are three major categories of crops being developed for specific downstream applications. The first includes traditional crops that enable processing efficiency, such as amylase corn. The second includes energy crops being designed to increase levels of particular components of a plant. For example, energy beets and sweet sorghum are being produced to maximize sugar content for fermentation, while oilseed crops are being engineered to maximize lipid content for conversion to biodiesel and other products. Finally, high-value nutraceuticals and pharmaceuticals can be grown and extracted from specially designed crops. In summary, when appropriate care is taken to avoid contamination of other supply chains, these crops can increase the profitability of bioindustrial processing while providing an option for agricultural producers to make a steady profit from their land.
Development of new agriculture biomass supply chains

Demand for cellulosic biomass for bioindustrial processing is expected to grow, driven by increasing demand for cellulosic ethanol, development of new technologies for converting cellulose to advanced biofuels and biobased chemicals, and incorporation of agricultural fibers in biocomposites. Agricultural biomass, which includes corn cobs, corn stover, soybean straw, and wheat straw, is expected to increase the value derived from agricultural land through the addition of a new revenue stream. However, the supply chain for
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agricultural biomass has not been developed at the industrial scale, and farmers are appropriately cautious when committing to produce outputs beyond the agricultural commodities that currently drive their businesss cash flow. The task of developing biomass supply chains cannot be taken lightly. Significant effort over multiple years will be needed to recruit farmers and harvesters willing and capable of delivering biomass at the required specifications and scale.174 One of the challenges to creating a stable market for biomass is a type of a chicken-and-egg problem. On the supply side, there is a lack of reliable information on the availability of agricultural biomass for local projects; on the demand side, there is uncertainty about the existence of buyers. Farmers cannot supply biomass unless there is an assurance of a profitable relationship with a buyer, and a plant cannot be built while relying on uncertain supply. Thus, the industry will likely need to leverage mechanisms to share information on specifications and availability of biomass across the supply chain.175 Solving the issues for biomass supply can allow the conventional and emerging biobased industry to access new markets and leverage low-cost feedstocks that avoid competition with food and feed uses.
Enabling no-till farming

For agricultural producers, the creation of new supply chains will have an impact on the production of agricultural commodities. Through additional revenues derived from removal of agriculture residue, as well as agronomic factors associated with residue removal increasing potential yields, no-till and conservation tillage could be more likely to be a profitable farming practie. One drawback of no-till approaches is the tendency for no-till managed soil to warm and dry slowly in the spring. However, the addition of residue removal to existing no-till regimes can speed the warming of the soil. When no-till plots added the removal of residues, yields remained comparable to traditional tillage in trials from Illinois; the soil temperature was an average of two to three degrees warmer four weeks after planting.176 This effect of residue removal could be especially important in Minnesota, where shorter growing seasons compared to southern portions of the Corn Belt have made farmers reluctant to adopt no-till practices. In Minnesota, only 11 percent of soybean production was under no-till management in 2010, versus 45 percent across the country.177 Through tillage of the soil to expose black dirt, the soil can more rapidly warm and dry in the spring. This accelerates planting dates for fields to reach the maximum yield potential. Profitable removal of agriculture residues to overcome this issue has the potential to significantly accelerate the adoption of no-till farming in Minnesota. Additionally, suppliers utilizing no-till farming can again improve the life cycle environmental impact of final products in the advanced biofuels and biobased chemicals industry by minimizing passes of equipment through fields, resulting in lower fuel consumption. Finally, no-till farming minimizes erosion, fertilizer run-off, and the loss of soil carbon. Significant carbon is stored in the roots that remain under the soil. For example, keeping a minimum of
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30 percent of residues on the surface of the soil in a no-till management regime increases water retention and decreases erosion by 60 to 90 percent.178
Biomass crops
In addition to harvesting cellulose from agricultural residues, opportunities are emerging for the targeted production of perennial cellulosic biomass crops such as switchgrass, miscanthus, diversified prairie grass, and hybrid poplar. Since these crops can offer high yields of biomass per acre on marginal lands, they have the potential to support the establishment of local supply chains for biomass. Moreover, some energy crops provide additional value through ecosystem-level benefits. For example, establishing diversified prairie grasses along sensitive waterways creates a natural filter that reduces nutrient run-off. In addition, perennial plants store carbon in their roots while restoring habitats for wildlife.179 Despite these benefits, there are economic challenges that must be overcome before we see the widespread adoption of biomass crops. First, multiple years are required for establishment of these crops. Most importantly, with the high demand for corn and soybeans, there is a high standard for profitability per acre that new crops must meet in order to justify their adoption. Therefore, marginal lands especially suited for grass-based crops are the most likely locations for biomass crop development. Over the past few years, the Biomass Crop Assistance Program, which was funded in the federal 2008 Farm Bill, was designed to incentivize the introduction of energy crops. However, results have been mixed thus far, and ever-changing political winds are making the future of these incentives uncertain. Large-scale energy crop establishment can be economically viable once biomass markets are fully developed and very targeted environmental benefits are monetized in some fashion. Regions with large grass-crop establishments and harvest capability could provide an assurance of a steady local supply of biomass for the production of advanced biofuels and biobased chemicals.

Build on Minnesotas agricultural strengths
Conventional biobased industry provides feedstock base and infrastructure
With Minnesotas fertile soils, the state has the potential to provide a significant supply of crops and biomass sources. Additionally, the state is home to 21 ethanol plants with 1.1 billion gallons of production capacity, which is the fourth highest in the U.S.180 Total direct and indirect employment impact is over 8,000 jobs.181 Biodiesel capacity totals 63 million gallons per year, placing it in the top 10 states in the U.S. for biodiesel production.182 Development in the emerging advanced biofuels and biobased chemicals industries will thrive in situations that capital requirements for production can
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be minimized. Thus, companies developing new technologies are exploring mutually beneficial relationships with existing bioprocessing facilities. For current producers of ethanol and biodiesel, advanced biofuels and biobased chemicals manufacturing capacity provides an opportunity to move into nextgeneration technologies and maintain long-term growth and profitability. In addition, Minnesotas biorefineries can gain value through technologies that are being developed and deployed to improve water and energy efficiency in biofuels processing. Such technologies will be critical to ensuring the longterm viability of bioindustrial processing facilities, as cost for energy and water treatment, as well as environmental performance are critical factors to enable increasing production production. Investments into technologies for efficiency, in some cases, can add value to co-products to provide additional revenue to the facility, in addition to improving efficiencies. Incorporation of such process improvement technologies alongside manufacturing of advanced biofuels and biobased chemicals could be especially beneficial to long-term profitability. Emerging products can strengthen the value added from corn and soybean, complementing the biofuels market to ensure long-term growth.
Creative business models for financing and supply chain development

In the development of the corn ethanol industry, innovative farmers took a risk to ensure stability and maximum value for the agricultural commodities they produced. The Minnesota Model of industry creation included the use of cooperatives to raise capital for risky businesses, thereby diffusing risks and profits across many individuals. Similar business models could accelerate projects in the emerging biobased industry across Minnesota. The state continues to demonstrate leadership in the use of this business model. For example, 10 of Minnesotas 21 ethanol facilities continue to be owned and run as independent cooperatives.183 Over 4,880 individuals are investor-members in these cooperatives.184 Additionally, four of the 10 largest cooperative businesses in the United States are based in Minnesota, including CHS and Land OLakes.185 As an example of an opportunity to leverage the cooperative business model, the chicken-and-egg scenario on biomass supply chains detailed earlier can be alleviated. Participation in cooperatives assures that both sides have mutually beneficial incentives to develop an efficient, effective, and vertically integrated supply chain. The advanced biofuels and biobased chemicals industries can leverage this capability to accelerate growth in Minnesota.
STRATEGIC NEEDS
Provide support to identify and pursue partnerships in the industry
Bioindustrial processing is growing quickly, and the specific opportunities for growth are diverse, ranging from biofuels to plastics to solvents. Numerous options for partnerships exist in the industry. However, the barrage of
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information can be overwhelming for individuals with limited time to study these opportunities. Minnesota is in the position to set itself apart by helping owners and operators in the conventional biobased industry: Understand the markets for advanced biofuels and biobased chemicals, Build relationships with companies pursuing partnerships with existing infrastructure, and Analyze the types of partnerships being developed in the broader industry. Through the successful implementation of next-generation biorefinery projects, the value-added to existing commodity businesses can create jobs and spur rural economic development.
Provide support for projects to navigate regulations and financial programs

Once partners and pathways to commercialization are identified, an analysis of regulations and government financing programs will be a critical aspect to a projects success. Because policies are complicated and often restrictive, efforts to secure regulatory approval and federal financing for new bioprocessing projects can be resource intensive. Providing assistance to understand these issues could increase the likelihood of leveraging federal funds for Minnesota projects, as well as accelerating the regulatory process, both of which are factors that could ensure the profitability of investments, as well as maximize job creation potential.
endnotes
154. The emerging biobased industry includes the value chain for advanced biofuels, biobased chemicals, bioenergy, biopolymers, and bioplastics. 155. The conventional biobased industry is made up of the manufacturing of traditional agriculture and forest products such as food, feed, and fiber. It also includes corn ethanol and soy biodiesel. 156. Ye, S. (2011). Economic impact of Minnesotas agricultural industry. Saint Paul, MN: Minnesota Department of Agriculture. 157. Ye. S. (2011) Minnesotas Agriculture Profile. St. Paul: Minnesota Department of Agriculture. Retrieved on March 8, 2012 from http://www.mda.state.mn.us/~/media/Files/agprofile.ashx. 158. Table 14U.S. Sugarbeet crops: area planted, acres harvested, yield per acre, and production, by State and region (2012). Washington DC: USDA Economic Research Service. Retrieved on March 8, 2012 from http://www.ers.usda.gov/Briefing/Sugar/Data.htm. 159. Food and Fuel. St. Paul: Minnesota Department of Agriculture. Retrieved on February 1, 2012 from http://www.mda.state.mn.us/~/media/Files/renewable/ethanol/foodfuelpoints.ashx. 160. Corn Production Trends (2010). St. Louis, MO: National Corn Growers Association. http:// www.ncga.com/production/25-minnesota/. Retrieved on November, 18 2011. Table 10: Fertilizer Use and Price (2011). Washington DC: United States Department of Agriculture. http://www.ers.usda.gov/Data/FertilizerUse/. Retrieved on November 18, 2011. 161. Brown, Lester. (2009). The oil intensity of food. http://www.grist.org/article/the-oil-intensityof-food. November, 18 2011. 162. A USDA regional roadmap to meeting the biofuels goals of the renewable fuels standard by 2022 (2010). Washington, DC: United States Department of Agriculture. June 23, 2011. Pg. 7. 163. U.S. biobased products market potential and projections through 2025. (2008) Washington DC: U.S. Department of Agriculture, Office of the Chief Economist. OCE-2008-1. February 2008. Retrieved on March 12, 2011 from www.usda.gov/oce/reports/energy/biobasedreport2008.pdf.
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164. BBAM Analysis. 165. Feed Grains Database. (2011) Washington, DC: Economic Research Service. Retrieved on December 14, 2011 from http://www.ers.usda.gov/Data/FeedGrains/download.htm. 166. Leer, Steve. (2011). Ag economist: Higher commodity prices the new normal? West Lafayette, IN: Purdue University News Service. July 5, 2011. Retrieved on October 1, 2011 from http://www.purdue.edu/newsroom/outreach/2011/110705BoehljePrices.html. 167. Mueller, Sherry A. et. Al. (2009) Impact of biofuel production and other supply and demand factors on food price increased in 2008. Biomass and BioEnergy. Volume 35. Pg. 1623-1632. 168. World population to 2300 (2011). New York: United Nations Department of Economic and Social Affairs/ Population Division. Pg. 4-5 Retrieved on February 27, 2011 from http://www. un.org/esa/population/publications/longrange2/WorldPop2300final.pdf. 169. Leer, Steve. (2011). Ag economist: Higher commodity prices the new normal? West Lafayette, IN: Purdue University News Service. July 5, 2011. Retrieved on October 1, 2011 from http://www.purdue.edu/newsroom/outreach/2011/110705BoehljePrices.html. 170. Fernandez-Cornejo, J. (2011). Adoption of Genetically Engineered Crops in the U.S.: Extent of Adoption. July 1, 2011. USDA Economic Research Service. Retrieved on November 13, 2011 from http://www.ers.usda.gov/Data/BiotechCrops/adoption.htm. 171. Ibid. 172. As an example, see Cellectics Plant Sciences. http://www.cellectis.com/about-us/subsidiaries/ cellectis-plant-sciences. 173. Godfray, H.C.J, et al. (2010) Food security: The challenge of feeding 9 billion people. Science. Vol. 327, no. 5967, pp 812-818. February 2010. Published online January 28, 2010. Retrieved on January 15, 2012 from http://www.sciencemag.org/content/327/5967/812.full. 174. Shaffer, David. (2011) Harvesting a New Kind of Fuel. Minneapolis, MN: Star Tribune. August 10, 2011.. Retrieved on September 2, 2011 from http://www.startribune.com/business/126850538.html. 175. For example, see the Minneapolis Biomass Exchange: https://www.mbioex.com/ 176. Morrison, L. (2009). Just Say No...Till! November 1, 2009. Corn and Soybean Digest. Retrieved on December 5, 2011 from http://cornandsoybeandigest.com/ second-crop-your-cornfields 177. Steil, Mark (2010). No-till Grows, Minnesota Lags. Minnesota Public Radio. December 21, 2010. Retrieved on December 5, 2011 from http://minnesota.publicradio.org/collections/special/columns/statewide/archive/2010/12/no-till-grows-minnesota-lags.shtml 178. Conservation Practices Minnesota Conservation Funding Guide (2011). Minnesota Department of Agriculture Retrieved on December 5, 2011 from http://www.mda.state.mn.us/ protecting/conservation/practices/constillage.aspx 179. David Tilman, Jason Hill, Clarence Lehman ( 2006). Carbon-negative biofuels from lowinput high-diversity grassland biomass. Science. Vol. 314, pp. 1598-1600. 180. Renewable Fuels Association. (2011). Building bridges to a more sustainable future: 2011 ethanol industry outlook: Renewable Fuels Association. Pg. 2. Retrieved on November 30, 2011 from http://www.ethanolrfa.org/page/-/2011%20RFA%20Ethanol%20Industry%20 Outlook.pdf?nocdn=1. 181. Minnesotas ethanol plants. (2011). St. Paul, MN: Minnesota Department of Agriculture. Retrieved August 26, 2011, from http://www.mda.state.mn.us/ethanol/. 182. Email Communication with Dave Ladd. February 3, 2012. 183. Ye, S. (2010) Minnesotas Ethanol Plants. St. Paul: Minnesota Department of Agriculture. Retrieved on February 10, 2011 from http://www.mda.state.mn.us/news/publications/renewable/ethanol/plantsreport.pdf. 184. Ibid. 185. 4 of nations 10 largest co-ops are in Minnesota. (2011) Minneapolis, MN: Twin Cities Business Magazine. Retrieved on October 19, 2011 from http://tcbmag.blogs.com/daily_ developments/2011/10/4-of-nations-10-largest-co-ops-are-in-mn.html.
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V: Forest-based Supply Chain Partnerships

intRoduction
Bioindustrial processing, which includes the manufacture of advanced biofuels and biobased chemicals, provides an opportunity for growth in Minnesotas forest-based economy. Collectively, these industries constitute a significant portion of the emerging biobased industry, which is set for rapid growth based on additional value derived from agriculture and forest based resources.186 The state is home to both forest resources and existing processing infrastructure that can work toward processing those feedstocks for new markets. The conventional forest products industry, which includes pulp and paper, lumber, and engineered wood production, has been an economic engine for the state since the early 20th century and continues to be an important part of the states economy. From the forests to the mills and beyond, the industry contributed over 31,000 direct jobs and $1.4 billion in wages to Minnesotas economy in 2009 with a total employment effect of 67,300 jobs. The forest products industry is the states fifth-largest manufacturing industry by employment, and generates 8 percent of the revenues from manufacturing shipments in the state.187
16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2008 Harvest plus Economic Sustainable Timber reserve volume Maximum Harvest Yield (Marketable and Residuals) Annual Growth 7.3 10.5 12.4 14.9
However, global forces have caused the conventional forest products industry to suffer in Minnesota, with 1,995 jobs being eliminated by the recent decline in oriented strand board (OSB) alone.188 To recover these jobs, new markets for the processing of wood will be critical. As a result, there are biorefinery sites ready to be developed in partnership with the advanced biofuels and biochemicals industry.
Bioindustrial processing is a high-value industry that can strengthen the forest supply chain infrastructure while adding new jobs to the region. By 2025, 1,4002,300 direct and indirect jobs could be added to the northern Minnesota economy through forest based biorefineries, including new biorefineries as well as partnerships with the conventional biobased industry.189 Additional jobs will
Harvest level (Million Green Tons)
Figure 5.1, Given the economic realities of supply and demand, the Minnesotas maximum timber harvest is 10.5 million green tons of roundwood and logging residuals. The maximum biologically sustainable harvest level in Minnesota is 12.4 million green tons (MMGT), which is the equivalent of 5.5 million cord.
Deckard, Don. (2010) Economic Opportunities for Minnesotas Wood. Unpublished document. May 2010. Wchwalm, C. (2009) Forest Harvest Levels in Minnesota: Effects of Selected Forest Management Practices on Sustained Timber Yields. St. Paul: Minnesota Department of Natural Resources. Pg. 1. Retrieved on November 3, 2011 from http://files.dnr.state.mn.us/ forestry/um/sustainedyieldreport.pdf
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be created in the development of technology and company headquarters, as detailed in Appendix E. The impact on small communities across northern Minnesota could be immense. In the fourth quarter of 2011, the unemployment rate was 8.2 percent across the forested areas of the northern half of Minnesota, compared to 5.9 percent statewide.190 The direct and indirect jobs created from this industry could decrease that unemployment rate by nearly one half of a percentage point.191
Minnesotas forest supply

With 15.6 million acres of timberland across Minnesota, there is ample opportunity for forestry to continue to be the one of the states top industries.192 However, the wood harvest declined by 25 percent between 2005 and 2007, for a total decrease of 2 million green tons.193 Recent declines in the conventional forest products industry have led to a systematic underutilization of Minnesotas forest resources, an inability to manage some forested areas, and lost economic activity and jobs. In some cases, this has provided opportunities for redevelopment of forest products infrastructure that can minimize investment required for bioindustrial processing companies. Currently, three plants that previously manufactured OSB now stand idle, ripe for redevelopment in the emerging biobased economy. After accounting for a reserve volume, there is an economic surplus of at least 3.2 million green tons of wood available across the northern half of Minnesota.194 An analysis conducted in 2009 concluded that supporting market creation efforts for the forest-based industry is unlikely to have negative impacts for the conventional forest-based industry in northern Minnesota.195
CASE STuDY: lonza, Inc. A Win-Win Partnership

Swiss-based Lonza is a manufacturer specializing in pharmaceuticals manufacturing with annual revenues of $3 billion. Other markets include materials science, agriculture, personal care, and nutrition. Since 2006, the company has been operating a plant in Cohasset, Minnesota, that extracts a biochemical known as arabinogalactan from the wood of tamarack larch trees. The facility started operations in the 1990s under the Larex brand. Larch arabinogalactan, more commonly referred to as LAG, was originally sold as an additive to inks, but has since been approved by the Food and Drug Administration for use as a food and feed additive that increases the performance of the digestive tract and immune system. The Lonza facility receives a portion of its wood supply through partnerships with paper companies in northeast Minnesota, which typically dont use the tamarack because it is less suitable for making paper.As a result, in addition to employing 15 people, the Cohasset facility is finding new ways to use what had been a chronically underutilized tree species.
Barzen, M. (2011) Tamarack: The Untold Story. The Marketplace. St. Paul, MN: MN Department of Natural Resources. P. 1. Fall 2011. The world of Lonza: Closer than you think. (2012) Basel, Switzerland: Lonza, Inc. Retrieved on March 2, 2012 from http://www.lonza.com/en/about-lonza/company-profile/~/media/Assets/about-lonza/Pdfs/ Lonza_Corporate_Brochure_EN.ashx.
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Levels of consumption are well below long-term sustainable harvest levels for aspen trees, which dominate 30 percent of the states timberland cover, and many other major species such as ash, tamarack, basswood, and maple.196 Other species of wood, such as red pine and white spruce, are also showing opportunities for expanded utilization over time.197 Thus, growth in demand for timber and woody biomass would be sustainable from both an environmental and economic perspective. When combined with existing infrastructure, the state is well positioned for growth of new industries. Advanced biofuels and biochemicals provide a high-value market for processing wood, and Minnesota is uniquely positioned to lead the development of this industry.
industRy tRends
Conventional forest products industry emerging as a viable partner
As demonstrated in prior chapters, new technologies are creating opportunities for woody biomass to be used as a feedstock for the manufacture of advanced biofuels and biochemicals. As such, partnerships between the owners of conventional forest processing infrastructure and emerging biobased industries can be beneficial.
Increased RoI through partnerships

The existing infrastructure that could be leveraged for this new industry includes wood receiving and handling, truck and rail access, and wastewater treatment. In addition, existing consumers of wood already have in place less tangible assets, such as well-established relationships and processes for procuring wood supply. In some cases, the emerging advanced biofuels and biochemicals companies are likely to rely on feedstocks rejected at the gate for traditional wood-processing operations, as well as by-products of these operations. When an emerging advanced biofuels and biobased chemicals manufacturer can find a partner in the traditional forestry industry that has compatible infrastructure and strategy, the savings in capital expenditures for launching the new enterprise can be significant. Such partnerships can accelerate the time to market for new products. For the conventional forest products industry, the additional revenue streams enabled by expanding bioindustrial processing capacity can offset unstable and, in some cases, diminishing, revenues.
American paper industry struggles

The global pulp and paper industry has been hit hard by the trend toward consumption of information through electronic media. The pervasiveness of e-mail and electronic filing caused a decline in sales of printing and writing paper used for office paper, magazines, books, advertising, and
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other uses. For example, PowerPoint presentation and projectors have displaced the need for handouts at many meetings. Additionally, RISI, a forest products industry consulting firm, projects e-books will hold a 15 to 20 percent market share of the overall book sales by 2015, up from just 3 percent in 2009.198 This increase is propagated by the availability and sale of e-readers and tablets.199 Market demand for printing and writing papers has traditionally correlated with economic activity. However, even as U.S. real GDP expanded between 2000 and 2010, demand growth for printing and writing papers flattened, which combined with cost considerations to cause a 29 percent decline in output, as shown in Figure 5.2.200 Current projections for sales of printing and writing papers are pointing to only flat or minimal growth.201 These have been ominous signs for the pulp and paper industry, especially in Minnesota, where a majority of the paper industry relies on this market.202
u.S. Printing and Writing Paper output

output (Thousands of Tons) 30,000 25,000 20,000 15,000 10,000 5,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year
Figure 5.2
Benway, S. (2012) Industry Surveys: Paper & Forest Products. New York, NY: Standard and Poors. February 9, 2012. Standard and Poors NetAdantage. pg. 17.
output (Million board feet)
80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0
lumber plywood OSB
Year
Figure 5.3, OSB, Plywood, and Lumber Output
U.S. Lumber, Plywood, and OSB Output, 2000-2009 Plywood and OSB: APA-The Engineered Wood Association; Lumber: Western Wood Products Association and Southern Forest Products Association.
Fortunately, the subsequent reduction in global capacity has led to a recovery in prices. In fact, the prices for market pulp reached historical highs in 2010.203 The industry may be smaller, but healthier business could emerge throughout the industry.
Declining demand for building products

The collapse in the U.S. housing market that precipitated the recent financial collapse has had a stark impact on the building products industry, affecting lumber, plywood, and engineered wood manufacturing. New construction and remodeling are the primary drivers of demand. U.S. single and multi-family housing starts dropped from their peak of 2.06 million in 2005 to 554,000 in 2009, a decrease of 73 percent, which was the lowest level since the government began keeping track in 1959.204 The resulting decline for forest-based building products has led to numerous mills being closed across the country, including three OSB mills and one engineered lumber mill in Minnesota.205 Figure 5.3 shows a representation of the current location of mills consuming wood.
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Unfortunately, there are indications that the decline in demand for forest products that support the housing industry is likely to be sustained, as a slow emergence from the recent recession is preventing increases in new home construction over the near term.206

Build on Minnesotas forest products strengths
Minnesota has a diverse array of industries utilizing wood as a raw material today. In 2008, the total harvest of wood in Minnesota was 6.57 million green tons (MMGT).207 Of that, 75 percent was used in pulp and paper and OSB production, while 17 percent went into lumber and specialty products markets. The final 8 percent of the annual harvest, primarily made up of logging and mill residues or by-products, was used to produce heat and electricity.208 Below is a brief overview of the major woodusing industries in Minnesota.
Pulp and paper

Many of Minnesotas paper mills rely on printing and writing paper markets, and they have a proud history of supplying quality products to the global marketplace. The state is home to eight paper mills. Five of these that use timber directly from the forest, known as virgin wood fiber, consumed a total of 4.3 MMGT (1.9 million cords) of wood in 2008, or 52 percent of all wood used in Minnesota for the year.209 Two other paper mills in the state use recycled fibers, and one purchases pulp on the open market. For Minnesota mills, low stumpage prices due to low timber demand combined with relatively high prices in the broader industry,210 resulted in higher revenue potential and declining feedstock costs. This has served to keep pulping mills profitable in the short term. In 2009, direct employment in pulp and paper mills totaled 2,830 people, and revenues totaled over $2 billion.211 However, a paper
Figure 5.4, U.S. Map of Minnesotas Forest-Based Products

Becker, Dennis et. al. (2010) 2010 Outlook for Forest Biomass Availability in Minnesota: Physical, Environmental, Economic, and Social Availability. Retrieved October 19, 2010 from http://www.forestry.umn.edu/Publications/StaffPaperSeries/index.htm Minnesotas forest resources 2009. (2010) Saint Paul, MN: Minnesota Department of Natural Resources. Pg. 9. Retrieved on September 12, 2011 from http://files.dnr.state.mn.us/forestry/um/forestresourcesreport_09.pdf
Minnesota Wood Consumption

Heat and Electricity 8% Lumber and Specialty Products 17%
Engineered Pulp and Paper 52% Wood Products 23%

Figure 5.5
Minnesotas forest resources 2009. (2010) Saint Paul, MN: Minnesota Department of Natural Resources. Pg. 9. Retrieved on September 12, 2011 from http://files.dnr.state.mn.us/forestry/um/forestresourcesreport_09.pdf
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mill in Sartell, in central Minnesota, announced a significant decrease in capacity, and another mill in Cloquet, in northeast Minnesota, announced a transition to chemical pulp production.212, 213 These stories illustrate the results of shifting demand in the marketplace toward alternative wood-based products.
Engineered wood products

As recently as 2005, five OSB facilities and one engineered lumber facility were operating in Minnesota.214 However, only two of these facilities are still operating and today, with the result that 1.1 million cords (2.5 MMGT) of pulpwood demand has been taken off the market. According to an analysis by the University of Minnesota-Duluth, shuttering these facilities resulted in the direct loss of 750 jobs, with an additional 1,245 jobs lost due to the spillover effects of the plant closures through the rest of the states economy.215 Efforts are now under way to redevelop the three former OSB production facilities. With a significant amount of wood supply available to be processed, these facilities are actively exploring a variety of end markets to use locally available wood. Partnerships are being pursued to manufacture products such as emerging building products, biochemicals, cellulosic biofuels, and pellet manufacturing. Profitable redevelopment of these manufacturing sites will be a critical strategy for the region to gear up for an economic resurgence.
lumber
There are over 500 sawmills producing lumber across Minnesota.216 The industry procures 1 MMGT of wood per year,217 and employs 583 people.218 Many of these are small operations, as only four of these sawmills consume more than 79,000 MMGT (about 35,000 cords) per year.219 As mentioned previously, the recovery in demand continues to be slow. In addition to lumber, these sawmills generate significant amounts of woody biomass by-product, with many operations selling this biomass by-product to downstream processors for markets such as animal bedding. Opportunities for biofuels and biochemicals to create strong partnerships to further process by-products produced by these mills could help diversify production at these facilities while increasing the value-added to wood raw materials.
Heat and electricity

As a cold-weather state with strong power demand from the manufacturing sector and significant biomass resources available, Minnesota has an opportunity to increase production of heat and electricity from biomass. As of 2009, Minnesota had 41 facilities that produced energy from biomass, with a majority of the wood consumed by a small number of utility-scale producers of electricity or large industrial facilities.220 Total consumption of wood by these facilities was around 1.8 MMGT, including combustion of by-products from industrial operations, as well as logging residuals harvested from the forest.221 Additionally, residential consumption of fuel wood for residential heating was 1.5 MMGT in the winter of 2007 and 2008.222
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Advanced biofuels and biochemicals

Minnesota currently has only one biobased chemicals production facility, the Lonza facility in Cohasset, described in the sidebar on page 63. However, additional opportunities for growing Minnesotas economy through the development of liquid fuels and biochemicals are expected over the next decade. A system dynamics model developed in 2010 demonstrated that building two full-scale manufacturing facilities would result in the addition of 625 jobs across the northern Minnesota economy, representing a recovery of nearly one-third of the jobs lost in the recent decline in OSB production. Additional jobs would be created and preserved through partnerships with existing mills, with direct and indirect employment growth from forest biorefineries producting advanced biofuels and biochemicals estimated at up to 2,000 direct and indirect jobs by 2025.
Increasing biomass supply through silvicultural improvements

The forestry industry is facing increasing pressure to increase output as a result of concerns about forest health, demand for woody biomass, carbon pricing, and increasing demand for forest-based products due to global population growth. To balance these demands for increased output with economic and environmental concerns will require the active employment of silviculture, which is the practice of caring for and cultivating forest trees.223 Minnesotas opportunity lies in using silvicultural practices to increase biomass supply for emerging industries while improving forest health, productivity, and wildlife habitat. An example of a silvicultural treatment is the partial thinning of forest stands. In this process, a portion of the trees and biomass in a stand are removed ahead of the scheduled harvest date, thus decreasing competition for light and nutrients for the timber left standing. This thinning can lead to greater biodiversity and restoration of healthy stand dynamics, minimize the risk of fires and disease, and increases the total biomass produced in some forest types.224 However, tight government budgets across the country are leading to declining focus on these long-term investments.225 Without ongoing support for silviculture, there is a danger that the growth and health of forests will be impeded, along with the vitality of the industries that depends upon them.
Prosper from Minnesotas strengths in sustainable forest management

In addition to a large supply of raw materials and existing bioprocessing infrastructure, Minnesotas environmental record has the potential to differentiate the states resources in the global marketplace for sustainable products. The Sustainable Forest Resources Act 1995 created strong programs to protect forest health across Minnesota, and established the Minnesota Forest Resources Council to promote long-term sustainable management of Minnesotas forests.226, 227, 228 The Councils Timber Harvest Site-Level Management Guidelines, landscape-level conservation, and education programs are designed to ensure that Minnesota maintains sustainable and healthy working forests.
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One major benchmark of progress for Minnesotas forest management programs has come through the states leadership position in forest management certification. Two of the countrys major certification bodies are the Forest Stewardship Council and Sustainable Forestry Initiative, which together provide oversight to ensure the implementation of management plans that provide for the long-term ecological health of the forest. The Minnesota Department of Natural Resources, the largest manager of forestland in Minnesota, is the worlds largest holder of certified lands from the Forest Stewardship Council.229 Over 8.4 million acres of forests in Minnesota are certified as sustainably managed, which is over half of the total timberland in the state.230 Additionally, nearly all wood consumed in Minnesota is harvested by expert loggers who have been trained on emerging technologies, environmental regulations, and wildlife impacts, which ensures appropriate care of the forest and professional delivery of feedstocks relied on for industrial activity.231 For certain products that rely on green attributes of final materials, certification of forest supply can be a critical point of differentiation for products made from Minnesotas wood supply. This can help companies access the market and maintain strong pricing structures for green products.
Support and expand forest management capability
It is important that Minnesota ensure the long-term supply of wood through forest management and increased utilization. This recommendation was first identified in the report Minnesotas Forest Biomass Value Chain: A System Dynamics Analysis, published in 2010.232 This recommendation remains critical today. Effective forest management involves managing forests to meet the needs of the present without compromising the ability to meet the needs of future generations. This requires practicing a land stewardship ethic that integrates the growing, nurturing, and harvesting of trees for useful products with the conservation of soil, air, and water quality; wildlife and fish habitat; and aesthetics.233 Maintaining both forest management capability and long-term supply are prerequisites for successful long-term growth in any forest-based industry. A reliable supply chain is critical for investment into traditional forest products as well as emerging advanced biofuels and biochemicals industries. Underutilization of Minnesotas forests is one of the factors threatening Minnesotas logging infrastructure and the capability to manage its forestland. Forest products provide a base for the economy, and good forest management programs are a long-term investment into the growth of employment in the forest-based economy. Four tactics were identified by The BioBusiness Alliance of Minnesota and forest industry stakeholders while developing the strategic recommendation:
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Ensure stable financial support for public forest management agencies. Maintain and expand active forest management for forest health, long-term forest productivity, and the sustainability of wildlife habitat. Support market development efforts in wood based industry to ensure the health of the logging and trucking infrastructure. Improve access to capital to ensure the logging industry remains competitive.
Identify and pursue partnerships

Bioindustrial processing is growing quickly, and the specific opportunities for growth are diverse, ranging from biofuels to plastics to solvents. However, the barrage of information can be overwhelming for individuals with limited time to study these opportunities. Minnesota is in the position to set itself apart by helping owners and operators of the conventional biobased industry to: Understand the markets for advanced biofuels and biochemicals, Build relationships with companies pursuing partnerships with existing infrastructure, and Analyze the types of partnerships being developed in the broader industry. Through the successful implementation of biorefinery projects, the value added to existing commodity businesses can create jobs and spur rural economic development.
leverage partnerships to navigate regulations and financial programs

Once partners and pathways to commercialization are identified for a project, an analysis of regulations and government financing programs are a critical piece to the projects success. However, the policies are complicated and can be restrictive. Thus, efforts to secure regulatory approval and federal financing for new bioprocessing projects can be resource intensive. Providing assistance to understand these issues can increase the likelihood of leveraging federal funds for Minnesota projects, as well as accelerating the regulatory process, both of which are factors that can ensure the profitability of investments, as well as maximizing job creation potential.
endnotes
186. The emerging biobased industry includes the value chain for advanced biofuels, biobased chemicals, bioenergy, biopolymers, and bioplastics. 187. Deckard, D. (2011) Minnesotas Forest Products Industry at a Glance. Saint Paul, MN: Minnesota DNR, Division of Forestry. 188. The Economic Impact of Declines in Forestry-Related Industries in Minnesota, Wisconsin and a Three-State Region Part 2: Targeted ImpactsOriented Strand Board Wood Manufacturing. (2008) Duluth: University of Minnesota, Duluth Labovitz School of Business and Econoimcs. Pg. 11. 189. BBAM analysis.
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190. BBAM analysis based and Minnesota data from: Minnesota Unemployment Statistics LAUS (Local Area Unemployment Statistics) Data (2012.) St. Paul: Minnesota Department of Employment and Economic Development. Retrieved on February 6, 2012 from http://www. positivelyminnesota.com/apps/lmi/laus/CurrentStats.aspx. Data used: Minnesota Economic Development Regions 1,2,3,5,7E, and Statewide. 191. BBAM analysis. 192. Minnesotas forest resources 2010 (2010). Saint Paul, MN: Minnesota Department of Natural Resources. Pg. 13. Retrieved on October 15, 2011 from http://files.dnr.state.mn.us/forestry/ um/forestresourcesreport_10.pdf. 193. Ibid. Pg. 2. 194. Deckard, Don. (2010). Economic Opportunities for Minnesotas Wood. Unpublished Document. May 2010. 195. Minnesotas Forest Biomass Value Chain: A System Dynamics Analysis. (2010) Minneapolis, MN: The BioBusiness Alliance of Minnesota. November 2010. Retrieved on November 30, 2010 from http://www.biobusinessalliance.org/Northeast_Forest_Biomass.asp. 196. Minnesotas forest resources 2010 (2010). Saint Paul, MN: Minnesota Department of Natural Resources. Pg. 24-54. Retrieved on October 15, 2011 from http://files.dnr.state.mn.us/forestry/um/forestresourcesreport_10.pdf. 197. Ibid. Pg. 14. 198. Benway, S. (2012). Industry Surveys: Paper & Forest Products. New York, NY: Standard and Poors. February 9, 2012. Standard and Poors NetAdantage. pg. 12. 199. Ibid. 200. Ibid. 201. Deckard, D. and Skurla, J. (2011). Economic Impact of Minnesotas Forest Industry-2011 Edition. St. Paul, MN: MN Department of Natural Resources. April 2011 pg. 17. Retreived on November 20, 2011 from http://files.dnr.state.mn.us/forestry/um/economiccontributionMNforestproductsindustry2011.pdf. 202. Ibid. 203. Ibid. 204. US Census Bureau (2010). New Privately Owned Housing Units Started. Retrieved on September 28, 2010, from http://www.census.gov/const/startsan.pdf 205. Minnesotas forest resources 2009 (2010). Saint Paul, MN: Minnesota Department of Natural Resources. Pg. 2 Retrieved on September 12, 2011 from http://files.dnr.state.mn.us/forestry/ um/forestresourcesreport_09.pdf. 206. Deckard, D. and Skurla, J. (2011). Economic Impact of Minnesotas Forest Industry-2011 Edition. St. Paul, MN: MN Department of Natural Resources. April 2011 pg. 15. Retreived on November 20, 2011 from http://files.dnr.state.mn.us/forestry/um/economiccontributionMNforestproductsindustry2011.pdf. 207. Calculated using a conversion factor of 2.25 Green Tons/ Cord of wood Minnesotas forest resources 2010. (2010) Saint Paul, MN: Minnesota Department of Natural Resources. Pg. 19. Retrieved on October 15, 2011 from http://files.dnr.state.mn.us/forestry/um/forestresourcesreport_10.pdf. 208. Ibid. 209. Ibid. 210. Deckard, D. (2011) Minnesota Department of Natural Resources. Presentation to the Minnesota Logger Education Program. April 2011. Slide 24,31. 211. Skurla, J.A. (2011) Northern MN Forestry Analysis. St. Paul: Minnesota Forest Resources Council. June 2011. Pg. 21. Retrieved on December 10, 2011 from http://www.frc.state.mn.us/ documents/council/MFRC_Report_NMN_Econ_Skurla_2011.pdf. 212. Deckard, Don (2011) Verso to shut three paper machines, cut 300 jobs. Wood Markets Monthly. St. Paul, MN: MN Department of Natural Resources. 26 October 2011.
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213. Sappi limited announces major investment in North American operations. (2011) Boston and Johannesburg: Sappi Limited. Retrieved on December13, 2011 from http://www.na.sappi. com/aboutus/news/2011-11-10. 214. Minnesotas forest resources 2009 (2010). Saint Paul, MN: Minnesota Department of Natural Resources. Pg 8. Retrieved on September 12, 2011 from http://files.dnr.state.mn.us/forestry/ um/forestresourcesreport_09.pdf. 215. The Economic Impact of Declines in Forestry-Related Industries in Minnesota, Wisconsin and a Three-State Region Part 2: Targeted ImpactsOriented Strand Board Wood Manufacturing. (2008) Duluth: University of Minnesota, Duluth Labovitz School of Business and Econoimcs. Pg. 11. 216. Minnesotas forest resources 2010 (2010). Saint Paul, MN: Minnesota Department of Natural Resources. Pg. 4. Retrieved on October 15, 2011 from http://files.dnr.state.mn.us/forestry/ um/forestresourcesreport_10.pdf. 217. Deckard, Don. (2010). Economic Opportunities for Minnesotas Wood. Unpublished document. May 2010. 218. 2007 Economic Census Data- Sawmills: NAICS 321113 (2009). Retrieved on March October 30, 2010, from www.census.gov. 219. Minnesotas forest resources 2010 (2010). Saint Paul, MN: Minnesota Department of Natural Resources. Pg. 4. Retrieved on October 15, 2011 from http://files.dnr.state.mn.us/forestry/ um/forestresourcesreport_10.pdf. 220. Anna Dirkswager, Personal Communication, October 21, 2010. 221. Ibid. 222. This figure does not include wood burned for leisure. Barzen, et. Al. (2011) Residential Fuelwood Assessment: State of Minnesota, 2007-2008 Heating Season. St. Paul, MN: MN Departmetn of Natural Resources. Pg. 26. Retrieved on September 7, 2010 from http://files. dnr.state.mn.us/forestry/um/residentialfuelwoodassessment07_08.pdf. 223. Bowyer, Jim (2009). The power of silviculture: Employing thinning, partial cutting systems, and other intermediate treatment. Pg. 2. Minneapolis, MN: Dovetail Partners Inc. Retrieved on June 3, 2010, from http://www.dovetailinc.org/files/DovetailSilvics0509.pdf. 224. Ibid. 225. Anna Dirkswager, Personal Communication, October 21, 2010. 226. Kilgore, et al. (1996). Innovative Forestry Initiatives: Minnesota Prepares for the Future. Journal of Forestry 94(1) 21-25. View the act here: https://www.revisor.mn.gov/ statutes/?id=89a&view=chapter. 227. Sustainable Forest Resources Act (2009). St. Paul: Minnesota Forest Resource Council. Retrieved on February 6, 2011 from www.frc.state.mn.us/aboutus_origins_act.html. 228. View the act here: https://www.revisor.mn.gov/statutes/?id=89a&view=chapter. 229. Forest certification: What is forest certification? (2012). St. Paul, MN: Minnesota Department of Natural Resources. Retrieved on January 15, 2011 from http://www.dnr.state. mn.us/forestry/certification/index.html. 230. Minnesota forest certification data (2011). St. Paul, MN: Minnesota Department of Natural Resources. Retrieved on January 15, 2011 from http://www.dnr.state.mn.us/forestry/certification/certifiedforest_data.html. 231. A lot goes into caring for Minnesotas forests (2009). Duluth, MN: Minnesota Forest Industries. Pg. 5. Retrieved on January 15, 2011 from http://minnesotaforests.com/resources/ pdfs/factbook.pdf. 232. Minnesotas Forest Biomass Value Chain: A System Dynamics Analysis (2010). Minneapolis, MN: The BioBusiness Alliance of Minnesota. November 2010. Retrieved on November 30, 2010 from http://www.biobusinessalliance.org/Northeast_Forest_Biomass.asp. 233. Sustainable forest management: The role of the USDA Forest Service, Northeastern Area and State Forestry Agencies (2000). Washington DC: USDA Forest Service. Retrieved on December 7, 2011 from na.fs.fed.us/spfo/pubs/sustain/role/roles.pdf.
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VI. Policy Development for Bioindustrial Processing

In order to capture the full development potential of Minnesotas biomass resources and create a strong foundation for bioindustial development, policies will be needed for biobased chemicals and next-generation biofuels. This section provides some policy context for bioindustrial development, background on biobased chemical and commercial-scale next generation biofuel projects, and examples of what other states have done to attract next-generation biofuel companies. It concludes with a set of broad policy recommendations that provide a general framework to foster development of a bioindustrial sector in the state of Minnesota. The policy chapter was prepared with extensive input from a policy committee consisting of state legislators; state agency staff; representatives from the biofuels and bioproducts industry, environmental and conservation groups; and other stakeholders see Appendix F. The deliberations of the policy committee were informed by a series of indepth interviews with senior management at Minnesota-based bioproduct companies and other related companies (BioAmber, XLTerra, Reluceo, Segetis, NatureWorks LLC, First Green Partners, and Great River Energy) and next-generation biofuel companies planning projects in the Midwest or headquartered there (Gevo, Poet, Abengoa, INEOS Bio, Quad County Corn Processors, and Virent). Staff of the Great Plains Institute conducted additional research to create the maps and charts, and benchmark Minnesotas policy and regulatory environment against competing U.S. states.
Policy overview
Biobased chemicals and bioproducts
While many public policies are designed to promote biofuels, less has been done to explicitly drive the development of biobased chemicals and bioproducts. The U.S. Department of Agriculture (USDA) has in place a BioPreferred Program that labels biobased products certified by the USDA and gives a preference for federal procurement of biobased products.234 In February 2012, President Obama issued a Presidential Memorandum outlining steps to take greater advantage of the BioPreferred Program and significantly increase federal procurement of biobased products.235 In conjunction with Obamas announcement, Senator Debbie Stabenow (D-MI), chair of the U.S. Senate Agriculture Committee, announced a new initiative to increase biobased manufacturing and procurement of biobased products. The Grow It Here, Make It Here initiative proposes to strengthen the BioPreferred Program, help commercialize biobased
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projects, provide biobased manufacturers access to the USDA Biorefinery Loan Guarantee Program, and provide a new tax cut for biobased product manufacturers that build facilities or purchase new equipment.236 In November 2007, a group of Midwestern states agreed to jointly establish a Midwestern regional biobased product procurement system to support development of the regions bioeconomy.237 The system would allow states to preferentially procure biobased products. Representatives from Indiana, Iowa, Kansas, Michigan, Minnesota, North Dakota, Ohio, and South Dakota met in 2008 to develop model guidelines for creating a Midwestern system. Many of those states have since adopted biobased product preferences at the state level through statute or regulatory change. Minnesota officials indicated at the time that Minnesota did not need to adopt new policy because it intended to pursue increased procurement of bioproducts under existing statute.
* Twin Cities Metro: #1-7 15 9 * 23 22 20 21 13 14 24 25 28 27 26 29 3031 32 8
19 10 1112 1617 18
1 BioAmber 2 3 4 5 6 7 8 9 Cargill CHS Cortec Entropy Solutions NatureWorks, LLC Segetis Butrolix West Central Renewable Ammonia Development Rennovia
MN MN MN MN MN MN MN MN MN CA
12 13 14 15 16 17 18 19 20 21 22
Cobalt Technologies Verdezyne Genomatica Rivertop Renewables OPX Biotechnologies Gevo Zeachem SoyGold MCPU Polymer Engineering, LLC Agrol ADM
CA CA CA MT CO CO CO NE KS AR IL
23 Elevance 24 Dow 25 MBI 26 Eastman Chemical Company 27 Butamax 28 DuPont Tate & Lyle 29 Itaconix 30 Metabolix 31 Celexion 32 Myriant Corporation
IL MI MI TN DE DE NH MA MA MA
10 Syngest 11
CA
Figure 6.1, Biobased Chemical Company Headquarters
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Although federal policy is driving the development of the next-generation fuels industry, and market forces are driving the development of a biobased chemicals industry, state policy is playing a crucial role in determining which states benefit from these industries. Individual states are implementing a range of policies to attract biobased chemical and bioproduct facilities. Figure 1 shows the headquarter information for biobased chemical companies across the United States. Additional information about many of these companies is included in Appendix E.
Biofuels
Minnesotas existing conventional biofuel facilities are adopting innovative technology practices and production efficiencies to improve the performance of the production system and reduce energy and water use. Process improvements such as recovery of waste heat or combined heat and power are being used to reduce demand for natural gas in the ethanol production process. In addition, reusing or recycling water at ethanol facilities has not only cut freshwater demands, but also has reduced energy use since recycled water requires less heating. In 2008, the average dry mill ethanol plant used 47 percent less water per gallon of ethanol produced than in 2001.238 In addition to process improvements, adoption of new technology such as biogas recovery systems and biomass combustion can reduce natural gas inputs. These new approaches to achieving energy and water efficiency also can be incorporated at next-generation biofuel facilities. Development of a next-generation biofuels industry is being driven in large part by federal policy. As discussed above in section III: Downstream Market Development Biofuels the Federal Renewable Fuels Standard (RFS2) mandates the purchase of cellulosic and advanced biofuels. Due to RFS2 requirements, several commercial-scale facilities have been announced to come on-line by the end of 2013. In addition to RFS2, the Federal Farm Bill currently offers many programs that support the development of bioindustrial projects by offering producer payments, tax credits, loan guarantees and/or grants. Farm Bill programs include the Advanced Biofuels Payment Program and Tax Credits, the Biomass Research and Development (BRDI) grant program, the Biomass Crop Assistance Program (BCAP), the Biorefinery Assistance loan guarantees, and the Rural Energy for America Program (REAP). The Farm Bill expires in 2012, and the future of these programs is dependent on reauthorization. Given the tight fiscal constraints at the federal level, the long-term future of these programs is uncertain. State policies are also steering industry development. As discussed above in Section III: Downstream Market Development - Biofuels, the state of Minnesota utilized a very effective public-private partnership and policy strategy to drive the development of a successful conventional biofuels industry. The Minnesota Model served as a case study of success for other states as they designed policy and public partnerships to drive biofuel development. Minnesota currently has the opportunity to replicate its own success
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as policies are discussed to support next-generation biofuels. However, this time around, Minnesota will face stiff competition from other states that are aggressively using state financing strategies as they seek to capitalize on the promise of the growing advanced biofuels industry.
Gevo
5 12 Gevo 13 POET 1 2 3 Dupont

Butamax
Mascoma
14
Fiberight
Fulcrum
Abengoa Enerkem BlueFire
76 KiOR11 9 Coskata Elevance18 15 Dynamic Fuels 16
17
BARD
Diamond Green
10 IneosBIO
Renewable Fuel Standard Classification:

Cellulosic Biofuel 1 2 3 4 5 6 7 8 9 10 POET Dupont Danisco Cellulosic Ethanol Fiberight Abengoa Mascoma BlueFire Renewables Enerkem Fulcrum Coskata Ineos Bio Renewable Fuel Advanced Biofuel Emmetsburg IA Nevada Blairstown Kinross IA IA MI Biomass-based Diesel 10 Ineos Bio 11 KiOR 12 Butamax 13 Gevo 14 Gevo 15 Dynamic Fuels 16 Diamond Green 17 BARD 18 Elevance Vero Beach FL
Columbus MS Lamberton MN Luverne Geismar MN LA Redfield SD Norco LA Augusta GA Natchez MS
Hugoton KS Fulton MS Pontotoc MS McCarran NV Boligee AL Vero Beach FL
Figure 6.2, Next-generation biofuel facilities announced to be on-line by the end of 2013
Next-Generation biofuel facilities across the country

Many commercial-scale cellulosic and advanced biofuel facilities are expected to become operational by the end of 2013. Figure 6.2 shows facilities that, according to news reports and company statements, are expected to be operating by the end of 2013. Additional information about these facilities is included in Appendix C. Some of these facilities are already under construction or gathering feedstock to prepare for production. As shown in the map, there are currently two main clusters of activity: the Midwest and the Southeast.
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Although the Midwest has been the dominant region in developing a conventional biofuels industry, the Southeast is a major contender for leading the development of next-generation fuels. The Southeasts strategy is defined by a willingness to aggressively pursue commercial-scale projects using public funds. Section III: Downstream Market Development - Biofuels contains greater detail on RFS2 including the different renewable fuel classifications.
Competitor analysis: How are other states attracting bioindustrial facilities?

There are several successful strategies being utilized by other states that can be instructive as Minnesota works to develop its own strategy to attract bioindustrial facilities. Three states are profiled in this section: Iowa, Mississippi, and Louisiana.
iowa
Currently, Iowa has five planned next-generation biofuel projects. The state has an abundant corn-stover feedstock and has benefited from long-term leadership from Iowa State University in feedstock and technology development. In addition, a large existing fleet of conventional ethanol facilities provide the opportunity to co-locate next-generation projects with existing plants. One of Iowas strongest elements for attracting facilities, however, has been the existence of the legislatively authorized Iowa Power Fund,239 which has provided funding to all five of the proposed next-generation biofuel facilities. See Figure 6.3 for additional details.
Iowa Power Fund

The Iowa Power Fund was created in 2007. Available funding was appropriated by the legislature, separate from the general fund. No new money has been appropriated by the legislature to the Fund. The purpose of the fund was to increase research, development, production and use of biofuels and renewable energy, increase energy efficiency and reduce greenhouse gas emissions. An 18 member board reviewed grant applications and made awards from available funds. To date, the Fund has invested more than $71.6 million to 50 projects and has leveraged over $604 million in energy research, development, early-stage commercialization, and education.
Mississippi
Mississippi has been very successful at attracting next-generation biofuel projects. Four companies are planning to build commercial-scale facilities in Mississippi (see Figure 6.4 for additional details). One element of Mississippis success has been the willingness of state leaders to spend state dollars to attract facilities, in the hopes of a future return on investment in jobs and economic development. State leaders also have articulated a strategy to diversify the states energy mix, providing a broad vision to spur private investment. Additional successful elements include:
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Active recruitment of companies by the Mississippi Development Authority, The Mississippi Industry Incentive Revolving Loan Program, University partnerships for feedstock characterization and development, and The willingness of state leaders to take high short-term risk in order to possibly gain in the future and reduce risk in the long term.
louisiana
Louisiana also has been very successful in attracting commercial-scale nextgeneration biofuels projects. As shown in Figure 6.5, three companies are currently planning facilities in the state. Among the drivers of the states success are an active Louisiana Economic Development Group and a unique private activity bond program, which allows the Louisiana Public Facilities Authority to issue bonds for financing of certain private-sector capital projects. In addition, Louisianas FastStart program was recently ranked by Business Facilities Magazine as the number one workforce development program in the country. The state offers multiple state level tax incentives, many of which are performance based and will only be awarded if permanent jobs are created. The state also has abundant natural gas resources, which attracted Sundrop because its process requires natural gas (see Figure 6.5).
Project Name PoET Project liberty Quad County Corn Processors
million gallons per year (mgpy)
Projected Capacity
Feedstock Source
Biofuel Type
Public Funding and Source

$14,000,000 Iowa Power Fund $150,0000 IA Dept of Economic Development $1,450,000 Iowa Power Fund $9,000,000 Iowa Power Fund
20
Corn stover
Cellulosic ethanol
Corn kernel fiber
Cellulosic ethanol
Dupont
~25
Corn stover
Cellulosic ethanol
$8,700,000 Tax abatement $4,600,000 Tax credits
Fiberight BioProcess Algae
6
unknown
Municipal solid waste Cellulosic ethanol Waste CO2 from ethanol production Biodiesel
$2,900,000 Iowa Power Fund $4,100,000 Grants from State of IA
Figure 6.3, Next Generation Biofuel Projects Iowa
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Project Name KioR* Columbus Newton Enerkem Bluefire
Projected Capacity
Feedstock Source
Biofuel Type

$75 million loan from State of Mississippi $130 million in federal funding, negotiating state funding Seeking $250 million DOE loan guarantee $25 million loan from Mississippi Industry Incentive Financing Revolving Fund, upgrades to Natchez/ Adams County port
11 mgpy 33 mgpy 10 mgpy 19 mgpy
Wood
Biomass-based hydrocarbon
Municipal solid waste Cellulosic ethanol Wood Cellulosic ethanol
Elevance
80 mgpy
Natural oils
Specialty chemicals and fuels
*KiOR is planning to build five facilities in Mississippi, the proposed projects located in Columbus and Newton have the most details available.
Figure 6.4, Next Generation Biofuel Projects Mississippi
Project Name
Projected Capacity
Feedstock Source
Biofuel Type

$18.5 million Louisiana Economic Development Group
Sundrop
50 mgpy
Wood waste combined with hydrogen
Green gasoline
$450 million Private activity bonds Grants for relocation of R&D facilities and employees
Dynamic Fuels Diamond Green
75 mgpy 137 mgpy
Animals fats and greases Animals fats and greases
Renewable diesel Renewable diesel
$100 million Gulf Opportunity Bonds Unknown
Figure 6.5, Next Generation Biofuel Projects Louisiana
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Recommendations for Minnesota to Develop and Grow the Next-Generation Biofuels and Biobased Chemical Processing Industry
Interviews with leaders of bioproduct companies, research of state policies, and deliberation by the Policy Committee revealed that state policy can and does play a crucial role in attracting both company headquarters and bioindustrial manufacturing facilities. In fact, leadership by state policymakers is crucial in attracting these facilities. The policy recommendations included in this section addresses the following areas in which state can provide leadership to help the bioindustrial cluster grow in Minnesota: Ensuring availability of funding options, Improving the regulatory environment, Encouraging the production and use of all biofuels, Providing infrastracture for higher blends of ethanol, Supporting state colleges and universities as business and talent incubators, and Strengthening preferred procurement for bioproducts. These recommendations provide a broad framework for bioindustrial development for the state of Minnesota.
Ensure availability of funding options

In interviews with bioproduct and biofuel industry leaders, state financial incentives were frequently cited as being the most important element of state policy to attract biofuel and biobased chemical manufacturing facilities. Two main factors were noted: States are competing with other jurisdictions to attract facilities, and Minnesota should seek to be competitive. When states commit to help finance a facility, they have skin-in-the-game and are thus committed to helping prevent roadblocks that can often slow down or stop projects. Interviewees noted that such financial incentives are relevant primarily for building demonstration or commercial-scale facilities, and are less relevant for attracting corporate headquarters.
Elements of First Generation Biofuel Industry Success

Primary elements of success
Producer incentives Volumetric requirements
Secondary elements of success

State fleet fuel purchases Grants Low interest loans
RecoMMendations
The following policy options should be considered: 1. Replicate the success of the conventional biofuels industry by recreating financing programs and providing tax credits to local financial
80
institutions that help finance next-generation biofuels and biobasedchemical companies. 2. Reallocate existing payroll taxes from prioritized NAICS240 codes for agriculture-, forestry-, bioenergy- and bioproduct-related businesses to create a dedicated revenue source to fund and benefit innovative bioindustrial ventures. Adequately fund existing programs that support next-generation fuels and biobased-chemical industry development. 3. Leverage impact of state Conservation Improvement Program (CIP) investments with additional funding to help existing biorefineries become more efficient and cost-competitive through accelerated adoption of innovative existing and new technology. 4. Update and reform Minnesotas distributed generation policies in order to support the renewable electricity component of biorefinery projects. 5. Adopt new policies or modify existing policies in order to support the use of biomass-based thermal energy production and heat recovery. 6. Modify existing infrastructure programs to better support the development of the advanced biofuels and biobased chemicals industry in Minnesota. 7. Create a small grant program to help companies obtain the data needed in order to provide highly competitive proposals to federal government grant solicitations, such as Small Business Innovation Research (SBIR) grants. 8. Assure that grant programs document the current status and change in status toward commercialization that will occur as a result of receiving grant dollars in order to provide metrics needed by major funders.
Improve the regulatory environment

Amid the recent economic downturn, bipartisan efforts are underway to optimize the permitting and regulatory process in an attempt to foster business development and job growth. In January 2011, Governor Dayton signed an executive order that established a goal for the Department of Natural Resources (DNR) and the Minnesota Pollution Control Agency (MCPA) to issue or deny a permit within 150 days from the time a complete application is received. The Minnesota State Legislature passed a bill to reinforce the Executive Order, and Governor Dayton signed it into law in March 2011. This law is commonly referred to as the Environmental Permitting Efficiency law. Governor Dayton has subsequently issued an Executive Order to the Environmental Quality Board to idenPermitting for Small-Scale Experimentation tify recommendations to improve the environmental review process. MPCA has a process in place to allow facilities to do future testing of fuels and other preauthorized activities by havThese measures are starting to show ing conditions put in the permit ahead of time for expectreturns. In a February 2012 report to ed activity. This allows the facility some flexibility in smallscale experimentation without requiring an amendment the Minnesota Legislature,241 MPCA to already issued permit. MPCA is willing to work with documented that of the total number different industry sectors to develop standard language of applications received, the agency that could be put in all appropriate permits to facilitate was able to process 2,514 permit increased small-scale experimentation efforts. applications: 1,647 were classified
81
as priority (construction-based projects) and 867 as non-priority. Overall, 81 percent of all permits processed were issued within 150 days, and 99 percent of all priority permits were issued within 150 days.242 The DNR also submitted an efficiency report to the Minnesota Legislature in February 2012 indicating that of the 894 permit applications received between July 1, 2011, and December 31, 2011, the DNR made final decisions on 99.6 percent within 150 days. In January 2012, the governor announced the Minnesota Business First Stop, which will build upon efforts required by the Green Enterprise Assistance statute (Minnesota Statute 116J.437). The statute created a multiagency partnership to advise, promote, market, and coordinate state agency efforts to expedite economic development. Minnesota Business First Stop is facilitated by the state Department of Employment and Economic Development (DEED) in partnership with the Minnesota Departments of Agriculture, Commerce, Transportation and Natural Resources; the Pollution Control Agency; and the Iron Range Resources and Rehabilitation Board. Minnesota Business First Stop will assist businesses seeking to expand or locate in the state by coordinating resources, expertise and assistance to expedite economic development and job creation in the state.
RecoMMendations
There are additional changes or streamlining efforts that could be implemented to increase efficiency in the permitting process. The following recommendations were identified as strategies to help the development of a bioindustrial sector for Minnesota: 1. Make sufficient funding available in order to expedite implementation of an interactive online permit submittal process in order to shorten permit review times. Review federal and state rules regarding classification of biomassbased materials as solid waste rather than feedstock to avoid additional solid waste regulations being applied to the biorefining industry and to promote environmentally sustainable use of available feedstocks.
General Permit Process

If an industry has similar operations, emissions and is subject to the same federal regulation requirements, the MPCA has the ability to develop a general permit and issue a public notice. After the general permit is finalized, individual facilities can apply for coverage under the general permit. Generally, the approval process can take as little as two weeks. A general permit can allow facility modification without triggering a major amendment to the permit. MPCA is willing to work with different industry sectors to identify general permit needs and the process works best when an industry sector works closely with MPCA. A general permit process could be put into place if there is an industry sector that has as little as three planned facilities.
2. Continue state efforts to facilitate data collection and sharing of emissions data for new biomass-utilizing technologies and feedstocks. 3. Support Minnesota Pollution Control Agencys (MPCAs) efforts to allow small-scale experimentation, with appropriate testing, without triggering
82
a requirement for a new permit. Encourage permit applicants to apply for a broad range of potential biomass fuels. 4. Review the Certificate of Need (CON) process to determine whether there are ways to shorten the approval time for biopower projects. The states Public Utilities Commission (PUC) must grant a CON for energy facilities with a combined generation capacity of 50 MW or greater. Currently, the Department of Commerce encourages project proposers to contact the department prior to filling a CON so that proposers are well-informed about the CON process, including options for requesting exemptions from filing requirements, in advance of filing a request for a CON and to help assure that applications are complete before being submitted to PUC. If PUC guidance documents included a step to Contact DOC to help assure application is complete in-between the steps, Applicant provides notice of intent to file to PUC and Applicant submits application to PUC, then they would more consistently know the information needed prior to filing, avoid the need for lengthy followup information requests, and shorten the decision making process. 5. Create an industry-specific taskforce involving MPCA, industry, the Minnesota Department of Agriculture and other relevant agencies to explore ways to expedite permitting for biobased chemicals and nextgeneration biofuels. Look for ways to make it easier for small-scale (R&D, pilot) projects to be built without the same regulatory requirements as in place for commercial-scale facilities. 6. Establish generic or general permitting categories for various biofuel/ biomass technologies in order to facilitate more rapid permit review and in some cases eliminate the need for a permit or permit renewal. 7. Modernize environmental review mandatory category triggers to eliminate biases for or against specific transportation fuels. Review the efficacy of Environmental Assessment Worksheet (EAW) and Environmental Impact Statement (EIS) requirements for bioconversion, and consider creating categories for types of bioconversion that do not require an EAW or EIS.
Encourage the production and use of all biofuels

Minnesota has been a leader in fostering the development of a strong biofuels industry. Several pieces of Minnesotas pioneering biofuel policies were developed at a time when the renewable fuels available in the marketplace were limited almost exclusively to ethanol and biodiesel. However, technology has evolved, and biobased fuels are anticipated to become commercially available in the next few years. For example, one ethanol plant in Minnesota is now being converted to produce biobutanol, and another has announced plans to do the same. In order for Minnesota to continue to be able to attract additional value-added biobased fuel producers, state statutes should encourage the development and utilization of emerging renewable fuels, while ensuring that previous investments in existing biofuels are protected.
83
RecoMMendation
Review Minnesota statutes and renewable fuel goals to explore their interrelationships and whether there are opportunities to strengthen the statutes and goals to be more inclusive of all renewable fuels, including those in the marketplace and those that may enter the marketplace, including those that fall under RFS2 and other federal statutes.
Provide infrastructure for higher blends of ethanol

In order to meet the renewable fuel volumetric requirements under RFS2 for ethanol, it will be necessary to increase the amount of ethanol blended into gasoline, in addition to using higher biofuel blends in flex-fuel vehicles. In addition to RFS2 requirements, Minnesota has an E20 mandate, setting a goal that all gasoline sold or offered in the state contain a blend of 20 percent ethanol. This mandate can be met by increasing the sale of E85 and midlevel ethanol blends or by increasing the amount of ethanol blended with gasoline by 20 percent, which requires a waiver from EPA. Currently, ethanol blends of 10 percent (E10) are included in approximately 99 percent of the gasoline mix nationwide. Many cellulosic biofuel producers will be limited by the same blending constraints as corn-based ethanol. In 2011, the U.S. Environmental Protection Agency (EPA) approved a partial waiver allowing ethanol blends of 15 percent (E15) for use in vehicle model years 2001 and newer. There are federal and marketplace issues that will need to be resolved for E15 implementation to occur in individual states.
RecoMMendations
Using Iowas E15 legislation as a model,243 appropriate state agencies should review existing statutes, codes, and regulatory actions that limit Minnesotas ability to sell E15 and higher blends. Minnesota should coordinate with other states that are pursuing similar steps. The review process should consider barriers to utilizing emerging biobased renewable fuels and make recommendations on how to overcome them to allow the sale of E15 and higher blends in the state. There are also issues at the state level that will need to be resolved. In particular, the following issues should be considered: Liability. MN may want to consider providing liability protection for retailers and other parties across the supply chain since E15 has only been approved in specific vehicles and engines. Fuel specifications. Code and regulatory fuel specifications should be reviewed to allow the sale of E15, and input specifications may need to be adopted to provide consumer protection without preventing E15 sales. Above-ground dispensers. Current fire codes may not account for ethanol blends above E10, and existing dispensers should be evaluated by the appropriate agency to determine if they can dispense E15. State officials should also be aware of evolving Occupational Safety and Health Administration (OSHA) requirements.
84
Underground storage tanks (USTs). The appropriate regulatory agency should review UST compatibility based on guidance from the U.S. Environmental Protection Agency. Pump labeling. State requirements for pump labeling should be reviewed for interaction with federal requirements. ASTM-certified test methods for determining octane are currently being modified to accommodate E15. Consumer education. Industry efforts are currently under development to prevent misfueling. Minnesota could collaborate with these industry efforts. Outstanding federal issues limiting E15 implementation at this time include: OSHA regulations for retailer insurance purposes, Reid Vapor Pressure (RVP) waiver for E15, and ongoing vehicle testing and litigation. On February 17, 2012, the EPA approved health effects data submitted by renewable fuel trade associations, and as a result fuel manufacturers and importers are now able to register to use E15. Minnesota should review specific state issues that may currently prevent the sale of E15 and determine appropriate steps to resolve any barriers. This will ensure Minnesota will be ready to implement E15 fuel sales.
Support state universities as business and talent incubators

During interviews conducted for this project, many representatives of Minnesota bioproduct and biofuel companies recommended an active role for the states higher education systems. Strong research universities and state colleges can help incubate development and growth of an industry cluster in many ways, including: Creating the opportunity for new spin-off companies, Partnering on product development, Preparing the 21st century workforce by expanding the pool of talented students that can be recruited by Minnesota bioproduct companies, Providing seed funding for research to explore new ideas and directions that will help generate the necessary data leading to large-scale research and demonstration projects, and Making equipment and laboratories available to companies for a fee. The University of Minnesota has recently amended its intellectual property policy to make it easier for companies to collaborate with university researchers while maintaining their intellectual property. Interviewees said that this was a positive step that would make collaboration easier, but they also recommended additional steps to make it easier to spin off companies from ideas generated at the university.
RecoMMendations
1. Minnesota should provide sufficient resources for the University of Minnesota and the Minnesota State Colleges and Universities system to develop additional capacity in bioproducts commercialization
85
and workforce development and to allow for academic-industry collaboration. 2. Minnesota should provide sufficient financial support for state-of-theart infrastructure dedicated to bioproducts and biosystems research and education through: Supporting the remodeling and redesign of the historic Bioproducts and Biosystems Engineering building on the University of Minnesotas St. Paul campus. This facility will be poised to house the National Center for Bioproducts and Biosystems Research, the first of its kind in the nation. Maintaining facilities that provide a safe environment for cuttingedge research and education. 3. The University of Minnesota should explore policies to make it easier to form spin-off companies. One area to consider is changing the universitys leave policy to make it easier for professors to take leave in order to start companies. The University should also consider creating endowed positions dedicated to spinning off intellectual property to the private sector to stimulate new start-up companies.
Strengthen preferred procurement for biobased products

Minnesota participated in a regional effort to increase state government procurement of bioproducts, and the final project report244 indicated that state officials had the authority without new legislation to preferentially procure bioproducts. However, it is unclear how much progress has been made by the state in implementing a system to increase such procurement or track progress. Some interviewees reported that they had favorable experience with the federal BioPreferred Program, but none were aware of efforts by Minnesota state procurement officials to preferentially procure biobased products. Several reported that they found the USDA program to be very helpful in creating early market demand and awareness of their products.
RecoMMendations
1. The state should issue a public report on efforts to date to increase procurement of biobased products. 2. The state should conduct marketing to make Minnesota companies aware of any program by the state to preferentially procure bioproducts. The state should consider extending the program to encourage procurement of bioproducts by local governments and the private sector. 3. The state legislature should consider enacting legislation to encourage the use of bio-based content in all industrial and consumer products by promoting labeling bio content in products. This would widely promote the use of bio-based content in all materials, chemicals, and energy, thus encouraging their more widespread use.
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endnotes
234. President Obama signs Presidential Memo that requires the federal government to increase purchases of biobased products (2012). Washington DC: US Department of Agriculture. Retrieved on February 29, 2011 from http://www.biopreferred.gov/?SMSESSION=NO. 235. The White House (2012). Presidential Memorandum Driving Innovation and Creating Jobs in Rural America thorugh Biobased and Sustainable Product Procurement. February 21, 2012. Retrieved on February 28, 2012 from http://www.whitehouse.gov/the-press-office/2012/02/21/ presidential-memorandum-driving-innovation-and-creating-jobs-rural-ameri. 236. U.S. Senator Debbie Stabenow (2012). Chairwoman Stabenow Announces New Grow It Here, Make It Here Initiatives to Advance Emerging Michigan Industry in Lansing. February 21, 2012. Retrieved on February 28, 2012 from http://www.stabenow.senate. gov/?p=press_release&id=638. 237. Midwestern Governors Association (2008). The Midwestern Bioproduct Procurement System task Force Report. Retrieved on January 5, 2012 from http://www.midwesterngovernors.org/ Publications/Bioproduct%20Report.pdf. 238. Renewable Fuels Association (2011). From farm to biorefinery: Ethanol production efficiency improves. August 18, 2011. Retrieved on February 16, 2012 from http://www.ethanolrfa.org/ exchange/entry/from-farm-to-biorefinery-ethanol-production-efficiency-improves/. 239. Iowa Power Fund. (2011) Des Moines: Iowa Office of Energy Independence. Retrieved on March 5, 2012 from http://www.energy.iowa.gov/Power_Fund/. 240. The North American Industry Classification System (NAICS) is the standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. 241. Minnesota Pollution Control Agency (2012). Environmental Permitting: MPCAs Semiannual Permitting Efficiency Report. February 1, 2012. Retrieved on February 2, 2012 from http:// www.pca.state.mn.us/index.php/view-document.html?gid=17185. 242. Minnesota Department of Natural Resources (2012). Semi-Annual Environmental Permit Performance Report. February 1, 2012. Retrieved on February 2, 2012 from http://files.dnr. state.mn.us/aboutdnr/reports/legislative/2012-envpermitperf-report.pdf. 243. Iowa Renewable Fuels Association (2011). Moving E15 to the Consumer: The Iowa Model. August 23, 2011. Retrieved on February 8, 2012 from http://www.ethanol.org/pdf/contentmgmt/Monte_Shaw.pdf. 244. Midwestern Governors Association (2008). The Midwestern Bioproduct Procurement System Task Force Report. Retrieved on January 5, 2012 from http://www.midwesterngovernors. org/Publications/Bioproduct%20Report.pdf.
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Appendices
APPENDIX A: DETAIlED VAluE CHAIN
Farmers/Foresters
Biomass Feedstock
Corn Soybean Agricultural biomass Woody biomass
Next-Generation Biorefinery
Platform Chemical
Ethanol N-Butanol Iso-butanol levulinic ketals succinic acid
Traditional Chemicals Industry
Primary Intermediate Chemical

Solvents Reaction chemicals Polymers Material additives Specialty chemicals
Formulations and Blends

Polyurethane foams Plastic products Adhesives Flavors and fragrances
Product Manufacturer
Final Product

Cleaning products Mattress pad Building products Automotive parts Cosmetics Flavors and fragrances
Retailer
Packaged, Consumable Product
88
APPENDIX B: CHEMICAl INDuSTRY oVERVIEW

The figure below describes the typical pathway for traditional chemicals manufacturing.
Chemicals typically follow multiple processing steps through platform chemicals and intermediates before being converted into downstream products. Renewable chemistry has the opportunity to have a significant impact on the industry in the direct conversion of renewable resources into an array of platform, intermediate, and specialty chemicals.
Gas Production
oil Refinery Naptha Cracker

increasing $ / Pound
Increasing Volumes
Biobased Chemicals
Super-Commodities, Platform Chemicals Intermediate Chemicals Specialty Chemicals and Formulations Product Manufacturing
The majority of chemical products come from a few platform super-commodities: C1- Methane C2- Ethylene C3- Propylene C4- Butylene BTX- Benzene, Toluene, Xylene
Volumes are large, and prices are low for platform chemicals, but as the markets narrow for end products, the relative value increases.
89
State
opening
Capacity*
name
RFs2 Category City Technology Feedstock(s)

Cellulosic Biofuel Cellulosic Biofuel Cellulosic Biofuel Cellulosic Biofuel Cellulosic Biofuel Cellulosic Biofuel Cellulosic Biofuel Cellulosic Biofuel Cellulosic Biofuel Cellulosic Biofuel Cellulosic Biofuel Renewable Fuel Renewable Fuel Renewable Fuel Advanced Biofuel Advanced Biofuel Norco Geismar LA LA GA MS Redfield SD 38 75 137 10 80 Luverne MN 18 Lamberton MN 50 2013 2012 2013 2011 2013 2012 2013 Columbus MS 63 2012 Vero Beach FL 8 2012 Ethanol Bio-based hydrocarbon Biobutanol Biobutanol Biobutanol Renewable Diesel Renewable Diesel Biodiesel Biobutanol Boligee AL 55 2013 Ethanol McCarren NV 11 2013 Ethanol Pontotoc MS 10 2013 Ethanol Gasification Gasification Gasification GasificationFermentation Pyrolysis Fermentation Fermentation Fermentation Fischer-Tropsch Hydroprocessing Algae transesterification Transesterification/ catalysis Fulton MS 19 2013 Ethanol Acid Hydrolysis Kinross MI 40 2013 Ethanol Consolidated Bioprocessing Hugoton KS 26 2013 Ethanol Ezymatic Hydrolysis Corn stover Hardwood Wood and wood-waste MSW and wood-waste Municipal solid waste (MSW) Multi-feedstock Yard, wood and vegetative wastes Woodchips Corn Corn Corn Animal wastes Animal residue Algae Oils
*Capacity: Million gallons per year (mgpy)
Fuel / Chemical
Ethanol Ethanol Ethanol Ezymatic Hydrolysis Ezymatic Hydrolysis Corn cob Municipal solid waste (MSW) Ezymatic Hydrolysis Corn stover, switchgrass, MSW, wheat straw
1 Nevada Blairstown IA 6 2012 IA 25 2013
POET
Emmetsburg
IA
25
2013
Dupont Danisco Cellulosic Ethanol
Fiberight
Abengoa
Mascoma
BlueFire Renewables
Enerkem
Fulcrum
APPENDIX C: NEXT-GENERATIoN BIoFuEl FACIlITIES
Coskata
10
IneosBIO
11
KiOR
12
Butamax
13
Gevo
14
Gevo
15
Dynamic Fuels
16
Diamond Green

Biomass-based Diesel Augusta Biomass-based Diesel Natchez
17
BARD
18
Elevance Renewable Sciences
90
APPENDIX D: lIST oF ouTPuTS FRoM BIoINDuSTRIAl PRoCESSING CoMPANIES

Category
Note:NotanExhuastiveList
Transportationfuels Solvent Abengoa ADM AmericanProcess** BluefireRenewables Cargill Codexis Coskata DupontDaniscoCellulosicEthanol GreatPlainsRenewableEnergy InbiconA/S IneosBio Iogen ManyIndpendentCompanies FrontierRenewables Mascoma Poet Qteros Virdnia** Dow Genomatica
BaseChemical
Carbons
Market
CompanyPursuing
Status
Feedstock
MostLikely Process
Ethanol
Commerical
Simplesugarsandstarches Cellulose*
Biocatalysis Thermocatalysis
Isopropanol
Solvents Coatings FuelAdditive Preservative Disinfectant Deicingfluids Cosmetics Transportationfuels Fibers SpecialtyChemical Plastics Polymers Packaging BuytlRubber Coatings FoodPackaging Dispersants Transportationfuels Solvent Plastics SpecialtyChemical Textiles Coatings Agriculturalchemicals Resins Sealants Cosmetics EngineeredPlastics Adhesives Coatings UrethaneFoams Elasticfibers VitaminC Cosmetics Healthcare Sweetner Polyerethanefoams Adhesives Sealants
Commercial
Cellulose* Simplesugarsandstarches
1,3Propanendiol
DuPointTate&Lyle Gevo Butamax
Commercial
Simplesugarsandstarches
Biocatalysis
Alcohols
Isobutanol
NearCommercial
nButanol
Butrolix Butamax CathawayIndustrialBiotech CobaltTechnologies Dow NearCommerical Gevo DuPointTate&Lyle GreenBiologics EastmanChemicalCompany(formerly Tetravitae) Genomatica BioAmber MyriantCorporation
Butanediol
PreCommercial
Sorbitol
ADM Cargill
Commercial
Biocatalysis
SoyPolyols
16,18
SDSoybeanProcessors Agrol BASF CargillBioh MCPUPolymerEngineeringLLC
Commercial
Oil
Chemocatalysis
*Ingeneral,conversionofcellulosetofuelsandchemicalsislessdevelopedthanconversionofstarchesandsugars. **Producesmixedsugarsforanarrayofproductsmadefromfermentation Feedstocks Simplesugarsandstarches Corn,Sugarbeet,Sugarcane,SweetSorghum,Cassava,Molasses,WheatBran,Bagasse,Sugarbeet Cellulosics AgriculturalResidues,Wood,MunicipalSolidWastes,Miscanthus,Switchgrass,CornStover,WheatStraw,Sorghum Oil Rapeseed,Soy,Palm,Algae,Jatropha Scales Commerical Largequantitiesproducedformarket NearCommercial Demonstration/pilotfacilitiesrunning,smallquantitesforsale PreCommerical Norevenue Process Biocatalysis Conversionperformedbyenzymesormicrobes Chemocatalysis Conversionperformedbynonenzymechemicalreactions Thermocatalysis Conversionperformedbyheat
91
Category
BaseChemical
Carbons
Plastics Solvent
Market
CompanyPursuing
Zeachem
Status
Feedstock
MostLikely Process
Aceticacid
SpecialtyChemical Paints/Adhesives Plastics(PLA) FoodAdditive Absorbants Paint Coatings Fibers Pigments EngineeredPlastics Detergents FoodAdditives Clothingfibers Polyerethanes Deicingfluids Resins&Coatings Cosmetics Solvents FoodAdditive SpecialtyChemical PaperSizingAgent Resin Plasticizers Solvents Polyols Fuels,FuelAdditives Polyerethanefoams Detergents
NearCommercial WackerChemie Purac Galactic MyriantCorporation MyriantCorporation Dow OPXBiotechnologies Zeachem BioAmber DSM/Roquette MBI MyriantCorporation NearCommercial CommercialScale
Cellulose* Simplesugarsandstarches Cellulose* Simplesugarsandstarches
Lacticacid
Biocatalysis
Acrylicacid
NearCommercial
Succinicacid
Fumaricacid
MyriantCorporation Segetis Reluceo
PreCommercial
OrganicAcid
LevulinicAcid Derivatives
PreCommercial
Itaconicacid
SuperAbsorbantPolymers Watertreatment Dispersants Detergents Corrosioninhibitors
Itaconix
NearCommercial
Simplesugarsandstarches Cellulose*
Biocatalysis
Cellulose* RivertopRenewables PreCommercial Simplesugarsandstarches
Glucaricacid
Buildingmaterialadditives ChemicalExfoliants FoodAdditives EngineeredPlastics Textiles Carpets Resins Urethanes Candles HydraulicFluids Lubricants Plasticizers Fuels Greases Lubricants Biodiesel ModifiedSoyOil Verdezyne BioAmber Celexion DSM Genomatica Rennovia DuPointTate&Lyle BIOTOR
Adipicacid
PreCommercial
Biocatalysis
SebacicAcid
10
PreCommercial
Oil
RenewableEnergyGroup Cargill CHS Elevance(specialtychemicals) ManyIndpendentCompanies McGyanBiofuels MNSoybeanProcessors BlueMarbleBiomaterials LS9 SoyGold Commercial Oil Chemocatalysis
FattyAcids
1224
Detergents PersonalCareProducts Plastics
*Ingeneral,conversionofcellulosetofuelsandchemicalsislessdevelopedthanconversionofstarchesandsugars. Feedstocks Simplesugarsandstarches Corn,Sugarbeet,Sugarcane,SweetSorghum,Cassava,Molasses,WheatBran,Bagasse,Sugarbeet Cellulosics AgriculturalResidues,Wood,MunicipalSolidWastes,Miscanthus,Switchgrass,CornStover,WheatStraw,Sorghum Oil Rapeseed,Soy,Palm,Algae,Jatropha Scales Commerical Largequantitiesproducedformarket NearCommercial Demonstration/pilotfacilitiesrunning,smallquantitesforsale PreCommerical Norevenue Process Biocatalysis Conversionperformedbyenzymesormicrobes Chemocatalysis Conversionperformedbynonenzymechemicalreactions Thermocatalysis Conversionperformedbyheat
92
Category
BaseChemical
Carbons
Market
Fertilizer
CompanyPursuing
Syngest WestCentralRenewableAmmonia DevelopmentLLC
Status
Feedstock
MostLikely Process
Amine
Ammonia
0
Aerosols Fuels
PreCommercial
Cellulose*
Thermocatalysis
Ether
DiMethylether
Chemrec
PreCommercial
Cellulose*
Thermocatalysis
Alkene
Ethylene
Packaging Moldedproducts Fibers
Braskem
Commercial
Simplesugarsandstarches**
Biocatalysis Chemocatalysis
Ketone
Acetone
PrecursorforBisphenolA CleaningAgent Cosmetics Solvent OtherChemical Intermediates
Butrolix Butamax CathawayIndustrialBiotech CobaltTechnologies Dow NearCommercial EastmanChemicalCompany(formerly Tetravitae) Gevo GreenBiologics Sovert Allylix BlueMarbleBiomaterials Commercial
Terpene
NaturalTerpenes
Range
Cosmetics FlavorsandFragrances Foodingredients Adhesives
Biocatalysis
Isoprene
MedicalandPersonalCare Tires Medicalproducts Packaging
Genencor
PreCommercial
Biocatalysis
HydrocarbonFuels BioPolymer
Polyhydroxybutyrate
many
Packaging
Metabolix Tephin TianenBiopolymer TianjinGreenBioMaterialsCo.,Ltd. Natureworks Galactic LS9 Amyris Envergent Genencor Gevo KiOR Lanzatech LS9 Sapphire Solazyme Terrebon
Commercial
Cellulose* Simplesugarsandstarches Cellulose*
Biocatalysis
PolylacticAcid
many
Moldedproducts Fibers Transportationfuels
Commercial
Biocatalysis
Jetfuels,Renewable Gasoline,Renewable Diesel
many
PreCommercial
Cellulose* Oil Simplesugarsandstarches
Biocatalysis Chemocatalysis Thermocatalysis
*Ingeneral,conversionofcellulosetofuelsandchemicalsislessdevelopedthanconversionofstarchesandsugars. ***Ethyleneproductsoccursthroughethanolproduction. Feedstocks Simplesugarsandstarches Corn,Sugarbeet,Sugarcane,SweetSorghum,Cassava,Molasses,WheatBran,Bagasse,Sugarbeet Cellulosics AgriculturalResidues,Wood,MunicipalSolidWastes,Miscanthus,Switchgrass,CornStover,WheatStraw,Sorghum Oil Rapeseed,Soy,Palm,Algae,Jatropha Scales Commerical Largequantitiesproducedformarket NearCommercial Demonstration/pilotfacilitiesrunning,smallquantitesforsale PreCommerical Norevenue Process Biocatalysis Conversionperformedbyenzymesormicrobes Chemocatalysis Conversionperformedbynonenzymechemicalreactions Thermocatalysis Conversionperformedbyheat
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APPENDIX E: JoB CREATIoN oVERVIEW

Expansion of the advanced biofuels and biobased chemicals industry holds potential for strong employment growth in the state of Minnesota, with the industry already contributing over 2,000 direct and indirect jobs in 2011.E1 As part of this report, a number of scenarios were evaluated, as detailed in the tables and figures below. Employment growth would occur in three categories: 1. Headquarters: The establishment of business centers in the state for administration and sales, research and development, and other central functions. 2. Agriculture biorefineries: The establishment of manufacturing capacity for advanced biofuels and biobased chemicals utilizing agriculture-based resources for their feedstock. 3. Forest biorefineries: The establishment of manufacturing capacity for advanced biofuels and biobased chemicals utilizing forest-based resources for their feedstock. The scenarios detailed below ONLY consider job impacts in the advanced biofuels and biobased chemicals industry. Additionally, the scenarios assume that jobs in the conventional biobased industry (including food, feed, conventional biofuels, and forest products) would be, at a minimum, preserved at todays levels. An employment multiplier of 5.5 was used for all segments.E2 All figures below include both direct and indirect employment.
Table A: Total Bioindustrial Employment

2011 Direct Employment Estimate
Headquarters Agriculture Biorefineries Forest Biorefineries Totals
E1.
2011 Estimate
1,936 110 83 2,129
2025 2025 low-Growth Most likely Scenario Scenario

5,686 1,650 550 7,886 6,470 2,695 1,100 10,265
2025 Best Case Scenario

7,352 4,510 1,925 13,787
352 20 15 387
To clarify these numbers, a more detailed analysis can be conducted on current employment numbers and projected growth. Biobased chemicals and products: A new driver for green jobs. (2011) Washington DC: Biotechnology Industry Organization. Retrieved on March 12, 2012 from http://www.bio. org/sites/default/files/20100310_biobased_chemicals.pdf
E2.
94
16,000 14,000 Number of jobs 12,000 10,000 8,000 6,000 4,000 2,000
Employment Breakdown- Best Case
Forest Biorefineries Agriculture Biorefineries Headquarters
0 2011
2025 Best Case
Bioindustrial Processing Employment

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2011 Number of jobs
Best Case Most Iikely Low growth
2025
Table B: Base Assumptions

Headquarters
Retrofits Agricultural Biorefineries Bolt-on expansions New construction Total Retrofits Forest Biorefineries Bolt-on expansions New construction Total 8% Annual Growth from 2011 2025 Low-Growth Scenario 5 5 3 13 0 2 1 3 9% Annual Growth from 2011 2025 Most Likely Scenario 8 10 4 22 0 4 2 6 10% Annual Growth from 2011 2025 Best Case Scenario 4 18 7 29 0 6 4 10
Table C: Job Impacts for Biorefinery Growth options

Definition
No Change Retrofit Bolt-on Expansions Optimized first-generation facility, no expansion Retrofit to new chemical, minimal change to process and output, no new feedstocks Major investment into additional processing for fuels, chemicals or byproducts, before or after retrofit, OR bolton of cellulosic processing capacity to existing facility
Permanent jobs added

0 5 25
Total Employees
25 30 50
New integrated biorefinery leveraging traditional New Biorefinery crops with multiple product streams, OR new integrated cellulosic biorefinery
50
50
95
APPENDIX F: MEMBERS oF THE MN BIoINDuSTIRAl PARTNERSHIP PolICY CoMMITTEE

Amy Berger, Minnesota Senate Jennifer Berquam, Minnesota Senate Ken Brown, Minnesota Department of Commerce-Division of Energy Resources Neal Feeken, The Nature Conservancy Kevin Hennessy, Minnesota Department of Agriculture Kari Howe, Minnesota Department of Employment and Economic Development Larry Johnson, LLJ Consulting & Business Development Nancy Lange, Izaak Walton League of Minnesota Peder Mewis, Minnesota Senate Thom Petersen, Minnesota Farmers Union Charlie Poster, Minnesota Department of Agriculture Shri Ramaswamy, University of Minnesota Melissa Rahn, Fredrikson & Byron, representing Gevo Tim Rudnicki, Minnesota Biofuels Association Mike Saer, Great River Energy Jim Schmidt, Eide Bailly Don Smith, Minnesota Pollution Control Agency Elizabeth Tanner, Minnesota Corn Growers Association Todd Taylor, Fredrikson & Byron Dan Toivonen, Boise Inc.
96
Acknowledgements and Contact Information

The Minnesota Roadmap: Recommendations for BioIndustrial Processing is a combined effort of The BioBusiness Alliance of Minnesota, LifeScience Alley, and The Great Plains Institute. An industry-led working group of dedicated stakeholders, known as The BioIndustrial Partnership of Minnesota, was heavily relied upon for thought leadership.
authoRs
Tim Welle Program Manager The BioBusiness Alliance of Minnesota David Whitehouse Research Analyst The BioBusiness Alliance of Minnesota Ashley Sturdevant Technical Research Analyst The BioBusiness Alliance of Minnesota Rachel Mann The BioBusinesss Alliance of Minnesota
contacts
The BioBuisines Alliance of Minnesota
Tim Welle Program Manager twelle@biobusinessalliance.org 952.746.3845
lifeScience Alley
Ryan Baird ryan.baird@lifesciencealley.org 952.746.3818
AuTHoRS: PolICY SECTIoN

Brendan Jordan Director of Bioenergy and Transportation Programs Great Plains Institute Amanda Bilek Energy Policy Specialist Great Plains Institute
Great Plains Institute

Brendan Jordan bjordan@gpsid.org 612.278.7152
97
The BioIndustrial Partnership of Minnesota is an industry-led working group who is dedicated to the growth of the advanced biofuels and biobased chemicals industry in Minnesota.
MEMBERS INCluDE:
Bob Bossany Ken Brown Doug Cameron John Christianson Christina Connelly Steve Davies Mark Drake Tess Fennelly Kevin Hennessy Georgie Hilker Jim Hobbs Kari Howe Jack Huttner Larry Johnson Sherry Larson Riley Maanum Don Mattsson Iain McNerlin Jim Millis Shri Ramaswamy Mike Ritzenthaler Mike Saer Lori Sarageno Jim Schmidt Olga Selifonova Steve Snyder Michael Sparby Todd Taylor Bruce Tiffany Dan Toivonen Tony Wedell Luca Zullo
98
ADDITIoNAl CoNTRIBuToRS:
Jim Benson Amy Berger Jennifer Berquam Jeff Borling Dave Chura Don Deckard Anna Dirkswager Randy Doyle Bill Faulkner Neal Feeken Tim Gerlach Brad Heitland Dave Hengel Calder Hibbard Anthony Hicks Randy Hilliard Nathan Koenig David Kolsrud Dave Krueger Cathy Kueseman Dave Ladd Melissa Legge Peder Mewis Mark Lindquist Cecil Massie William Meehan Tim Nolan Gregg Patterson Thom Peterson Charlie Poster Julie Rath Steve Renquist Tim Rhetter Tim Rudnicki Brad Saeger Don Smith Harold Stanislawski Steve Stokke Elizabeth Tanner Denny Timmerman Ryan Zemek Dave Zumeta Project editor: Gail OKane Layout and Design: Kelsye A. Gould
We thank the industry, academic and government leaders who provided their professional support throughout the project, even though all could not be named. Note: Institutional affiliations of the participants have not been identified as opinions expressed were those of the individuals that may or may not represent the positions of their organizations.
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lIFESCIENCE AllEY AND THE BIoBuSINESS AllIANCE oF MINNESoTA lEADERSHIP:

Dale Wahlstrom CEO LifeScience Alley and The BioBusiness Alliance of Minnesota Jeremy Lenz COO The BioBusiness Alliance of Minnesota Gregg Mast V.P., Agriculture and Biomass Business Cluster The BioBusiness Alliance of Minnesota Rachel Mann The BioBusinesss Alliance of Minnesota Liz Rammer COO LifeScience Alley Shaye Mandle V.P. of Government & Affiliation Affairs LifeScience Alley
GREAT PlAINS INSTITuTE lEADERSHIP

Rolf Nordstrom Executive Director Eric Schroeder Deputy Director
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We dont have stockholders, we have member-owners

In many ways, Great River Energy is similar to other electric companies. But heres where were
different were a cooperative. We are the wholesale power provider for 28 electric cooperatives who reach more than 60 percent of Minnesota. These 28 cooperatives own us. Their member-customers own them. Rather than striving to meet the needs of stockholders, we strive to maintain values and priorities that meet our members needs. Thats the cooperative way.
The power behind your electric cooperative

Our Owners And Distribution Partners:
Agralite Electric Cooperative, Benson Arrowhead Electric Cooperative, Inc., Lutsen BENCO Electric Cooperative, Mankato Brown County Rural Electrical Association, Sleepy Eye Connexus Energy, Ramsey Cooperative Light & Power, Two Harbors Crow Wing Power, Brainerd Dakota Electric Association, Farmington East Central Energy, Braham Federated Rural Electric Association, Jackson Goodhue County Cooperative Electric Association, Zumbrota Itasca-Mantrap Cooperative Electrical Association, Park Rapids Kandiyohi Power Cooperative, Willmar Lake Country Power, Grand Rapids Lake Region Electric Cooperative, Pelican Rapids McLeod Cooperative Power Association, Glencoe Meeker Cooperative, Litchfield Mille Lacs Energy Cooperative, Aitkin Minnesota Valley Electric Cooperative, Jordan Nobles Cooperative Electric, Worthington North Itasca Electric Cooperative, Inc., Bigfork Redwood Electric Cooperative, Clements Runestone Electric Association, Alexandria South Central Electric Association, St. James Stearns Electric Association, Melrose Steele-Waseca Cooperative Electric, Owatonna Todd-Wadena Electric Cooperative, Wadena Wright-Hennepin Cooperative Electric Association, Rockford
greatriverenergy.com
The Minnesota Roadmap: Recommendations for BioIndustrial Processing 101
Promoting the vital work of Minnesota farmers since 1978.
Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has. ~ Margaret Mead
mncorn.org
MCGA blog at minnesotacornerstone. wordpress.com
Minnesota Corn
twitter.com/mncorn
mngrownethanol.info
102
Finding the Power in Biomass...

Through improved fermentation
Contact: Don Mattsson PhD Butrolix LLC 2030 Lakeview Drive | Duluth, MN 55803
218.349.6075 The Minnesota Roadmap: Recommendations for BioIndustrial Processing
103
www.swifoundation.org
Lawyers
who know
Energy
Shaping the Future of Bio-Refining
The past decade has been transformative for the energy sector, and Stoel Rives attorneys have advised and guided many energy companies to success through these challenging times. Based on client feedback, our Energy Law practice is rated National Tier 1 in the U.S. News Best Lawyers Best Law Firms survey (2010, 2011-2012). We are ready to meet your energy business needs in the coming years of continued regulatory and market change. Visit us at www.stoel.com to learn how we can advance your business objectives.
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Minnesota RoadMap:

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Table of Contents Table of Contents

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

Figure 0.1, Oil Barrel Breakdown into Products

Historical and Projected Crude oil Prices

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

Downstream market development: Biobased chemicals

Downstream market development: Biofuels

Agriculture supply chain development

Forestry supply chain development

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

1. Emerging cluster of bioindustrial processing company headquarters

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

Strong agriculture production. The state ranks fourth in the nation

4. Established base of large companies in related industries

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

A STRATEGY FoR MINNESoTA

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

I: Building the Next-Generation Biorefinery

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

Industry Background and Definition

Figure 1.1, Renewable Materials Value Chain

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

Capital investment fueling growth

Clean Tech Venture Capital Investments

Risk diffusion critical for industry development

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

Partnerships for Growth: Minnesotas Biobutanol Manufacturing

Partnerships with the conventional biobased industry

Government Support to Diffuse Risk

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

Increasing interest in biobased chemicals across bioindustrial processing

case study: BioAmber

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

Commercialization pathways dependent on chemical outputs

Drop-in chemicals and fuels

Novel proprietary chemicals

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

Bioindustrial processing moving toward cellulosic feedstocks

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

Biorefinery Infrastructure Map

oPPoRTuNITIES AND CHAllENGES

leverage Minnesotas existing biorefinery infrastructure

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

Expand Minnesotas emerging bioindustrial cluster

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

Communicate Minnesotas competitive advantage as a global leader for bioindustrial processing

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

leverage and expand academic-industry partnerships

Develop partnerships to improve the regulatory environment

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

organize industry-led efforts to develop a voice for the industry

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

25. 26. 27.

28. 29. 30.

33. 34. 35.

The Minnesota Roadmap: Recommendations for BioIndustrial Processing

36. 37. 38. 39.

43. 44. 45.