Against the backdrop of an increasingly resource-constrained world and volatile commodity prices, business as usual is not an option. The scalable, resource-efficient business models of the future will balance increased consumer demand with successful management of natural capital dependencies.
The growing adoption of biobased materials is one response to the challenge of depleting resources. Now estimated around $2.6 billion, the biobased industry is growing by approximately 15 percent annually. This feedstock provides a renewable source of raw materials and energy, which may help to offer businesses greater long-term environmental and economic stability.
But what is the true cost of producing bio-based materials? Trucost decided to find out.
A deeper dive
Groups such as the Society for the Commercial Development of Industrial BioTechnology have formed to share best practices on biobased materials, connect companies and suppliers, and speed the launch of exciting new technologies. Successful commercialization of these technologies implies there will be widespread use of biobased materials, either as “drop in” raw materials or through wholesale transformation of existing technologies.
Because the majority of costs are currently found in the processing life stages of these materials, there is a great opportunity for biobased materials to be competitive or even fall below petroleum-based products as adoption increases.
Trucost recently developed a true cost of packaging optimization tool by investigating the current and future economic and natural capital costs of a variety of raw materials, including common biobased feedstock. We used this data to examine how biotechnology companies can understand and communicate the environmental benefits of biobased packaging materials. As you will see, not all bioplastics are created equal; the type of crop grown, farming location and methods used have varying impacts on environmental footprints and supply chain resilience. This, of course, has financial implications for successful commercialization, especially when considering scale-up and long-term use.
Accounting for natural capital in biobased plastics
Natural capital accounting allows a company, or investor in a new technology, to measure the net environmental benefit of a biobased technology or product and then communicate this performance in easy-to-understand business terms. This approach also allows a company to quantify risks, such as the possible raw material pass-through costs associated with water.
Trucost’s natural capital valuation first measures life-cycle-based environmental performance and then applies a financial cost to estimate these impacts in business terms. For this analysis, we looked at greenhouse gas (carbon) and water costs involved in producing plastics made from petroleum-based PET, corn and sugar cane. This particular analysis covered the production and processing lifestages of these raw materials.
Environmental costs of each feedstock
Our analysis showed that PET plastic is more greenhouse gas intensive than corn- or sugar-cane-based plastics. The main environmental advantage bioplastics have over PET is the effective management of the crop-growing phase. This is a significant implication for companies commercializing biobased technologies, especially if they are not vertically integrated or must rely on others to adopt best management practices for growing the raw material.
For example, the typical greenhouse gas cost of PET is around 50 percent higher than corn and sugar cane due to the high energy requirements involved in its extraction and processing. At the same time, carbon sequestration and emissions significantly can affect the environmental footprint of corn and sugar cane crops.
Biobased manufacturers can use this natural capital valuation lens to understand which feedstock presents the lowest long-term environmental risk, where opportunities exist to reduce environmental costs within the value chain, where to invest in sustainable agriculture initiatives and how to adopt more strategic sourcing of raw material feedstock.
Current and future water scarcity
Trucost’s natural capital analysis shows how agricultural water practices are a very material concern for biobased technologies.
Using average global water costs associated with each plastic, we find that PET has a very small water footprint compared to biobased plastics, with an embedded water cost around 5 percent that of corn. This is mainly due to water required for irrigation of corn and sugar cane crops.
Perhaps more important to a company developing biobased technologies is that the water risks vary significantly between corn- and sugar-cane-based bioplastics. For example, publicly available average sugar cane data indicate a global water cost about 1.5 times greater than that of corn, mainly due to the volume needed to grow different crops or differing valuations across regions.
Water-related risk depends on local water scarcity and it is important to consider how the water footprints of sugar cane and corn crops vary by region. Not surprisingly, the farming location of bioplastic crops can have a significant impact on their natural capital costs.
For example, the embedded water cost involved in producing corn-based bioplastic feedstock in India is around 16 times greater than the cost involved in producing the equivalent volume of sugar-cane-based plastic feedstock. In the United States, however, sugar-cane-based plastics have an embedded water cost that is five times that of corn-based plastics. The message for biotechnology companies: Raw material sourcing should be part of an early stage assessment of long-term financial cost scenarios.
Three essential variables we consider when looking at the embedded water cost of biobased plastics are the volume of water needed to irrigate the crops, the amount of crop required to produce 1 kilogram of bioplastic and the value of water in different countries.
The water scarcity (shown in the accompanying infographic) influences both the value of water and the physical quantity of water needed to grow the crop. Companies commercializing new biobased technologies should consider water scarcity and pricing as part of their decision-making when evaluating manufacturing processes, regions and feedstock because of the long-term implications of water scarcity and climate change.
Last October, the World Business Council for Sustainable Development (WBCSD) challenged companies to take water valuation seriously. Peter Bakker, the WBCSD president, said the business community should “start tackling this issue, accounting for the real value of the water they are using, and to do it now, before it is too late.”
Will the biobased industry continue its growth trajectory? Natural capital valuation provides the holistic view that these companies — and those who invest in them — will need to create more risk-resistant products, where revenue growth is decoupled from natural capital costs.
This blog has been produced exclusively for GreenBiz.