Abstract
The full version of the excerpted report presented herein was prepared in response to a request from the Committee on Finance of the United States Senate regarding the competitive conditions affecting certain industries that are developing and adopting new biotechnology processes and products. As requested by the Committee, the report focused on firms in the US chemical industry and US producers of liquid biofuels. Much of the data for this report was gathered by questionnaire directly from the liquid fuel and chemical industries. (That questionnaire is available at at www.usitc.gov/ind_econ_ana/research_ana/usitc_questionnaire_biotechnology_final.pdf)
The development and adoption of industrial biotechnology (IB) in the United States by the chemical and liquid fuel industries expanded substantially during the 2004–07 period. These industries increasingly use enzymes, microorganisms, and renewable resources in the production of fuels and chemicals. IB has the potential to lower production costs, create sustainable production processes, and reduce the environmental impact of producing and using fuels and chemicals.
IB adoption is reflected in a large increase in sales of US-produced liquid biofuels and biobased chemicals. Although a major portion of the increase is accounted for by the ethanol and biodiesel industries, which are supported by government tax incentives, mandatory-use regulations, or both, pharmaceutical products still account for the majority of these sales. Sales of liquid biofuels and biobased chemicals remain small in comparison to conventional chemicals and liquid fuels.
IB development may result in the creation of innovative products or processes. All measures of innovation increased during the 2004–07 period, including R&D expenditures, patent and trademark activity, strategic alliances, and government grants. However, operating income as a share of total net sales of biobased products was relatively flat during the period, largely due to the substantial increase in agricultural feedstock prices. Feedstocks account for over 50 percent of production costs for liquid biofuels.
Industry participants consider a lack of capital to be a major impediment to both the development and adoption of IB. Many impediments identified by companies relate to the risk inherent in new technology, including the uncertainty of whether such technologies can be fully developed and adopted. This uncertainty makes it difficult to attract R&D and investment capital. Other major impediments identified by liquid fuel and chemical producers as affecting the adoption of IB include high feedstock and production costs and limits of technology.
IB activities in many foreign countries also increased during the 2004–07 period. Like the United States, foreign governments use tax incentives, mandatory-use regulations, and R&D funding to support their IB industries. Brazil, China, and the EU are notable examples.