Q&A: A model for low-carbon fuels in the global energy transition

Biofuels will likely play an important role in a hoped-for transformation to a low-carbon economy. According to the International Renewable Energy Agency, they will need to play a large role in the direct application of renewables to decarbonize heavy transport including road freight, shipping and aviation. IRENA calls for specific mandates and financial incentives to scale up biofuel consumption sustainably, raising it fivefold from 130 billion liters per year (34.3 billion gallons) today to more than 600 billion liters per year in 2050.

A lot of innovation will be required to reach this level sustainably. A notable entrepreneur in the field, specifically in the heavy-truck sector, is Karl Feilder. The Dubai-based executive is chairman and CEO of Neutral Fuels, which has pioneered the commercial adoption of advanced biofuels.

The company supplies low-carbon biodiesel from waste vegetable oil (WVO) that is fully substitutable with diesel fuel in trucks. Neutral Fuels was launched in 2010, became profitable in 2012 and has seen enormous growth in Dubai, Bahrain, Kuwait, India and Singapore. The company is now building factories in Abu Dhabi, Saudi Arabia and South Africa. Feilder is determined to make it a “billion-dollar biofuel business” by 2030.

He hit on a successful business model while advising McDonald’s on its supply chains, through his consultancy The Neutral Group. McDonald’s became his company’s first supplier of WVO and buyer of its biofuel blends, providing a good base for expansion in each of the cities where it operates. Neutral Fuels’ commitment to carbon neutrality leads it to offset emissions from its operations with a tree-planting program. The company follows a local-local-local model to achieve carbon neutrality.

I met with Karl Feilder at his company’s headquarters in Dubai earlier this year*.

Q: Karl, you have said that the “great transition” that needs to happen, that’s just beginning now to a very low-carbon economy, will require innovations from small-scale entrepreneurs; that larger companies will scale it up, but that leading-edge thinking and innovation need to come from small-scale, independent entrepreneurs. Why is that?  

A: There are many large corporations saying something about our climate challenge, but in terms of innovating solutions most of them don’t actually have the spare capacity to really focus on climate-related innovations. A guy from [Volkswagen] said to me privately, “When we build an engine plant, it’s got a 10-year life expectancy, so you can’t come to us halfway through that 10-year depreciation cycle and say you want to replace all the diesel engines with electric.”

So how do you become independent of something that you’ve become dependent on? I mean we are utterly addicted to fossil fuels, for good reasons—they are the most energy-dense form of fuel that we could possibly have.

It’s taken us nearly a hundred years to get to being completely dependent on fossil fuels, and it’s going to take apparently only two decades for us to become independent of fossil fuels, if you follow the argument that we need to keep below 1.5 degrees Celsius (global average temperature rise as called for in the Paris Climate Agreement). And the logic behind not making the transition doesn’t stack up. I haven’t met anybody yet who says, “Actually, I don’t want to save the planet—I think I’ll go and find another planet to live on.”

Now, if we’re right, then this is the world’s biggest economic opportunity—to reinvent the global economy in two decades with new technology. We’ve got to replace everything. We’ve got to replace power plants, manufacturing plants, buildings, vehicles, aircraft—everything has to change.

If you want an example of where the innovation is coming from, just look at Tesla, which started as a small company, and yes it got a lot of grants and now it has a huge valuation, but in terms of production it’s still a relatively small business in terms of the car industry.

And there are lots of other players that have come out. The pioneers for the solar industry are not the big electric utilities; they are small companies that are making leaps and bounds because it requires a level of innovation and entrepreneurship to do these things that big, vested-interest companies just don’t have.

Q: So, you don’t have much faith in the narrative coming from the Fortune 500 these days, about how big companies seem to be buying into this reality of climate change and the need to seriously take on the Paris goal?

A: The current model that we have, where everybody is very embedded in what they decided to do five years ago, 10 years ago, 20 years ago, and where everything is driven on constantly making more profit, more product, and consuming more every single quarter in order to support more corporate reporting; that isn’t really going to work if we have to greatly reduce our consumption of fossil fuels. It’s going to be very tricky to achieve all of those things at the same time—maintaining the current economic model while transforming the economy.  

On the other hand, I’m not arguing as many people are now doing, for redistribution of wealth and other sorts of Marxist principles. I don’t think this is an opportunity for everybody in the world to say we need to equal out the whole of society and we need to fix all of the other complex problems in society.  

I think this is an opportunity for capitalists to reinvent capitalist economies, because pretty much everywhere in the world now runs on capitalist theory. So, I see this as a time when many entrepreneurs are now asking, “What do I need to do?”

Q: Concerning entrepreneurship and your company, you obviously started out with a small company. You’re growing, still innovating and patenting your innovations. Can you talk a little bit about how you got into this field of developing [low-carbon] fuel?

A: With Neutral Fuels, we started out actually writing the sustainability strategy for McDonald’s in 37 countries, and one of the things that came out of that project was the realization that they could be independent of fossil fuels only if they could convert all of their waste into biofuels.

And McDonald’s was great. They saw that this was an opportunity to do some pioneering work and they said to us, “Prove it.” So that’s what we did. And they said, “Now you’ve done our supply chain in the [United Arab Emirates], we’ve got to look at some of our other partners.” Del Monte delivers some of the fruit and vegetables to the McDonald’s restaurants, so McDonald’s asked them to join the program as well. Then they said they’ve got a global partnership with Nestle, so Nestle joined as well.

And then that allowed us to go across the region into different countries because they all have pretty similar supply chains when it comes to this particular niche that we’ve targeted.

Q: What are you working on now?

A: Our main focus now is to source lower-cost feedstocks that will allow us to produce a similarly high-quality end product. We’ve got a couple of really good contenders for doing that, and we will eventually file patent for it.

It should be noted that we are not producing hydrogenated fuels and hydrocracking. We produce a plug-in fuel using transesterification of waste cooking oils with methanol as our main conversion. And we are pretty unusual in that. We’re producing fuels that run 100 percent swap-out with regular diesel in an unmodified vehicle and give exactly the same fuel consumption—except that it gives you about 50 percent less tailpipe emissions … We’re only producing from waste vegetable oils. We don’t use animal fats, we don’t use tallows, we only use vegetable oils, and the reason that we can segregate them is because we’re sourcing them locally, we know exactly where they’re coming from.

Q: Why is local sourcing so important in your business model for biofuels?

A: One of the challenges for the biofuels industry, when you adopt a large factory model—a large refinery model—is that you have to take feedstock from all over the place, in large quantities, in order to feed your big, hungry refinery. So, when you run a large refinery operation, you’re going to get a mixture of animal fats and vegetable and some palm and other stuff in there.

It’s not like with the oil industry where you can say, “Okay, this week I’m going to be refining Saudi crude and I know exactly what the spec is.” We’re dealing with waste materials here. So, if you take a 5 million-liter ship and fill it up with waste cooking oil, it’s going to have every permutation of vegetable and animal type in there, which means your efficiency of conversion at the other end is poor, in the refinery. And the end product has the minimum characteristics that you could get out of a blend of feedstocks.

In our model, we pick the feedstocks that we use, and because we can source them locally and we can source them specifically, we can use those to customize how our end fuel behaves.

Q: So, your approach to biofuels is not a large refinery model?

A: No. Unlike fossil-fuel producers, we see that the raw materials to make sustainable fuels are not located in pockets in a small number of countries in the world. Those raw materials are located pretty evenly everywhere in the world where there are human beings—which means that it doesn’t make sense to aggregate all fuel raw materials and ship it halfway around the world to a huge production plant, especially when the consumption needs to be back where it came from.

So, in common with solar and wind and hydropower, and many of the other more sustainable forms of energy, the supply and the demand for biofuels are in the same place. So, it only makes sense to build relatively small, local conversion facilities and not ship everything out around the world. And that is a massive economic consequence for everybody.

Q: You have a theme or a motto for your company: local-local-local …

A: Yes. It’s basically, the raw materials are local, and the consumption of the finished product is local, so why wouldn’t you do the manufacturing locally? That’s exactly what we do—local-local-local.

Q: So, this will be a massive disruption to the way the oil majors do business. Can we do it in 20 years?

A: It’s going to be a real challenge. We’re going to need a lot of innovation and a lot of entrepreneurs to do it.

Q: How many trucks on the road right now are using your fuel?

A: I have no idea. Thousands. Just to give you an indication, this morning is a regular school day, there’s about 500 school buses in Dubai that are running on our fuel. We’d like that to be a few more. But on a regular day it can be thousands of trucks.

Q: Because your fuel is substitutable with regular diesel …

A: Yes, you can run 100 percent of our fuel one day, fossil fuel the next day, our fuel the next day, and the engine won’t notice the difference. It will give you the same fuel consumption. Our biofuel will actually make the engine last a bit longer because it’s more slippery—it has a higher lubricity—and it’s actually got slightly more power. All of the things you read on Google as being wrong with biofuels we fixed eight years ago.

Q: The 2020s are going to be a critical decade. I think you have really highlighted that. The next decade will make us or break us on meeting the Paris climate change goals. Where do you see your company moving in the next five to 10 years, in terms of the technologies you adopt or continue to advance with, and the markets you enter into?

A: I’m building a billion-dollar biodiesel business. Between now and the end of this decade, I will have done that.

These markets that we’re in, they’re difficult. You have to work well with government. You have to be able to persuade people that this is something positive they need to do. It’s getting easier to do that, but certainly you’ve got to have a diplomatic way of working, which is not traditional for entrepreneurs. You can’t just storm into these places. But the market requires it and indeed, increasingly, the market’s calling for it.

So I think we’ll be able to do that. I think we’re going to be operating eventually in 50 cities. And we will have the ability in each of those 50 cities to source their own local waste, and locally convert it into fuel that they’re going to use locally.

That’s our plan. It’s not very complicated. And it just requires a fair amount of capital, and the good will and support of the leadership in those countries.

But within four hours flying time of here (Dubai) we’ve got over 100 cities with more than a million people. And each one of those is a candidate for us. We’ve got a hot list of about 20 at the moment. But I’m sure over the next decade some of those will drop off and some more will be added to it.

Q: IRENA wrote in a recent report that there has been a falling off of investment in biofuels worldwide (see IRENA report “Advanced Biofuels; What holds them back?” November 2019). What’s the problem?

A: I haven’t seen it. However, I’ve seen that mimicking the fossil fuel refinery model with huge refineries, and trying to run biofuels through the same model, doesn’t work.

There were some changes a year or 18 months ago, when the EU had been trying to block Argentina and Indonesia from bringing their biofuels into the European markets to protect the European biofuel manufacturers. They lost that ruling in court. The next day the German guys shut down and the French guys halved production. So, there are global macroeconomic factors at play, all to do with the wrong model.

Argentina does have the ability to produce lots of reasonably low-cost, good-quality biofuels, the same with Indonesia. But look at the feedstocks. You’ve got to be wondering why they’re being able to do that, and in some cases it’s because they’ve got a lot of deforestation going on.

Many of the large international refineries of biofuels are only operating at 10 or 20 percent capacity. That tells you there’s something wrong with the model.

So, from our perspective, we think they should reevaluate the model. And while they’re doing that, we’ll just be out proving that we’re right.

Author: Alan P. Mammoser

Independent Writer on Renewable Energy

773-276-2470

alanm240@yahoo.com

*Editor’s Note: Click here to view a video of Alan P. Mammoser’s interview with Neutral Fuels’ CEO Karl Feilder.