Blog: Drop-in Versus Novel Chemicals
8:26 AM MST | December 10, 2010 | By JIM STOPPERT
By Jim Stoppert CEO of Rivertop Renewables (Missoula, MT)
Universally, companies in the green chemistry space are seeking to mitigate the negative economic and environmental impacts stemming from the continued use of petrochemicals. As the industry matures, two categories of solutions are emerging: drop-in replacements (drop-ins) and novel chemicals (novels). While both are making inroads in offering viable solutions to the market, they challenge the incumbent chemical industry from different angles, with each solution having unique characteristics and offering different benefits. While there is no right answer, there is some debate about which approach more effectively addresses costs, environmental impact, and consumer desires – and ultimately which approach is more likely to succeed.
The first step in this debate is simply defining each category of green chemicals. While it could be said that because it has never been done before, everything in renewable chemicals is ‘novel’, there are key differences. Drop-ins are bio-based versions of existing petrochemicals with established markets and are chemically equivalent to the incumbent hydrocarbon-based product. Examples are bio-based ethylene, PE, and BDO being pursued by startups and large chemical companies. In contrast - while also bio-based - novel chemicals use chemical structures that are entirely new, or haven’t been applied to commercial markets in the past. Novels often have different properties, but the same - or enhanced - functionality compared to petrochemicals for which they substitute. An example is our own approach to creating glucaric acid, a novel green chemical with comparable sequestering functionality as phosphates in detergents, but with many additional market applications.
While there are key differences in makeup, from the perspective of end users it’s irrelevant if a renewable substitute is chemically equivalent. Currently, formulators simply define a drop-in as a product that brings all the functionality of the incumbent and can be substituted with insignificant switching costs (those associated with conversion of technology or equipment). Essentially, formulators are seeking the same functionality at the same price – or a manageable premium for measurable differentiation - without disrupting market delivery through easy qualification and approval, an assured supply, and expected low price volatility.
Through the end users’ lens, it appears that drop-ins could have an early advantage because of their chemical equivalency. The most significant challenge to novel green chemicals are that some may require significant switching costs and may face challenges in quality - especially early on in their development and use -, as well as regulatory approval that comes with any new chemical, renewable or not. However, drop-ins could bring with them the stigma associated with their petrochemical equivalent. This is avoided with novel chemicals which also bring the possibility of additional functionality that allows formulators to either lower cost and/or differentiate their products. This is a potential key advantage for novels as once in their portfolios, innovative formulators may also use novels to create all new products.
Another consideration in this conversation is the role of venture funding, which often foreshadows the success of certain technologies. This industry is at such an early stage that we haven’t seen either of these approaches move ahead as a clear leader in financing. Instead, the venture community is looking for investments with capital efficiency and solid risk mitigation regardless of the approach used. Interestingly, many of the well funded biofuels players are dipping into the world of green chemistry, using both drop-in and novel chemical approaches. Their role in the ongoing growth of green chemistry will be one to keep an eye on.
At this early point of development in our industry, the bottom line with the development and success of both approaches is going to be cost. Traditional petrochemicals’ primary driver is still the price of oil, followed by the demand for the product. Ironically, the same will be true in the near term for green chemicals, whose prices are initially more likely to track the petrochemicals they are replacing than by the cost of the renewable feedstocks from which they are made, regardless if drop-in or novel. It appears from this early analysis, and given petrochemicals direct link to the volatility of oil, there could be room for more than one winner in this game.