The McKinsey Quarterly
The McKinsey Quarterly Chart Focus Newsletter
December 2007 | Member Edition

The prospects for biofuels

Companies, farmers, and investors are gambling that biofuels will help meet the world’s energy needs, cut greenhouse gas emissions, and generate substantial profits to boot. Are these hopes realistic? The answer depends on the price of gasoline and other alternatives to biofuels, the cost of their feedstocks, conversion technologies, and government regulations. All are in flux, so an investment today is essentially a bet.

National energy policies contribute to the uncertainty. In 2005 and 2006, for example, the price of corn ethanol fluctuated substantially as a result of changing fuel regulations in some US states combined with higher gas prices. A simultaneous shortage of corn triggered large swings in the allocation of profits between farmers and asset owners.



Amid these uncertainties, should companies enter now? After all, the winners in many commodity industries are the latest entrants, wielding the newest, most efficient technologies. To learn why waiting may nonetheless be costly, read “Betting on biofuels” (May 2007). (Guest passed through December 24)


Also of Interest
Positioning Brazil for biofuels success
March 2007
The country now produces ethanol more cheaply than anywhere else on Earth—but perhaps not for long. (Premium)

Making the most of the world’s energy resources
February 2007
Demand for energy will grow rapidly unless governments, businesses, and consumers opt for the substantial, economically realistic, and technologically proven opportunities to get more from every unit of fuel. (Premium) 		A cost curve for greenhouse gas reduction
February 2007
A global study of the scope and cost of measures to cut greenhouse gas emissions provides major insights for companies and policy makers alike. (Premium)

What’s next for Big Oil?
May 2005
Amid greater competition for new sources of petroleum, the major oil companies are struggling to replenish their reserves.


Did you miss last month’s Chart Focus?
The earnings guidance fallacy
Frequent earnings guidance doesn’t raise market valuations; it apparently has no significant relationship with them—regardless of the year, industry, or size of a company.