How did the oil industry and the Environmental Protection Agency end up with a system for tracking the production of biodiesel that was vulnerable to fraud?
As I report in The Times, the agency is working on new rules to rescue the program after a yet-to-be-determined number of swindlers manufactured more than100 million credits tied to the manufacture of biodiesel that did not actually exist. This was possible, it appears, because the structure of the market for “RINs,” or renewable identification numbers, is fundamentally different from the market for other kinds of credits, like those issued for reducing sulfur dioxide emissions or lead pollution.
The biggest credit-trading scheme now running is probably the one for sulfur dioxide, a pollutant emitted mostly by power plants that causes acid rain. The idea behind the credit system, known as cap and trade, is that if the government sets an overall limit for emissions, it can minimize costs by letting the market figure out who can most cheaply achieve the reductions.
Let’s say that two power plants have to cut such emissions by 50 percent. One power plant can eliminate one ton of emissions for $30 and its neighbor can do it for $50. So the first plant achieves the entire reduction required of the two of them, and sells credits to the second plant at a price that is greater than its cost but less than the second plant would have had to spend.
Likewise, in the days when the government was ordering lead removed from gasoline, one refinery could “over-control” its cuts and sell credits to another. Companies that achieved the required reductions before they were required to could “bank” the credits and use them later, or sell them.
The number of power plants and oil refineries is relatively small because big plants have economic advantages over small ones. And they are mostly owned by large, well-established companies. So it is relatively easy to keep track of the players.
What is more, power plants and refineries are already required to keep a variety of other kinds of records that an auditor can use to determine if the reduction claims are plausible, like how many tons of coal a plant burned or how many gallons of gasoline it produced.
By contrast, the biodiesel producers tend to be smaller because their raw materials – animal fats collected from restaurants or slaughterhouses, oil from soybeans – are usually collected from many small sources and it is not economically feasible to haul them very far.
So the multiplicity of small producers in scattered places created an opening for fraud. The big cases so far have been involved start-ups, or, more accurately, pretend start-ups.
“It doesn’t make sense for a trader in White Plains, N.Y., to go to West Texas to determine whether this person is creating biodiesel,’’ explained Eric A. Rubury, the chief executive of OceanConnect, a firm in White Plains that specialized in trading in RINs. It was easier to create a system of credits that was “like a currency,’’ that could be moved around easily.
Mr. Rubury described the fraud as “a tragedy.”
“It was a decent program,’’ he said. “Biofuel was being produced, technologies were being improved, and companies were getting patents. In a world where people complain about whether a program works, it worked.’’
The program is still operating, but the refiners, which are obligated to buy the RINs to meet their quotas, are now often bypassing small little-known producers now or offering to buy credits from them only at a discount. So many legitimate small start-ups are suffering.
Women in Ghana testing the BioLite home cooking stove. The stove includes a charging facility for cellphones and other mobile devices.
“The staple dish in Ghana is banku, a starchy mass of corn or cassava dough, and luckily it suited our stove,” Mr. Cedar recalled. “Where we got stuck in India was with flat breads, which need a very hot, very diffuse flame. When people saw the stove, they were like: ‘Oh no, no, no.”’
There was a simple solution: designing different tops for the stove to suit the cooking requirements of various regions. But other problems have proved less tractable in the five years that Mr. Cedar and Mr. Drummond have been developing the BioLite home stove as a safer, less expensive means of cooking for the three billion people throughout the world who cook on open fires.
Mr. Cedar, 31, and Mr. Drummond, 53, are among the growing number of designers who are applying their skills and entrepreneurial zeal to empower the billions of people who lack basic products and services. Developing a cheaper, cleaner method of cooking could make a dramatic difference to many lives. As well as curbing the environmental damage caused by fumes from indoor cooking fires, it promises to reduce the 1.9 million premature deaths linked to them each year. It could also spare people, mostly women and girls, from spending several hours a day collecting fuel, rather than working or studying. Finally, the BioLite stove includes a charging facility, which should save time and money for the millions of people whose homes are located outside electricity grids and who have to walk long distances — and pay hefty fees — to charge their cellphones.
Past attempts by designers to tackle such issues have faltered, often because the products were impractical or not appealing enough to persuade their new owners to use them regularly or to look after them properly. Other stoves were neither as energy efficient nor as reliable as their designers had hoped, or were introduced to developing countries without viable strategies to repair and dispose of them responsibly.
“There is a lot of history in this field, and not all of it is positive,” Mr. Cedar acknowledged. “But we can learn from it.” If BioLite is to succeed, it must find sustainable solutions to the problems. Other recently announced humanitarian design projects face similar challenges, including Little Sun, a solar-powered lamp designed by the Danish-Icelandic artist Olafur Eliasson and the Danish engineer Frederik Ottesen as an alternative to dirty, smelly, kerosene lighting.
BioLite’s designers, whose design-studio-cum-testing center is in an airy loft in Brooklyn, have had the benefit of time to refine their stove and to finesse the distribution, marketing and maintenance systems that some humanitarian design ventures have neglected.
Mr. Cedar and Mr. Drummond started to develop a zero-emissions wood-burning stove, initially to be used for camping, five years ago when they were employed by Smart Design, a New York design consultancy. They worked on it in their spare time, although Smart allowed them to use its resources. Not until they entered their design in a “clean stove” competition, which it won, did they realize that it could be adapted for use in off-grid communities in developing countries, where it would have far greater impact.
The technological key to their design is a thermoelectric device, which converts the heat produced by burning wood or other organic fuel into electricity. Most of the electricity powers a fan that makes the stove more efficient, thereby saving fuel. The rest can be used to charge portable devices like cellphones and L.E.D. lights. Typically, it takes 20 minutes of charging to produce an hour of talking time on a phone.
By 2009, both Mr. Cedar and Mr. Drummond had left Smart Design and were focusing on developing the cooking stove. By early last year, they had secured $1.8 million of investment. Combined with the income generated by selling a smaller camping version of the stove, which was introduced this month, they expect to have enough funding to complete the project.
After the initial tests in Ghana and India, they started production of 10,000 stoves to be used in advanced trials. The products are manufactured in China by a company they worked with at Smart. “We spend a lot of time there, not just with the management but with the guys on the line,” Mr. Cedar said. “And we’ve seen for ourselves that the working conditions are up to best practice.”
BioLite intends to sell the stoves for $40 each and to entrust local distributors with sales and maintenance. “If people buy a product, they are more likely to value it than if it is given to them,” Mr. Cedar said. “Some of the failures in this field did not treat their users as consumers. They gave them ugly metal boxes and told them they’d be useful, rather than working out what they wanted or needed, and making the products seem aspirational.”
BioLite hopes to resolve such issues in the advanced trials. One will experiment with different ways of marketing the stove in eastern India. Another will test payment packages in East Africa, including subsiding the purchase price with carbon credits. A third trial will analyze the prenatal health benefits of the stoves in Ghana. If all goes well, mass production will begin in the autumn.
“Our goal is to sell a million stoves within five years,” Mr. Cedar said. “Then we want to become the go-to source for energy solutions in off-grid markets for refrigeration, lighting and clean water. But first, we need to get the stove right, so it delivers the health and economic benefits, and doesn’t end up sitting unused in a corner.”
San Diego-based biofuel developer Sapphire Energy, Inc. has secured the final installment of $144 million in a Series C round of venture funding that includes Arrowpoint Partners, Monsanto, and other undisclosed investors.
This round of funding is being used to directly support Sapphire’s active and on-schedule commercial demonstration of an algae-based biofuels facility in Luna County, New Mexico. TheGreen Crude Farm, also known as the Integrated Algal BioRefinery (IABR), is the world’s first commercial demonstration scale algae-to-energy facility, integrating the entire value chain of algae-based fuel, from cultivation to production to extraction of ready-to-refine Green Crude. With this latest investment round, Sapphire Energy’s total funding from private and public sources substantially exceeds $300 million.
This announcement follows several recent partnerships and deals supporting Sapphire Energy’s continued expansion in Green Crude production. Last month, Sapphire announced it will integrate Earthrise Nutritionals’ spirulina strain into its growing inventory of cyanobacteria and algae strains to expand resources for algae-to-energy production. In May 2011, Sapphire announced a multi-year agreement with The Linde Group to co-develop a low-cost system to deliver CO2 to commercial-scale, open-pond, algae-to-fuel cultivation systems, now underway at the Green Crude Farm. In March 2011, Sapphire and Monsanto entered into a multi-year collaboration on algae-based research projects. Sapphire also was awarded a $50 million grant from the Department of Energy and a $54.4 million dollar loan guarantee from the Department of Agriculture, providing security for a privately funded loan.
“The ongoing support from the private investment community speaks to how strongly they believe in the development of Green Crude as an alternative fuel resource, especially Sapphire Energy’s ability to commercialize it,” says Cynthia J. Warner, president and chairman of Sapphire Energy. “It is increasingly important to find domestically produced crude oil alternatives to improve the country’s energy security, meet global energy demands, and provide jobs. Continued private investment is a critical step in achieving these goals.”
“It’s amazing to see that what started from an idea scribbled on the back of napkin is now a leading force in support of the goal to improve energy security for the country,” explains Jason Pyle, CEO of Sapphire Energy. “Today, Sapphire Energy has a widely admired technology platform, outstanding leadership team, and significant ongoing support from the investment community, making it well positioned to achieve the goal of bringing domestically produced Green Crude oil to commercial scale.”