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When John D. Rockefeller set out to control the chaotic and fragmented oil industry in the early 1870s, he liked to put his competitors through a “good sweating” from time to time to shake out the weaker companies. Today’s global economic crisis comes at a critical time for the emerging biofuels industry and is likely, at a minimum, to thin the ranks of companies building new biofuels plants in the next few years. In addition, the current economic conditions are accelerating the restructuring and consolidation that is already widely underway in the corn ethanol industry. More fundamentally, a deep and prolonged recession could create a critical discontinuity between the current wave of biofuels innovations being tested in pilot-scale plants and the buildout of commercial-scale plants required to produce the 16 billion gallons of cellulosic ethanol mandated by federal legislation by 2022. Emerging second- and third-generation biofuels companies may need to revise their development strategies and/or strengthen their strategic partnerships with larger companies to ensure access to capital in a challenging business environment. In the long run, the biofuels industry may prove to be far more resilient than many observers now expect. After oil prices crashed in the early 1980s, many oil companies were successful at slashing costs of development programs, thereby saving a surprisingly large share of high-cost projects on the drawing boards. The current economic crisis may leave a lasting mark on the future of the biofuels industry, biasing development towards low capital cost strategies. These strategies include adapting or reusing existing equipment or infrastructure for building new biofuels supply chains, building small-scale distributed systems, and leveraging government funding for new plant construction. Finally, federal government support for “green jobs creation” could be a major driver for U.S. biofuels development. In this report, we consider three key questions that will shape the implications of the current economic crisis for the future of the biofuels industry:
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