It isn't often that one hears of venture capitalists straying into anything connected to the environment; their focus has instead often remained fixed on things that might turn a profit really quick. So it was intriguing to find a casually dressed white polo-necked Vinod Khosla giving a formal dinner address at the Delhi Summit on Sustainable Development, organised by The Energy and Resources Institute (TERI) earlier this month. Khosla is a partner at the venture capital firm, Kleiner, Perkins, Caufield and Byers, whose ventures have included such famous brands as America Online, Sun, Genentech, and Amazon. He was a co-founder of Daisy Systems and founding Chief Executive Officer of Sun Microsystems, where he pioneered open systems. According to Wikipedia, "Vinod Khosla is a venture capitalist considered one of the most successful and influential personalities in Silicon Valley."
He was speaking on the subject of "Biofuels", which is itself unconventional. He declared straight away that he was talking about "energy with a different perspective: there are lots of energy technologies which are small, niche ... You don't need oil for cars and light trucks." His pitch was to switch, a la Brazil, to ethanol, which is a biofuel. It emits 80-90% less carbon, which is the main greenhouse gas associated with fossil fuels. Volkswagen, he said, was thinking of not making any more gasoline cars in Brazil, since ethanol in that country costs less than $35 a barrel. Surprisingly, he said, in California, there are as many cars running on ethanol as on diesel today. The potential is clear, he said, noting that even President Bush - himself an oilman - had cited ethanol in his recent State of the Union message.
His formula was Flex(ible) Fuel Vehicles or FFVs in sharp contrast to the gas-guzzling and environment-unfriendly SUVs that are ubiquitous in California. These can switch from gasoline to ethanol, and only require minor modifications: different gaskets and a rubber hose. By relying on ethanol, Brazil was able to save $50 billion on oil imports. It not only saves 40% of the petrol used by cars but in the process, provides 22% more farm employment. FFVs there have jumped from just 3% of the total number of automobiles to 71% in three years.
In Khosla's simple arithmetic, with irrigation and other inputs, it would be possible to grow 20 tonnes of crops per acre and each ton of crop would yield 100 gallons of ethanol. Thus 50 million acres would generate as much as 100 billion gallons. Corn was expensive as the choice of crop; it would do only in the sort run. He recommended switching over to a tall grass called miscanthus in the US, which would yield a higher profit.
Bumps ahead
Being a successful VC, who has persuaded hundreds of investors to opt for his pet projects in the past, he was pro-active enough to come up with three issues that he saw as potential obstacles to the path to biofuels. The first was 'land use'. The Natural Resources Defence Council, one of the most reputed American environmental bodies, has calculated that by 2050, the US would need to plant crops on 114 million acres to provide all the energy needed for road transport. This is not as much as one might think; for example, the US already pays farmers not to grow soybean on 40 million acres, simply to support them.
The second stumbling block, a fairly strong one, relates to the question of whether farmers use more energy (by way of irrigation, mechanization, fertilizer and pesticides) in producing these crops than is actually produced by them. In other words, an energy audit might reveal that there would be more calories expended in growing miscanthus than in the ethanol produced. This is especially troublesome, as the economic costs, especially in the developed world, are distorted by the hidden subsidies in growing many crops.
The final consideration was the impact on the environment, which he believed was a win-win situation, since the crops would both sequester carbon and the fuel would reduce the greenhouse gas emissions. However, this when also related to land use -- is where Khosla's vision may not apply to developing countries, while it may make good sense in the US and Europe. The fact is that any conversion of land to produce ethanol, particularly if it is with crops like miscanthus that require fertile soil, could only be at the cost of food and fuelwood. In any poor country, there is a social dimension: a country like India cannot switch from producing crops for the public good to those that benefit only the minority of car-owners or industries.
Someone in the audience raised a different point, asking whether biocrops would only be practical in a country like Brazil, which is characterized by big farming estates and low employment. The obvious implication is that the situation is quite different in India, where the average holding is around 2.5 acres, with subsistence farming and low productivity. Khosla insisted that employment would increase with growing such crops, but that still leaves unanswered the question of whether such farmers then have to depend on an increasingly unpredictable market for their basic needs of foodgrain.
Khosla noted that the best "biomass belt" is around the equator, which puts developing countries at the top of the potential list of growers of biocrops. And even better than high-input crops like miscanthus, there is jatropha, which can be profitably grown in arid zones in this country; its fruit yields a biofuel. A technologist from Associated Cement Companies told me at the Delhi Summit that the company was already experimenting with this crop, which would yield multiple benefits. Reliance too is considering large-scale jatropha farming, according to some news reports, and experimental plots are already underway.
In the time-honoured fashion of indefatigable champions of causes, Khosla asked a seemingly heretical question, at the end of his address. What would happen if around a third of the current world population - 2 billion people - ran cars with ethanol? Would that be catastrophic for agriculture and food security? Not necessarily. At an average output of 15 tons of biomass per acre, 1 billion acres would produce enough energy to replace all the world's oil. The US by itself has an area twice as large, and, with increasing productivity (and presumably the use of genetically modified crops), the yield could increase, requiring less acreage.