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Executive Summary

Biological sciences are likely to make the same impact on the formation of new industries in the next century as the physical and chemical sciences have had on industrial development throughout the century now coming to a close. The biological sciences, when combined with recent and future advances in process engineering, can become the foundation for producing a wide variety of industrial products from renewable plant resources. These ''biobased industrial products" will include liquid fuels, chemicals, lubricants, plastics, and building materials. For example, genetically engineered crops currently under development include rapeseed that produces industrial oils, corn that produces specialty chemicals, and transgenic plants that produce polyesters. Except perhaps for large-scale production of bioenergy crops, the land and other agricultural resources of the United States are sufficient to satisfy current domestic and export demands for food, feed, and fiber and still produce the raw materials for most biobased industrial products.

During this century petroleum-based industrial products gradually replaced similar products once made from biological materials. Now, biobased industrial products are beginning to compete with petroleum-derived products that once displaced them. This progress has been made possible by the wealth of knowledge on the scientific basis for conversion of biomass to sugars and other chemicals, particularly the knowledge of biochemical and fermentation fundamentals and related progress in process technology and agricultural economics. New discoveries occurring



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Page 1 Executive Summary Biological sciences are likely to make the same impact on the formation of new industries in the next century as the physical and chemical sciences have had on industrial development throughout the century now coming to a close. The biological sciences, when combined with recent and future advances in process engineering, can become the foundation for producing a wide variety of industrial products from renewable plant resources. These ''biobased industrial products" will include liquid fuels, chemicals, lubricants, plastics, and building materials. For example, genetically engineered crops currently under development include rapeseed that produces industrial oils, corn that produces specialty chemicals, and transgenic plants that produce polyesters. Except perhaps for large-scale production of bioenergy crops, the land and other agricultural resources of the United States are sufficient to satisfy current domestic and export demands for food, feed, and fiber and still produce the raw materials for most biobased industrial products. During this century petroleum-based industrial products gradually replaced similar products once made from biological materials. Now, biobased industrial products are beginning to compete with petroleum-derived products that once displaced them. This progress has been made possible by the wealth of knowledge on the scientific basis for conversion of biomass to sugars and other chemicals, particularly the knowledge of biochemical and fermentation fundamentals and related progress in process technology and agricultural economics. New discoveries occurring

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Page 2 in microbial, chemical, and genetic engineering research, in particular, could lead to technological advances necessary to reduce the cost of biobased industrial products. Near-term strategies may be dominated by fermentation of sugars through microbial processes for production of commodity chemicals. In the long run, similar processes may be used for large-scale conversion of biomass to liquid fuel. In the future, novel chemicals and materials that cannot be produced from petroleum may be directly extracted from plants. Today only a small fraction of available biomass is used to produce biobased chemicals due to their high conversion costs. The long-term growth of biobased industrial products will depend on the development of cost-competitive technologies and access to diverse markets. There remains an open question as to the size of petroleum reserves and the future cost of petroleum products. Current oil reserves are substantial, and exploration continues to open new petroleum supplies for the world market (e.g., Caspian Sea). Experts estimate that two-thirds of the world's proven reserves are located in a single geographic region, the Persian Gulf, and that this area will continue to serve as a dominant source for oil exports (USDOE, 1998). Some geologists report that oil reserves could be depleted within 20 years (Kerr, 1998). According to the American Petroleum Institute, there were approximately 43 years of reserves remaining as of 1997 (API, 1997), an increase from the 34 years prevailing before the first Organization of Petroleum Exporting Countries crisis in 1973. While this committee believes there is a need to make a transition to greater use of renewable materials as oil and other fossil fuels are gradually depleted, the committee cannot predict with any accuracy the availability and cost of future supplies of petroleum. Biobased products have the potential to improve the sustainability of natural resources, environmental quality, and national security while competing economically. Agricultural and forest crops may serve as alternative feedstocks to fossil fuels in order to moderate price and supply disruptions in international petroleum markets and help diversify feedstock sources that support the nation's industrial base. Biobased products may be more environmentally friendly because they are produced by less polluting analogous processes than in the petrochemical industry. Some rural areas should be well positioned to support regional processing facilities dependent on locally grown crops. As a renewable energy source, biomass does not contribute to carbon dioxide in the atmosphere in contrast to fossil fuels. The committee believes that these benefits of biobased products are real. However, these and other benefits listed below have not, in most cases, undergone a rigorous analysis to demonstrate their validity:

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Page 3 • use of currently unexploited productivity in agriculture and forestry; • reliance on products and industrial processes that are more biodegradable, create less pollution, and generally have fewer harmful environmental impacts; • development of less expensive and better-performing products; • development of novel materials not available from petroleum sources; • exploitation of U.S. capacities in the field of molecular biology to selectively modify raw materials and reduce the costs of raw material production and processing; • revitalization of rural economies by production and processing of renewable resources in smaller communities; • reduction of the potential for disruption of the U.S. economy due to dependence on imported fuel; • countering of oligopoly pricing on world petroleum markets; and • mitigation of projected global climate change through reduction of buildup of atmospheric carbon dioxide. The committee believes that these potential benefits could justify public policies that encourage a transition to biobased industrial products. This report identifies promising resources, technologies, processes, and product lines. Ultimately, the decision as to whether to accelerate investment in the research and development of cost-competitive biobased industrial products will be made by policymakers. Raw Material Resource Base The United States is well prepared to supply industrial production's growing demand for biological raw materials. The country has abundant croplands and forests, favorable climates, accessible capital, and a skilled labor force that uses sophisticated technologies in agriculture and silvi-culture. The expansion of biobased industries will depend on currently unused land and byproducts of U.S. agriculture and forestry, on expected increases in crop productivity, and on coproduction of biobased products with traditional food, feed, and fiber products. Enough waste biomass is generated each year—approximately 280 million tons—to supply domestic consumption of all industrial chemicals that can readily be made from biomass and also contribute to the nation's liquid transportation fuel needs. Productivity of U.S. farms and forests has been rising to meet domestic and export demands for traditional food, feed, and fiber products as well as biobased raw materials. Approximately 35 million acres of

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Page 4 marginal cropland in the Conservation Reserve Program could provide additional land to grow biomass crops. If approximately half of the land set aside for the program could be harvested in a judicious manner (to minimize the risks of soil erosion and loss of wildlife), approximately 46 million tons of additional biomass feedstock would become available. This figure assumes very low yields of biomass (2.5 tons per acre) and could increase fourfold (up to 10 tons per acre) with some crops (e.g., switchgrass). The total biomass is sufficient to easily meet current demands for biobased industrial chemicals and materials. The amount of land that will actually be used for biobased crops will depend on future demands for the final products, and the inputs used to make those products must be competitively priced. High-value novel chemicals are not expected to require large acreages. While biobased materials such as lumber, cotton, and wool do have substantial markets, these products now compete successfully for land resources. However, the current demand for many biobased chemical products is small. For example, as of the 1996 to 1997 marketing year, industrial uses of starch and manufacturing and fuel ethanol production from corn accounted for approximately 7 percent of the nation's corn grain production (ERS, 1997b). Coproduction of human food and animal feed products such as protein with biobased fuels, chemicals, and materials is expected to help minimize future conflicts between production of food and biobased products. Corn-based refineries, for example, yield protein for animal feed and oil, starch, fiber, and fuel alcohol products. In the case of pulp and paper mills, pulp, paper, lignin byproducts, and ethanol can be produced while recycling waste paper in a single system. If demand for liquid fuel increases beyond capacity for coproduction of food and liquid fuel, biobased production may compete for land with food production. This report describes some opportunities for coproduction of food, feed, liquid fuels, organic chemicals, and materials. The committee recognizes that an abundant supply of food at a reasonable price is a national goal. If the oil supply does diminish without available substitutes, oil prices could rise. At that point, policymakers may decide to convert land from food to fuel production. This could create competition for scarce resources and subsequent conversion of U.S. croplands to energy crops could lead to higher food prices. The committee estimates that byproducts of agriculture could provide up to 10 percent of liquid transportation fuel needs. The amount of land devoted to crops for biobased industries will be determined by economics, as tempered by agricultural policies. The raw materials for biobased industrial production are supplied by plants as plant parts, separated components, and fermentable sugars. For the immediate future the raw material sources most likely to be used for

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Page 5 producing industrial materials and chemicals in the United States are starch crops like corn and possibly waste biomass. Over the long term, as the demand for biobased products expands and crop conversion technologies improve, this resource base will grow to include lignocellulosic materials from grasses, trees, shrubs, crop residues, and alternative crops custom engineered for specialized applications. Many potential biobased products will come from traditional crop plants being put to new uses—for example, grasses and legumes used in paper production. Perhaps more important, however, will be new types of crops or traditional crops that have been genetically engineered. Although a number of barriers can impede the introduction of new crops, the transformation of soybean from a minor crop earlier in this century to a major crop today illustrates the possibilities when crop production and conversion technologies are developed in tandem. Genetic engineering and plant breeding techniques permit the redesign of crops for easier processing and creation of new types of raw materials. Source plants can be modified or selected for characteristics that enhance their conversion to useful industrial products. Through genetic engineering, plant cellular processes and components can be altered in ways that increase the value or uses of the modified crop. This capability has no parallel in petroleum-based feedstock systems and is a major advantage of biobased industrial products. Opportunities: Range of Biobased Products Biobased products fall into three categories: commodity chemicals (including fuels), specialty chemicals, and materials. Some of these products result from the direct physical or chemical processing of biomass—cellulose, starch, oils, protein, lignin, and terpenes. Others are indirectly processed from carbohydrates by biotechnologies such as microbial (e.g., fermentation) and enzymatic processing. Fermentation ethanol and biodiesel are examples of biobased fuels. Ethanol is critical because this oxygenate can serve as a precursor to other organic chemicals required for production of paints, solvents, clothing, synthetic fibers, and plastics. While ethanol currently is the largest-volume and probably cheapest fermentation product, other chemicals such as lactic acid are under development as raw materials for further processing. Some biobased chemicals are becoming price and cost competitive. For example, vegetable-oil-based inks and fatty acids now account for 8 and 40 percent of their respective domestic markets. Biobased chemicals (apart from liquid fuels) probably represent the greatest near-term opportunity for replacement of petrochemicals with renewable resources. The driving force for production of many biobased chemicals and

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Page 6 liquid fuels has been a search for alternatives to fossil fuels in response to the oil crisis of the 1970s, a desire to reduce stocks of agricultural commodities, and more recent attention to the environment. In many cases, biobased products received a premium price or subsidy when they were introduced to the marketplace. For instance, fermentation ethanol gained a 1 percent share of the domestic transportation fuel market (about 1 billion gallons of ethanol) in 1995 due, in part, to government incentives designed to improve air quality in some urban areas. As more cities meet carbon monoxide air quality standards, this ethanol market will decrease. To penetrate larger commercial markets, ethanol and other commodity chemicals will have to become cost and price competitive with petroleum-based products. Increasingly, technological advances in production processes (as outlined in this report) have the potential to drive down the costs of biobased products, allowing them to compete in an open market with petroleum-derived products. The worldwide market for specialty chemicals—enzymes, biopesticides, thickening agents, and antioxidants—is $3 billion and growing by 10 to 20 percent per year. The market for detergent enzymes alone is about $500 million annually. As sales volume has increased, the cost of detergent enzymes has fallen 75 percent over the past decade. Based on industry experience, a similar pattern can be expected for other biobased products. Many new applications for enzymes are being explored, including animal feeds, wood bleaching, and leather manufacture. In each, enzymes improve the industrial process and make it less polluting. Increasingly, niche markets will be sought for a wide array of plant chemicals (e.g., chiral compounds) not available from petrochemical markets. Biobased materials represent a significant market with a wide range of products. Lumber, paper, and wood products have traditionally been a large market, with annual sales of approximately $130 billion in the United States. Several other biobased materials have established uses that are likely to grow as technological advances reduce costs. Examples include starch-derived plastics, biopolymers for secondary oil recovery, paper, and fabric coatings. The cost of large-scale production of biobased products depends on two primary factors: the cost of the raw material and the cost of the conversion process. The industries for producing chemicals and fuels from petroleum are characterized by high raw material costs relative to processing costs, while in the analogous biobased industries processing costs dominate. Therefore, similar percentage improvements in processing costs have much more impact on biobased industries. Also, the cost per ton of biomass raw materials generally is comparable (e.g., corn grain) or much less (e.g., corn stover) than the cost per ton of petroleum. Thus, there is real potential for biobased products to be cost competitive with

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Page 7 petroleum-based products if the necessary research and development are done to reduce processing costs. Furthermore, because starch and sugar already contain oxygen and petroleum does not, there is the potential to derive oxygenated intermediate chemicals—such as ethylene glycol, adipic acid, and isopropanol—more readily from biological raw materials than from fossil sources. Production of such oxygenated chemicals by fermentation has the additional advantage of being inherently flexible. The raw materials can vary depending on which local source of fermentable sugars provides the best economic returns. Therefore, economic evaluations should first consider the potential of biobased replacements for the oxygenated organic chemicals of the 100 million metric tons of industrial chemicals marketed each year in the United States. Other significant opportunities exist to produce a wide range of industrial products from agricultural and forest resources. Many will require investment in basic research as well as process engineering research to ensure commercial viability. These opportunities begin with the plant sources for raw materials. Modern principles of molecular biology and genetic engineering can be used to create agricultural crops that contain desired chemical polymers or polymer intermediates. Additionally, trees and grasses could be genetically engineered to have a structural composition that facilitates and enhances the effectiveness and efficiency of subsequent conversion to desired products. Combined advances in functional genomics, genetic engineering, and biochemical pathway analysis, sometimes referred to as metabolic engineering, will make it possible to manipulate efficiently the biosynthetic pathways of microorganisms. By increasing chemical yield and selectivity, such manipulations could make microbial production more economically competitive with existing production methods. The combination of modern genetics and protein engineering will provide biocatalysts for improved synthesis or conversion of known products or for reaction routes to new chemicals. Accelerating the growth of biobased products will require an awareness of the opportunities and focused investment in research and development. The pathway to many industrial products starts with basic research. Such research generates promising discoveries that must be proven at a sufficiently large scale to reduce the risks of investing in the final commercial application. Barriers do exist in bridging the gap between laboratory discovery and product commercialization. Industry experience suggests that for every million dollars spent in basic discovery-oriented research for a specific product, $10 million must be spent in the proof-of-concept stage and $100 million in the final commercial-scale application. Public and industrial investment in basic research in the United States

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Page 8 has traditionally been strong and should continue. Final commercialization has been and should remain the province of industry. However, there is limited venture capital that is available for early commercialization of biobased products. This committee believes that the nation could benefit from government-industry partnerships that focus resources on the essential intermediate stage of proof of concept (risk reduction). The degree of public investment in biobased industrial products from basic research through proof of concept will be a public policy decision. Public risk capital is a mechanism that is currently used to support this intermediate proof-of-concept stage. The Alternative Agricultural Research and Commercialization Corporation administered by the U.S. Department of Agriculture is specifically devoted to commercializing industrial uses of renewable raw materials. A basic tenet of these partnerships is that upon successful commercialization the rate of return of a public investment should be commensurate with other risk capital investments. The public sector also has invested in several demonstration facilities that could support future proof-of-concept activities. Examples include the National Renewable Energy Laboratory (U.S. Department of Energy), the National Center for Agricultural Utilization and Research (U.S. Department of Agriculture), and MBI International (Lansing, Michigan). Such facilities handle a wide range of flexible large-scale processing equipment and have ample qualified support personnel. This committee believes that these facilities should be required to obtain a significant fraction of their funds for demonstration and risk reduction activities from the private sector. Processing Technologies The U.S. capacity to produce large quantities of plant material from farms and forests is complemented by the nation's technical capability to convert these plant materials into useful products. Various thermal, chemical, mechanical, and biological processes are involved. Expansion of biobased industrial production in the United States will require an overall scale-up of manufacturing capabilities, diversification of processing technologies, and reduction of processing costs. The development of efficient "biorefineries"—integrated processing plants that yield numerous products—could reduce costs and allow biobased products to compete more effectively with petroleum-based products. Prototype biorefineries already exist, including corn-wet mills, soybean processing facilities, and pulp and paper mills. As in oil refineries, biorefineries would yield a host of products that would tend to increase over time. Many biorefinery products can be produced by petroleum refineries, such as liquid fuels, organic chemicals,

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Page 9 and materials. However, biorefineries can also manufacture many other products that oil refineries cannot, including foods, feeds, and biochemicals. These additional capabilities give biorefineries a potential competitive edge and enhanced financial stability. The processing technologies of refineries tend to improve incrementally over time, eventually causing raw material costs to become the dominant cost factor. In this regard, biorefineries have another potential advantage over petroleum refineries because plant-derived raw materials are abundant domestic resources. The availability and prices of biological raw materials may thus be more stable and predictable than those of petroleum. An extensive case study in this report examines the potential of converting corn stover (stalks, leaves, cobs, and husks—also known as corn residue) to ethanol. The case study incorporates a model to calculate costs for ethanol processed from corn stover. Today, production of cornstarch-based ethanol costs approximately $1.05 per gallon. The model indicates that by using corn residue as a feedstock up to 7.5 billion gallons of ethanol could be produced at a cost potentially competitive with gasoline without subsidies. When the ethanol price is adjusted to account for the fact that a gallon of ethanol will provide less mileage in a conventional gasoline-type engine than will the fuel for which the engine is designed, the price of ethanol equivalent to a gallon of gasoline is $0.58 per gallon. The U.S. refinery price for motor gasoline in July 1998 was $0.54 per gallon (EIA, 1998). The model assumes that some not yet completely developed technologies are available and that use of corn residue makes possible especially low-cost raw materials. As a result, projected costs for ethanol processing could drop significantly from current costs because these residues are coproduced with corn grain. It should be noted that the price of oil could change significantly from today's prices, thus changing the price comparisons between ethanol and gasoline. The opportunities to produce ethanol more efficiently are large. While corn has been the dominant raw material source, other more productive lignocellulosic materials such as switchgrass are being considered as alternative feedstocks. In many cases the biorefinery that produces ethanol and other commodity chemicals from lignocellulosic biomass requires three major new technologies: (1) an effective and economical pretreatment to unlock the potentially fermentable sugars in lignocellulosic biomass or alternative processes that enable more biomass carbon to be converted to ethanol or other desired products; (2) inexpensive enzymes (called "cellulases") to convert the sugar polymers in lignocellulose to fermentable sugars; and (3) microbes that can rapidly and completely convert the variety of 5- and 6-carbon sugars in lignocellulose to ethanol and other oxygenated chemicals.

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Page 10 Several lignocellulose pretreatment processes have recently been developed that promise to be technically effective and affordable. Such pretreatments should make it possible to convert a vast array of lignocellulose resources into useful products. Other biobased processes under development may not require all of these pretreatment processes. Considerable progress has also been made in developing genetically engineered microorganisms, which utilize both 5- and 6-carbon sugars. Less progress apparently has been made in producing inexpensive cellulases. Processing technologies that use microbes and enzymes have great promise for the expansion of biobased industries. Unlike thermal and chemical processes, such bioprocesses occur under mild reaction conditions, usually result in stereospecific conversions, and produce only a few relatively nontoxic byproducts. One drawback is that bioprocesses typically yield dilute aqueous product streams, requiring subsequent processing for separation and purification. Bioprocessing research should therefore focus on increasing processing rates, product yields, and product concentrations with the overall goal of significant cost reduction. Some advanced bioprocessing concepts have already been developed, such as immobilized cell technology and simultaneous saccharification and fermentation. Experience with commercial amino acid production demonstrates the advantages of combining inexpensive raw materials with advanced bioprocessing methods. International amino acid markets were completely dominated by Japanese firms in the early 1980s. However, starting in the 1990s, U.S. companies using inexpensive corn-based sugars and immobilized cell technology began to penetrate these markets and today are major players in the industry. In general, research on the underlying production processes should focus on the science and engineering necessary to reduce the most significant cost barriers to commercialization. Economic and market studies could help clearly identify these barriers, determine the costs of alternative plant feedstocks, and understand the effects of fluctuating industrial demand and agricultural production on the risks and returns for bioprocessing investments. There are also storage and transportation problems unique to biobased products. Most biomass crop production takes place during a portion of the year, but biomass raw materials should be available on a continuous basis for industrial processing. Thus, there is a need to do research in these areas. A Vision for the Future The committee has described circumstances that it believes will accelerate the introduction of more sustainable approaches to the production

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Page 11 of industrial chemicals, liquid fuels, and materials. In this vision a much larger and competitively priced biobased products industry will eventually replace much of the petrochemical industry. The committee proposes the following intermediate- and long-term targets for the biobased products industry: • by the year 2020, provide at least 25 percent of 1994 levels of organic carbon-based industrial feedstock chemicals and 10 percent of liquid fuels from a biobased products industry; • eventually satisfy over 90 percent of U.S. organic chemical consumption and up to 50 percent of liquid fuel needs with biobased products; and • form the basis for U.S. leadership of the global transition to biobased products and potential environmental benefits. These targets are based on estimates of available feedstocks and assume that technological advances are in place to improve the suitability of raw materials and the economics of the conversion processes. Ultimately, the extent of this will be determined by the rate of investment by the private sector. The end of the next century may well see many petroleum-derived products replaced with less expensive, better-performing biobased products made from renewable materials grown in America's forests and fields. The committee believes that movement to a biobased production system is a sensible approach for achieving economic and environmental sustainability. While it is outside this committee's charge to determine the degree of involvement by the public sector in these activities, there may be a compelling national interest to make this transition to biobased industrial products. For example, policymakers may want to accelerate the use of renewable biomass to mitigate adverse impacts on the U.S. economy from a disruption in world oil supplies or reduce adverse impacts on the environment such as those created by possible global warming. Recommendations Federal support of research on biobased industrial products can be an effective means of improving the competitiveness of biobased feedstocks and processing technologies, as well as diversifying the nation's industrial base of raw materials and providing additional markets for farmers. Policymakers should encourage research and development that would fill important technical gaps in raw material production, storage, marketing, and processing techniques. Volatility in petroleum prices is a barrier to the development of these biobased products by the private sector.

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Page 12 Policymakers should realize that decades of research investment may be necessary to develop enabling technologies, and considerable lead time will be necessary to implement such research programs and to allow for the adoption of new technologies by industry. Research will be a prominent tool in making biobased feedstocks more competitive. The public-sector research and development agenda should emphasize major technical and economic roadblocks that impede the progress of biobased industrial products. Research priorities should emphasize the development of biobased products that can compete in performance and cost with fossil-based ones. Expansion of biobased industries will require research on the biological and engineering principles that underlie biobased technologies as well as the practical implementation of these technologies through development and commercialization. The discoveries occurring today in plant and microbial genomics are expected to lead to significant advances in fundamental biological research for many years in the future. The complete genomic sequence is available for some microbial organisms such as Saccharomyces cerevisiae (common yeast) and Escherichia coli (gram-negative bacteria). Scientific investigations are under way to decipher the entire genetic code of eukaryote organisms such as Arabidopsis thaliana (flowering plant of the mustard family) and Drosophila (fly). The genetic information collected on these organisms will provide researchers with insights on the genes that control plant traits and microbial cellular processes. In the future this genomic knowledge will help scientists find new ways to alter microbes and plants that increase the value of biobased raw materials and improve the efficiency of the conversion processes. Specific recommended research priorities for biology include: • the genetics of plants and bacteria that will lead to an understanding of cellular processes and plant traits; • the physiology and biochemistry of plants and microorganisms directed toward modification of plant metabolism and improved bioconversion processes; • protein engineering methods to allow the design of new biocatalysts and novel materials for the biobased industry; and • maximization of biomass productivity. Recommended research priorities for engineering include: • equipment and methods to harvest, store, and fractionate biomass for subsequent conversion processes; • methods to increase the efficiency and significantly reduce the costs of conversion of biomass to liquid fuel and organic chemi-

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Page 13 cals, including pretreatment of lignocellulosics, as well as other alternative processes so as to make biobased feedstocks economically competitive; • principles and processing equipment to handle solid feedstocks; • fermentation technologies to improve the rate of fermentation, yield, and concentration of biobased products; and • downstream technologies to separate and purify products in dilute aqueous streams. Most biologically based technologies and products have the potential to be more benign to the environment than petroleum-based sources. Growing plant matter such as perennial grasses for conversion to industrial products actually has the potential to improve soil quality. The use of biobased products in place of fossil materials does not add to atmospheric carbon dioxide, whereas use of the latter does. With rapidly increasing energy demands in developing nations, the substitution of biomass-derived fuels for fossil fuels could help reduce loading of atmospheric carbon dioxide and its possible impacts on global climate. Many biobased industrial products may prove to be more biodegradable and less polluting and many generate less hazardous wastes than fossil fuels. However, in many cases these benefits have been demonstrated for only a single step of the manufacturing process or for a single emission. Thus, more research in this area is needed. Evaluations of the potential environmental benefits of biobased industrial products should include life-cycle assessments that examine all phases from production and processing of raw materials to waste disposal. The committee envisions a government-industry partnership in which the public sector facilitates and supports research and in key cases where industry will not risk sole responsibility the government (federal, state, and local) may be a joint supporter of proof of concept. These partnerships should emphasize enabling technologies that are essential to the development of new products and processes across several industries and in cases where there is no other funding source (NRC, 1995). Equally important will be educational support and training to prepare a technical work force able to develop new biobased processes and products. Biobased industrial development across the United States often will be region or state specific because of differences in agriculture or forestry resources. Consequently, a diversity of approaches to the research, development, and early commercialization of biobased industries is encouraged. Flexible mechanisms to encourage cooperation between federal and state governments, such as matching funds, could help achieve this goal. Government agencies may decide to implement incentive programs as a mechanism to catalyze biobased industries because the adoption of

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Page 14 biobased products will require changes to established industry and consumer practices. For example, a seal of authenticity could create consumer awareness of biobased products and their accompanying environmental benefits. National environmental achievement awards could recognize and reward industry achievements in this area. Other possibilities include tax, investment, and regulatory policies that encourage biobased industries through entrepreneurship and small business formation or that incorporate biobased products into national policies to meet environmental goals. Incentive programs can have widespread implications for the economy and these effects should be carefully considered by government agencies in developing public policies for biobased industrial products. Because the costs of financing some of these incentives are not well known, government agencies will need to obtain comprehensive cost-benefit data for their decisionmaking. Incentive programs should be cost effective with endpoint provisions to evaluate program utility. In the long term, development of biobased products that can compete in an open market without incentives is key to sustaining a strong biobased industry. Although policy changes would go a long way in encouraging the development of U.S. biobased industries, they will not be sufficient alone. The current technology base for biobased industries is incomplete. Advances in agriculture have stressed crop production technologies without a comparable interest in conversion technologies to produce biobased industrial products. Likewise, education and research resources in the fields of chemistry and process engineering will need to put more emphasis on biobased processing. This report takes a broad look at current and potential biobased industries. It identifies key opportunities for products derived from renewable resources and the industry and public policy actions that could facilitate the research, development, and commercialization of biobased industrial products. With a vigorous commitment from all parties, the United States will be well positioned to reap the benefits of a strong biobased industry.