What are the pros and cons of a U.S.-Brazil partnership on biofuels? During today's OnPoint, Alan Shaw, CEO of Codexis, explains how the United States could benefit from partnering with Brazil on the development of next-generation biofuels. He discusses his company’s partnership with Shell, which recently announced a joint venture with Cosan, Brazil’s largest ethanol company, and gives his take on the state of the U.S. biofuels industry.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Alan Shaw, CEO of Codexis. Alan, thanks for coming on the show.
Alan Shaw: Oh, it's my pleasure.
Monica Trauzzi: Codexis has evolved with a series of developing technologies ranging from biofuels to carbon capture and storage. That's a fairly broad range of technologies. Why the big picture focus for your company?
Alan Shaw: Well, the company is a platform company, so we're very fortunate to have a single platform that's fully invested, that allows us to tap into all those different markets. We started in pharmaceuticals because that's really the home, the natural home of innovators. But of course, the real big picture problems in the world, climate change, renewable fuels, is just another great place to deploy the technology. And I think that's a place where we can make a real impact.
Monica Trauzzi: So, you're in town talking biofuels. How involved, how engaged is your company in the Brazilian biofuels industry?
Alan Shaw: I believe we're post the consummation of the Shell-Cosan joint venture, really at the heart of it. We're very fortunate to be partnered with Royal Dutch Shell there, our exclusive partner in the deployment of our biotechnology to deliver next-generation biofuels. Shell-Cosan is a $12 billion joint venture, the world's largest sugar producer in the world, the third largest ethanol producer. It's a deal that transforms this industry. And I'm here speaking at this U.S.-Brazil Innovation Summit really to drive home a very important message. U.S. technology can lead the world. We are leading the world. Codexis is Silicon Valley at its best. That technology can be deployed in Brazil, which is really, I think, the place to produce biofuels. Sugarcane is great down there. It's 40 percent cheaper to produce ethanol in Brazil than in the U.S. With our technology we can literally unlock tremendous value and build a global business from Brazil.
Monica Trauzzi: So, talk a bit about the technology and the process itself that you're using.
Alan Shaw: Absolutely. Current generation, first-generation ethanol is the fermentation of sugar. You get sugar from sugarcane. Now, interestingly enough, only one third of the sugarcane is actually converted into sugar which can be fermented into alcohol. Two thirds ends up essentially underutilized. Our technology, which is the development of super enzymes, we can break down the cellulose and the hemicellulose, we call it biomass, and convert that into more sugar so that Cosan can produce more ethanol without having to plant any more crops. Now, we're talking about global market here. So Shell-Cosan will plant more sugarcane. We can convert more of the sugarcane into sugar and that sugar can be converted into ethanol and, more importantly I believe, directly into hydrocarbons, which is known as third-generation fuel. Fermentation of sugar directly into drop-in fuels which can be put in the current infrastructure and that's the secret with biofuels. You don't need to rip up the infrastructure. You don't have to reinvent … you know, if we can use the infrastructure we have today, we can keep the internal combustion engine on the road and that's a low-cost option to the alternatives.
Monica Trauzzi: You said that your company would plant more sugarcane. Where would you do that?
Alan Shaw: Well, Brazil is a huge country and I'm very pleased to say that all the grassland in the South is prime, fertile growing land for sugarcane. It's nowhere near Amazonia. You're not chopping down trees. You're not displacing anyone. The south part of Brazil is perfect growing area for sugarcane.
Monica Trauzzi: But does that mean then other countries will become dependent on Brazil for that feedstock?
Alan Shaw: I don't think they'll be dependent on the feedstock. I think a lot of the conversion of the feedstock into the fuel we’ll be doing in Brazil. But that's why international companies like Royal Dutch Shell are investing billions of dollars into this. But here's an important thing. You know, this is all about trying to get energy security fixed. Energy security is the same as national security in my book and any democratic government should do whatever it can to help with national security. Would you rather get a BTU of energy from a country that's friendly to us or one that might not be so friendly? Brazil is very friendly to this country and this trade mission, this U.S.-Brazil summit, really drove home to me what an important partner Brazil is to the U.S.
Monica Trauzzi: Many companies took a hit during the recession and the short term RFS targets are seen as something that's going to be difficult to be met. So, what's your take on the state of the U.S. biofuels market right now?
Alan Shaw: It's still early days and we shouldn’t lose heart. The administration, the previous administration, they've pushed hard. We need to keep pushing. Second generation, cellulosic technology, is still not ready to be deployed at scale. We've committed to Royal Dutch Shell that we’ll be ready and our technology will be transferred to Brazil and up to Canada as early as next year. But it will still take a couple of years to get the plants up and running and then they have to be built. I'm a very practical person, but we are getting there. I think the most important thing is it is the solution. Wind, solar, and hydro and nuclear will not help you drive a car. There are 1 billion cars on the road today. McKinsey forecast 2 billion by 2030 and countries that are expanding faster than the U.S., like China, they're buying a lot of cars. You've got to keep cars on the road. The internal combustion engine requires fuel. If we can fix that fuel, it's going to be a good outcome for everyone.
Monica Trauzzi: And tied into all of this is the debate on climate policy. And here in the U.S. it's at a standstill. What's the impact on your industry? Is a price on carbon necessary?
Alan Shaw: A price on carbon is not necessary, but what is necessary is to deploy a technology that can genuinely reduce carbon cost effectively. Power generation companies, AEP in particular here in the U.S., but there are a number of them, their CEOs are committed to reducing carbon whether there’s legislation or not. It's the right thing to do. What we need to do is do that in a cost competitive way. We've just received government money, an RPE award for our role in climate change. I will do that whether there's climate legislation or not. I believe it's the right thing to do.
Monica Trauzzi: OK, we'll end it there. Thank you for coming on the show.
Alan Shaw: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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