The third wave of biomaterials: When innovation meets demand
Biomaterials have long been a part of our daily lives, from wooden houses to woolen clothes. More recently, biotech advances have brought us sugar-derived first-generation biofuels and high-performance enzymes to power our laundry detergents. Now, we see the emergence of nylon made using genetically engineered microbes instead of petrochemicals, alternative leather from mushroom roots, and cement from bacteria.
These advances in biological science are bolstered by accelerating innovations in computing, automation, and artificial intelligence (AI), resulting in a new wave of innovation known as the Bio Revolution. McKinsey Global Institute research has found that as much as 60 percent of the physical inputs to the global economy today are either biological (wood or animals bred for food) or nonbiological (cement or plastics) but could in principle be produced or substituted using biological means. Over the next ten to 20 years, advances in the use of biology in the production of materials, chemicals, and energy could amount to $200 billion to $300 billion in global market growth.
What will drive this growth? Historically, adoption of bio-based materials has been the result of a unique technical or cost advantage, the latter of which is difficult to gain against highly developed and large-scale incumbent technologies. But this equation is changing because of accelerating corporate commitments to sustainability and the ability of biomaterials to help companies meet their targets. As biological innovation meets downstream demand, a new wave of the Bio Revolution in chemicals and materials is unfolding—with enormous potential impact.
As biological innovation meets downstream demand, a new wave of the Bio Revolution in chemicals and materials is unfolding—with enormous potential impact.
The three waves of innovation in biomaterials
The first wave of biomaterials spanned the millennia before the age of petroleum. Bio-based materials from plants or animals became a fixture of society and still surround us today in the form of wood, paper, leather, textiles, and numerous other derivatives that are used for adhesives, soaps, pigments, and other substances.
The second wave was catalyzed by the birth of biotech and recombinant DNA technology in the 1980s. These developments gave rise to companies like California-based Genencor and the modern industrial enzyme industry, which has led to dramatic improvements in products ranging from laundry detergent to animal feed.
This second wave reached its zenith when further advances in biotechnology collided with high prices for fossil-based chemical feedstock (oil, gas) and dot-com-era excitement in the mid-2000s, driving a boom in cleantech and biotech investments focused on commodity biofuels and biomaterials. Yet high fossil-based feedstock prices proved fleeting while rising prices on the biomaterials side and high volatility for renewable feedstocks such as corn and sugar through the 2000s further diminished any potential cost advantage. With the subsequent rise of fracking and electric vehicles, sustained fossil-based feedstock prices—more than $100/barrel for oil, for example—looked increasingly unrealistic.
As cost superiority to petrochemical production routes became a less attractive investment, many companies in the biomaterials sector went back to the drawing board and pivoted to specialty applications for which bio-based production could yield unique chemistries. Although the second wave ended with some disappointment, it taught critical lessons in techno-economic discipline while illustrating the enormous potential of biotechnology.
Today, the Bio Revolution continues to play out its third wave, with rapid advances each year in DNA sequencing, gene editing, AI, and other technologies that ultimately benefit the development of biomaterials. However, what is truly different this time around is that sustainability is changing the basis of competition in chemicals and materials and is creating demand-side disruption.
One takeaway from the second wave of biomaterials was that “green premiums,” or the ability to charge a higher price for a green technology, were unreliable: if they existed at all, they were modest at best and largely confined to market niches. However, recent pushes from three different groups—consumers, regulators, and investors—have led to significant actions from corporations, suggesting that there may indeed be, if not a clear and bankable “green premium,” then a sizable and fast-growing market for sustainable chemicals and materials.
Regarding the first group, consumer demand for greener products is rising. A recent McKinsey survey of ten countries found that consumers see sustainability as increasingly important, and the vast majority of consumers say they are willing to pay more for sustainable packaging across a diverse set of countries—for example, in China (86 percent of consumers are willing to pay “a lot” or “a bit” more for sustainable packaging), the United States (68 percent), and Brazil (66 percent).
Meanwhile, regulators are pushing for sustainability through initiatives such as the European Green Deal. Two key regulatory objectives are reducing CO2 emissions and environmental leakage of plastics that do not biodegrade. Both can be addressed through biomaterials.
Finally, with mounting assets under management in environmental, social, and governance (ESG) funds, investors are increasing pressure on corporations to reduce their transition risk through decarbonization and to ensure they are positioned to capitalize on growth opportunities necessary to decarbonize the rest of the economy.
In response to the pushes from these three groups, as well as from their own employees, many corporations are committing to reducing their environmental impacts. For example, a majority of top automakers and the leading fast-moving consumer-goods players have committed to substantial reductions in greenhouse-gas (GHG) emissions. These targets—and their impact on purchasing and manufacturing decisions—are changing the game for products with a sustainability value proposition.
Corporate climate commitments are accelerating rapidly
Companies are making many types of sustainability commitments. Many commitments are relevant for chemical and material companies, such as total material reductions (the reduction of packaging materials), content sourcing (using recycled or renewable bio-based materials), and end-of-life fate (whether materials wind up as recyclable, compostable, or biodegradable).
However, the most broadly consequential commitments relate to GHG-footprint reductions. We examined five end markets for chemicals and materials and found that a vast majority of leading companies (74 percent) have already made commitments concerning Scopes 1 and
2 emissions. Nearly 50 percent have committed to Scope 3 GHG emissions reductions (see sidebar, “What are Scope 3 emissions?”), including the emissions associated with the upstream production of ingredients and raw materials.
A majority of Scope 3 commitments are scheduled to be fulfilled by 2030. There is also an overall trend toward committing to net-zero emissions by 2040 to 2050—and this trend is accelerating (Exhibit 1). In fact, the number of companies committed to Scope 3 reductions increased by a CAGR of 34 percent from 2016 to 2021, a significant increase from the 14 percent average from 2006 to 2015. The share of revenue associated with Scope 3 commitments has also grown to $2.6 trillion in 2021, up from $0.5 trillion in 2016.
Consider the impact of increased Scope 3 commitments on the chemicals and materials industry: half a trillion dollars in spending is now under scrutiny. Take the automotive industry. Since 2019, 50 percent of the end-market revenues of the top 20 automotive OEMs have been linked to Scope 3 emissions–reduction commitments (Exhibit 2). This means the use of chemicals such as elastomers, fibers, thermoplastics, and foams, which represent about $110 billion in revenue for the chemical sector, will come under scrutiny.
Commitments to reduce Scope 3 emissions appear similar across end markets at about 30 to 35 percent but vary significantly among companies (around 30 percent median reduction, with an approximate range of 20 to 100 percent). Among the top 20 companies across several sectors, the lowest number of companies making such commitments was only six in packaging, whereas the highest number was 16 in fast-moving consumer goods (FMCG). Apparel, electronics (eight each), and automotive (nine) are all nearing the 50 percent mark for the portion of top 20 players with Scope 3 commitments.
The relatively high reading for FMCG may reflect the fact that consumer-facing companies are more aware of, and therefore more sensitive to, pressure from customers for sustainable options. Many acknowledge that consumers have given them a “social license to operate” and that committing to cutting emissions is an opportunity to lead their respective markets and differentiate themselves from their competitors.
Bringing biomaterials to market
Biomaterials are among multiple levers that companies can pull to improve the sustainability of their supply chains and products. The question is how biomaterial producers can chart a clear role for their products amid other options, such as greener manufacturing and recycling. Understanding the nuances around creating value from sustainability is the first step, followed by determining the best possible use cases across the three types of biomaterials.
A potential sustainability solution
Although biomaterials are better poised than ever to offer sustainability benefits, including reduced carbon footprints, improved biodegradability or recyclability of materials, and superior performance in certain applications, there are several consi-
derations critical to ensuring that biomaterials actually deliver a net-positive sustainability impact.
For example, the sustainability profile of biomaterials can vary depending on the feedstock selection (for example, corn versus refined sugars and the use of waste products in lieu of edible starches to produce second-generation [2G] fuels), farming practices (for example, regenerative agriculture to increase soil carbon content, fertilizer application rates and management, and overall yield and productivity), and land-use policies (for example, avoiding deforestation to increase production of tropical feedstocks such as palm). That said, with appropriate considerations and precautions in place, biomaterial producers can minimize counterproductive side effects en route to meeting the needs of customers, regulators, investors, and consumers alike.
Biomaterial product types
Not all biomaterials are created equally. Beyond simply reducing cost and environmental impact, biomaterial companies must understand the technical differentiation of their products and the value chains in which they are looking to sell. The relative importance of these factors varies across three biomaterial product types, with potential use cases for different end markets (Exhibit 3).
- Drop-ins: This bio-based production route is used to make a product traditionally derived from petrochemicals—for example, Braskem’s bioethanol-based polyethylene. “Drop-ins” refer to chemicals that can essentially be dropped into existing products without changing surrounding operations. For bio-based drop-in chemicals, life-cycle carbon-emissions reductions of 50 percent (or more) are possible relative to traditional petrochemical routes, but this will vary based on the specifics of the bio-based and petrochemical routes. This represents a significant value proposition for companies looking to reduce their Scope 3 footprints. Companies that succeed with drop-ins can develop efficient, cost-competitive (although not necessarily lower-cost) processes and identify the specific customer segments that are interested in greener materials.
- Bio-replacements: For this product type, a bio-based chemical is used to make a new material that is effectively at parity for measures such as technical performance and cost but that offers a significant improvement in environmental impact—for example, novel fermentation-derived surfactants used in detergents. These are perhaps the most difficult products to succeed with because they can require complex changes across the value chain without delivering technical differentiation. Success requires sharply targeting applications that have low regulatory and testing barriers to incorporate new materials and build a strong consumer-facing element. This way, beneficial environmental impact is optimized.
- Bio-better: Unique biochemical synthesis routes can enable completely new combinations of material properties, such as biotech-derived optical films. In this case, the technical advantages are the primary driver of product adoption, with the added bonus of enhancing the environmental profile. The traditional specialty-chemicals playbook for successful commercialization largely applies to these products. Furthermore, sustainability presents many exciting new problems to solve through innovation—for example, not only reducing the embedded emissions in a car but also delivering new high-performance, bio-based chemistries that can further vehicle recyclability (via debondable adhesives) or increase the lifetime of batteries and enable fast charging (via heat dissipation).
What it will take to succeed
Adhering to the following four principles will be critical for biomaterial players to gain a leadership position in the third wave:
Excel at the fundamentals of cost and performance and partner with traditional chemical players to gain an edge
For “bio-native” companies that have emerged around novel development and manufacturing processes, formulation of usable product forms and commercialization present new challenges that often have little to do with biological understanding. Yet established chemical companies with traditional, petrochemical-based products often have strong application understanding, formulation capabilities, and relationships with key customers. There is natural synergy in marrying greener (and novel) chemistries with the application-development expertise and market access of existing players to catalyze superior performance, cost, and customer relationships.
Meet the nuanced needs and evolving sustainability concerns of customers
Although GHG-emissions goals are a directional indicator, there is nuance within and beyond these targets. For example, how corporations define Scope 3 boundaries—cradle-to-grave versus cradle-to-gate
—can affect the relative sustainability benefits of biotech, or fermentation-derived materials, versus biomass-derived materials, for which most processing steps are identical to the petrochemical route. This means that non-GHG sustainability goals, such as renewable content levels or biodegradability, will affect the value proposition of any given biomaterial.
Biomaterial players must recognize that as corporate commitments rise over time so too will other routes to more sustainable materials. In short, the bar is rising and competition is intensifying. After all, other materials can also deliver GHG reductions. To maintain an edge, biomaterial players should leverage the latest tools of the Bio Revolution and continue to prioritize process innovation to fulfill a variety of ESG goals and sustainability criteria. Continued identification and incentivization of more sustainably farmed carbon feedstocks, for example by unlocking the potential of cellulosic biomass, is necessary to further improve the environmental footprint and cost-effectiveness of biomaterials.
Derisk investments through business models and demand commitments
A frequent challenge in biomaterial commercialization is the financing of expensive capital projects, which, just as in petrochemicals, can cost several hundred million dollars. Given that the investment risk is even higher for first-of-their-kind plants, the result is that many promising biomaterial technologies only exist at pilot scale. Public purchase agreements between a consumer brand and a biomaterial company are becoming increasingly common before plants are even built, which can be a simple way to reduce uncertainty and investment risk. Thus, by identifying offtakes for a significant portion of planned volumes ahead of time, biomaterial players can make business cases more palatable for financers and partners alike.
Provide clarity and transparency to stakeholders on sustainability attributes
Corporations and consumers encounter a wide variety of labels and branding around the chemicals and materials that go into products. The term “biomaterial” itself can be confusing, sometimes referring to materials of biological origin and other times referring to biodegradable, fossil-derived products. Greater consistency and alignment across the chemicals and materials industry around labeling can help shift the conversation away from definitions and toward the merits and the metrics that allow biomaterials to compete on a clearer playing field.
Biomaterials will play a substantial role in delivering a more sustainable status quo for chemicals production, as well as introducing the next horizon of performance to bring us into the future.
If biomaterial and chemical players can execute on these principles, biomaterials will play a substantial role in delivering a more sustainable status quo for chemicals production, as well as introducing the next horizon of performance to bring us into the future.
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