These days Khosla, who is now among the world’s richest people (the Forbes 400 lists him at 317, with a net worth of $1.5 billion), is putting most of his investments in alternative energies. He counts among his portfolio companies more than a dozen biofuel startups–synthetic-biology companies LS9 and Amyris, cellulosic companies like Mascoma, and corn ethanol companies like Cilion, based in Goshen, CA. But to call Khosla simply an investor in biofuels would greatly understate his involvement. In the last several years, he has emerged as one of the world’s leading advocates of the technology, promoting its virtues and freely debating any detractors (see Q&A, March/April 2007).
Khosla seems exasperated by the biofuels naysayers. Climate change, he says, is “by far the biggest issue” driving his interest in biofuels. If we want to head off climate change and decrease consumption of gasoline, “there are no alternatives” to using cellulosic biofuels for transportation. “Biomass is the only feedstock in sufficient quantities to cost-effectively replace oil,” he says. “Nothing else exists.” Hybrid and electric vehicles, he adds, are “just toys.”
In particular, argues Khosla, any transportation technology needs to compete in China and India, the fastest-growing automotive markets in the world. “It’s no big deal to sell a million plug-in electrics in a place like California,” he says. The difficulty is selling a $20,000 hybrid vehicle in India. “No friggin’ chance. And any technology not adoptable by China and India is irrelevant to climate change,” he says. “Environmentalists don’t focus on scalability. If you can’t scale it up, it is just a toy. Hence the need for biofuels. Hence biofuels from biomass.”
In a number of opinion papers posted on the website of Khosla Ventures, a firm he started in 2004 that has invested heavily in biofuels and other environmental technologies, Khosla envisions biofuel production rapidly increasing over the next 20 years. According to his numbers, production of corn ethanol will level off at 15 billion gallons a year by 2014, but cellulosic ethanol will increase steadily, reaching 140 billion gallons by 2030. At that point, he predicts, biofuels will be cheap and abundant enough to replace gasoline for almost all purposes.
While Khosla readily acknowledges the limitations of corn-derived ethanol, he says it has been an important “stepping-stone”: the market for corn ethanol has created an infrastructure and market for biofuels in general, removing many of the business risks of investing in cellulosic ethanol. “The reason that I like [corn ethanol] is that its trajectory leads to cellulosic ethanol,” he says. “Without corn ethanol, no one would be investing in cellulosics.”
But back in the Midwest, there is a “show me” attitude toward such blue-sky projections, and there are lingering questions about just how the nation’s vast agricultural infrastructure will switch over to biomass. If Khosla’s projections prove out, “then wonderful,” says the University of Minnesota’s Runge. “Meanwhile, we’re stuck in reality.” Perhaps the main point of contention, Runge suggests, is whether corn ethanol will in fact lead to new technologies–or stand in their way. “It is my opinion that corn ethanol is a barrier to converting to cellulosics,” he says, pointing to the inertia caused by political and business interests heavily invested in corn ethanol and its infrastructure.
- Boom or Bust? (PDF: Charts and graphs of the economics of biofuels)
- See images of high-protein grains and the production of hydrocarbons.
- University of Minnesota researchers explore the future of biofuels.
- C. Ford Runge explains the problems of corn ethanol.
- Venture capitalist Vinod Khosla details the market potential of alternative energies.
Runge is not alone in his skepticism. “Unless the cost is reduced significantly, cellulosic ethanol is going nowhere,” says Wally Tyner, a professor of agricultural economics at Purdue University. Making cellulosic ethanol viable will require either a “policy mechanism” to encourage investment in new technologies or a “phenomenal breakthrough”–and “the likelihood of that is not too high,” Tyner says. Farmers and ethanol producers currently have no incentive to take on the risks of changing technologies, he adds. There is “no policy bridge” to help make the transition. “The status quo won’t do it.”