Tom Konrad, Ph.D., CFA
BioChar, or using black carbon directly as a soil amendment holds the promise of both increasing agricultural yields and locking up carbon in the soil for centuries or millennia. Are there ways for stock market investors to benefit?
The technology is simple, but the results are potentially quite profound. By pyrolyizing (heating in the absence of oxygen) biomass, and mixing the resulting char into the soil, it is possible to produce
- Energy, in the form of heat, electricity, and or liquid fuel
- Carbon sequestration
- More productive agricultural land.
Key to producing both energy and sequestering carbon is what would otherwise have happened to the biomass if it had decayed under normal conditions: The carbon content would have been returned to the atmosphere as CO2 or methane. Pyrolysis produces two products: pyrolysis gasses or BioOil, which can be burned for energy or upgraded into transportation fuels, such as jet fuel, gasoline, and diesel, and char, which can either be used as a fuel (charcoal- the same stuff we grill hamburgers on), or as a soil amendment (biochar.)
Biochar resists ordinary decomposition in the soil, and hence stays there for centuries or millennia. In addition, it enhances soil fertility. Although biochar alone has not been shown to enhance soil fertility. Biochar's complex surface area and intricate pore structure is hospitable to soil bacteria and fungi which help plants absorb nutrients from the soil. Christoph Steiner, a researcher at the University of Georgia's Biorefining and Carbon Cycling Program says, "We believe that the structure of charcoal provides a secure habitat for microbiota, which is very important for crop production."
For all these reasons, biochar has broad support in the environmental community as one more tool to devote to combating climate change.
An Investing Perspective
Such win-wins are essential for us to tackle climate change without crippling our economy, but can stock market investors benefit? The low-tech nature of creating biochar is a challenge. No high technology is needed to create charcoal. In fact, the benefits of biochar as a soil amendment were discovered thousands of years ago by Amazonian aborigines who used the process to enhance crop production in the poor soils of the Amazonian basin. Portuguese colonialists called it terra preta, or "Black Earth."
Modern pyrolysis enhances traditional methods of creating charcoal by capturing the volatile organic compounds as Bio-oil, reducing pollution and creating a second potential value stream. One company attempting to commercialize this process is Dynamotive Energy Systems (DYMTF.OB), which recently obtained an independent analysis of their upgraded BioOil, confirming that 80% by weight could be distilled into gasoline, jet, and diesel fuel. Dynamotive expects that it can "deliver advanced (second generation) fuels from biomass at a cost of less than $ 2 per gallon of ethanol-equivalent fuel in facilities processing about 70,000 tonnes of biomass per annum."
Although I have not taken an in-depth look at Dynamotive's business model, I'm cautious. The price of the biomass input is highly variable, and will have considerable impact on the eventual fuel cost. The company's technology seems to center around upgrading the BioOil, but I am uncertain if this is the best use of the volatile organics; it may end up being much simpler to simply burn them to generate electricity or heat to use on site.
There is also private competition. There are at least two private
companies: Carbon Diversion, Inc.,
and Alterna developing competing reactors
for producing energy and biochar. Just as I discussed
regarding Algae biofuel companies, public equity investors should be
cautious when the majority of an industry is still private; because the private
companies do not disclose, it becomes much more difficult to tell which company
is in the strongest competitive position.
In the same article, I concluded that price and supply of feedstock will be essential to the profitability of advanced biofuel companies, and I see the likeliest beneficiaries to be the growers of the biomass feedstock advanced biofuels companies such as Dyamotive use in their processes. The potential for additional revenue streams from biochar and carbon offsets could accrue to the technology firm, but it could just as easily accrue to the owner of the biomass, depending on the local competitive uses for the biomass. Meanwhile those same biomass growers may benefit from increased productivity with biochar.
At the moment, I don't see any practical way to invest in the potential of biochar. However, next month I plan to attend the North American Biochar Conference 2009 in Boulder. I hope to discover ways investors can help sequester carbon through Biochar, and see a good return on their investments at the same time.
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