Biochar’s Likely Market Impacts

Biochar is still mostly a research and cottage industry, yet it has the potential to impact returns for a broad range of investors.

Tom Konrad, Ph.D., CFA

Biochar, or amending soil with biomass-derived carbon, shows great potential to improve the productivity of soils, as well as to increase the utilization of fertilizers by plants, while sequestering carbon to reduce the drivers of climate change.  On August 10, I went to the 2009 North American Biochar Conference to look at the potential for investors. 

Before I went, I took a look at the publicly traded companies involved in biochar.  I did not learn of  any new public companies at the conference, but I have nevertheless become increasingly convinced that biochar has a large role to play in moving to a sustainable economy, not just for energy, but for agriculture.

While the biochar industry is still too early stage for most stock market investors, understanding the economics of biochar will give investors insight into the effects the broad use of biochar will have on the overall economy, and their other investments.  Many types of public companies are likely to be impacted.  Some industries likely to be affected are  

• Agricultural and forestry companies, which may benefit from increased yields and an additional market for their products,
• Advanced biofuel companies which may have to compete with biochar companies for feedstock, as well as for a place in low carbon fuel standards with a biofuel with a much lower carbon footprint, 
• Any participants in environmental markets for carbon offsets, since biochar is likely to be a source of carbon credits.

Carbon Sequestration

Long-term carbon sequestration in the soil is the headline benefit of biochar.  Depending on how the biochar is made, it may stay in the soil for thousands of years.  Biochar has both volatile and fixed or "recalcitrant" carbon fractions.  The volatile fraction decays relatively rapidly, over a few years or decades, while the recalcitrant fraction stays in the soil for centuries or millennia.  The relative fractions depend on the feedstock and how the char is made, but debate continues about the best conditions and feedstocks for a high recalcitrant fraction, which can be the vast majority of the char.

As a potentially vast source of carbon offsets, biochar has the potential to reshape offset markets for carbon dioxide.  Although biochar is not currently accepted as an offset in any climate trading regime, many expect that it will soon qualify.  Peter Weisberg, an Offset Project Analyst at The Climate Trust not only expects that biochar will qualify as carbon sequestration, but says that The Climate Trust is interested in purchasing offsets from biochar projects.

If biochar does qualify for carbon finance, it will place downward pressure on the price of carbon offsets… to a point.  As anyone who has grilled a hamburger knows, char can also be burned to produce useful heat.  Anyone who buries char gives up the use of that energy.  I asked a couple experts what they thought might be the value of the forgone energy.  David Laird, a Research Soil Scientist at the US Department of Agriculture thinks the break even point would be about $10/ton of CO₂, or about $30-$40/ton of carbon.  Dr. Joel Swisher,  Chief Technology Officer at carbon-offset provider Camco International, thinks the number is somewhere between $10 and $20 per ton of CO₂, or about $50/ton carbon.

While these prices are higher than offsets currently trade on most exchanges, they also assume that the only benefit of incorporating biochar into the soil is the carbon sequestration aspect.  That is not the case.

Improved Soil

In all but the most optimal growing conditions, biochar increases plant productivity.   Although the mechanisms are not completely understood, most studies show that biochar allows plants to more effectively use Nitrogen and Phosphorus, as well as other nutrients that either occur naturally in the soil, or are added with either organic or inorganic fertilizers.  It also aids water retention.

The effects of this are significant increases in plant growth, especially in poorer soils or with limited fertilizer or water; heavily fertilized and higher quality soils show lesser effects.  In poor conditions, some studies have seen boosts to plant productivity by as much as 40%, although 15-25% is a more normal range, to judge by the studies presented at the conference.

This improved soil fertility has several benefits, each of which could serve as an added enticement for farmers to use char.  Because plants can use the available nutrients more effectively, a farmer should be able to use less fertilizer and still achieve a high rate of growth from his plants.  Not only does this save the farmer money, but because less fertilizer is used, and a greater fraction of it is taken up by plants, there is less resulting pollution in the form of fertilizer runoff and nitrous oxide formation. Nitrous oxide is a potent greenhouse gas and also depletes the ozone layer.

The cost savings from reduced fertilizer use, lowered irrigation costs from improved water retention, as well as any reduced costs of meeting environmental regulations may all have value to farmers which might induce them to sell biochar based offsets at prices below that dictated purely by the cost of the energy forgone.  

These reduced costs for farmers, as well as the potential new revenue streams from offsets and increased crop productivity add weight to my previous conclusion that investing in farms and other sources of biomass feedstocks is one of the best ways to benefit from bio-energy (biofuels, as well as biomass based electricity and biomass cofiring.)

Other Commodities

Increased plant productivity with bichar may eventually increase the supply of available biomass for bio-energy applications and food.  This may benefit the economics of any biofuel technology, but I expect the gains to only be marginal, since most biofuels are commodity businesses, and an increase in feedstock supply may increase volume, but is unlikely to improve long term margins.

Reduced fertilizer use might also be expected to reduce prices in fertilizer markets, but to the extent that fertilizer is made from commodities such as natural gas (which have a wide variety of other uses,) the effect on fertilizer prices can also be expected to be marginal.

Renewable Energy

The whole story, however
, is not just the char.  During pyrolysis, a whole range of volatile organic compounds are emitted from the biomass feedstock, and these can be used to 

1. Produce bio-oil, which can be upgraded into liquid fuel.  The company Dynamotive (DYMTF.OB) is working to commercialize this process, as I discussed in my investing in biochar article.
2. Fuel a generator to produce electricity.
3. Produce heat for some other process.

The choice between these options depends on a range of factors, most importantly scale and if there is a local need for heat.  

Some biomass feedstocks, such as poultry litter are available in massive quantities in a single location.  This allows the use of a larger scale plant, and hence will most likely lend itself to the production of higher value energy which requires more processing, such as bio-oil based liquid fuel.  Hence, if a liquid fuel production process is widely adopted, it may not only help the company which commercializes it, but it may also produce significant added value and clean up a pollution problem for producers of concentrated biowaste, such as poultry producer Tyson Foods (TSN).

The specific type of biomass also affects the use of the volatile organics.  Some sorts of biomass, such as corn stover, contain large amounts of silica or other impurities which can cause buildup in electric generators and add to maintenance costs.  In such cases it may make more sense to produce bio-oil or heat, rather than electricity.

Heat can be produced by directly burning the volatile organics, or recovered in a combined heat and power operation when generating electricity. Generating heat is the simplest process, and hence will lend itself most readily to distributed biochar facilities.  The catch is that, in order to capture the economic value, there has to be a local use for the heat.

One practical variation is the use of specially designed efficient cookstoves in the third world.  These are optimized to both improve cooking efficiency, indoor air quality, and biochar production.  Biochar advocates hope this approach could impact developing nations in a number of significant ways including improved health of woman and children, improved nutrition from the garden amendment, and decrease the need for biomass in cooking due to improved cook stove efficiency.

Even if the heat is not used, however, it is important to flare the gasses released when creating biochar, since volatile organics are pollutants in their own right.

Conclusion

Biochar, although a simple technology, is still at a very early stage of commercial development.  Nevertheless, stock market investors would be wise to be aware of the broad ranging effects the industry might have on carbon trading, biofuel, fertilizer, and agricultural markets.  Even these industries may not be a complete list: There is ongoing research into using biochar for remediation of mine tailings.  Backyard gardeners may also be able to improve their productivity and reduce fertilizer use by incorporating biochar into their soil.  

It is important to note that not all biochars are created equal.  Most biochars are slightly basic, and will produce greater benefits in acidic soils.  It’s worth knowing the properties of what you plan to be putting in your soil before you incorporate it.  It’s also worth noting that biochar has its greatest effects when combined with small to moderate amounts of conventional or organic fertilizers, since biochar is not a fertilizer in and of itself, but rather helps plants make better use of the nutrients in fertilizer.

Mantria sells a commercial biochar called EternaGreen from a biochar plant in Tennessee, with a distribution center in Georgia. I hope this is just the first of many, so most of us will be able to use biochar without having to worry about the carbon footprint of shipping.  Or, rather than waiting, we can make (probably lower quality/less recalcitrant) biochar ourselves.

DISCLOSURE: None.

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