Energy Policy ()

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Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Emergence of green business models: The case of algae biofuel

for aviation
Sujith Nair a,n, Hanna Paulose b
a
Ume School of Business and Economics, Ume University, Ume 90187, Sweden
b
Department of Human Sciences, Ohio State University, Columbus, OH, USA

H I G H L I G H T S

We develop a framework that enables the emergence of green energy business models.

We present a case study on the algae based biofuel system for airline industry.

The green business models in energy are global in nature and are next practice platforms.

New market mechanisms and policy measures lead to sustainable energy business models.

Innovation, exibility and sustainability are the basic enablers of the framework.

art ic l e i nf o a b s t r a c t

Article history: Emergent business models seek to take advantage of new market mechanisms driven by technological
Received 20 June 2013 changes, particularly those related to the production and delivery of clean or sustainable energy. Such
Received in revised form business models often function at the intersection of various industries, with global views, and the
3 October 2013
resulting systems have distinct social, political, environmental, economic, technological, and business
Accepted 11 October 2013
dimensions. Such holistic systems are not only difcult to develop but also require support from a broad
range of actors with effective regulations and policies in place, such that the rm functions within a
Keywords: framework that integrates various factors. This study substantiates such a framework by detailing the
Algae bio-fuel nascent algae-based bio-fuel industry that caters to the aviation sector while arguing that businesses in
Green business models
the energy industry can emerge as a next-practice platform that drive a sixth wave of innovation. The
New market mechanisms
framework begins with three basic enablers, innovation, exibility, and sustainability, and explains how
value from renewable energy technologies can be created and captured sustainably and innovatively
with new market mechanisms implemented by rms with green business models.
& 2013 Elsevier Ltd. All rights reserved.

1. Introduction industries evolve: enabling technological systems, an innovative

Changing market dynamics, such as increasing oil prices,
growing recognition of the environmental impacts of global
warming (Borghesi, 2008; Campbell, 2004; de Almeida and Silva,
2009; Goodstein, 2004; Zhao et al., 2009), technological innova-
tions in energy and environmental elds (Popp et al., 2011), and
altered consumer attitudes toward green products and services
(Wstenhagen et al., 2007), encourage rms to change their
existing business models too (Christensen et al., 2012; Teece,
2010). According to Johnson and Suskewicz (2009), governments
and businesses need to balance four components to help green
n
Corresponding author. Tel.: 46 76 565 08 84
E-mail addresses: sujith.nair@usbe.umu.se (S. Nair),
paulose.1@osu.edu (H. Paulose).
and customized business model, a market adoption strategy that
assures a foothold, and favourable government policies. The key to
progress, particularly during economic crises, is innovation. There-
fore, various rms have adjusted their business processes, to the
extent that they even redene their value proposition. Yet pro-
blems occur when new technologies cannot nd immediate
applications in the market or do not t with the company's
existing business model (Christensen and Bower, 1996). In parti-
cular, to take advantage of many new technologies, rms need
business models that function at the intersection of various, global
industries. Such innovative business models can emerge only
when the regulatory framework and relevant politics support
their development though (Richter, 2013).
In particular, renewable energy-based business models have
the capacity to lay foundations for a sixth wave of innovation
(Moody and Nogrady, 2010). Their emergence, as new market

0301-4215/$ - see front matter & 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.enpol.2013.10.034

Please cite this article as: Nair, S., Paulose, H., Emergence of green business models: The case of algae biofuel for aviation. Energy Policy
(2013), http://dx.doi.org/10.1016/j.enpol.2013.10.034i
2 S. Nair, H. Paulose / Energy Policy ()
mechanisms (Aasrud et al., 2009), has been fraught with social,
policy, regulatory, environmental, and business model challenges.
We attempt to dene a framework for their emergence, and we
substantiate our proposed framework with a case study in the bio-
fuel industry (Strahan, 2008). With this method, we adopt a
structured approach to deriving and explaining green market
dynamics and how the value from renewable energy technologies
can be created and captured sustainably and innovatively by green
business models. In seeking a clear description of green business
models, we argue that innovation, exibility, and sustainability are
three basic enablers. The proposed framework has implications for
strategic decision making, for both rms that pursue green energy
business models and policy makers.
2. Description of green business models
Firms with new green business models seek to reduce costs,
wastage, and environmental impacts, while also creating value
with superior products and services. They redene established
production, logistics, and marketing methods, informed by green
managerial practices (Haden et al., 2009). The innovative exploita-
tion of new market mechanisms and markets, to allow such rms
to emerge or go green, is a function of the business model,
technological innovation, and policy initiatives.
2.1. New market mechanisms
The historical record of some economic indicators indicates cyclic
regularity, marked by phases of gradual increases in the value of
certain indicators, followed by phases of decline; the period of these
apparent oscillations are approximately 50 years (Kondratieff, 1984).
Since the industrial revolution, ve long waves of innovation have
emerged: waterpower, steam, electrication, mass production, and
information and communication technologies. Moody and Nogrady
(2010) argue that the sixth wave will be resource efciency, because
continually growing populations will create increasing resource
scarcity and dangerously high pollution, waste, and climate change
levels. Growth without increased resource consumption requires
systemic breakthroughs in efciency, including new business models
Fig. 1. Kondratiev cycles and waves of innovation (Hargroves and Smith, 2005).
Please cite this article as: Nair, S., Paulose, H., Emergence of green business models: The case of algae biofuel for aviation. Energy Policy
(2013), http://dx.doi.org/10.1016/j.enpol.2013.10.034i
that can deliver mobility, heating, cooling, and lighting with far fewer
resources or pollution. The new cycle (sixth wave of innovation;
Fig. 1) thus should be characterized by profound changes in political,
economic, and technological elds; to be competitive in these ever-
changing environments, rms need to be exible enough to respond
effectively to changes. The global economic crisis also has intensied
these challenges, which span both industries and countries. One
consequence of the crisis has been the loss of jobs in the private
sector, which must be replaced by new, productive jobs in future
growth sectors and sustainable industries.
Business models represent a rm's underlying core logic and
strategic choices, which enable it to create compelling value proposi-
tions for delivery to customers, with advantageous cost and risk
structures that can capture resultant value (Magretta, 2002; Zott and
Amit, 2007). With an appropriate business model, entrepreneurs can
explore a market and bring their innovation (including a new product,
new venture, and the network that supports it) into existence. New
business models emerge to take advantage of new market mechan-
isms, which in turn are driven by technological changes, particularly
in the production and delivery of clean and sustainable energy.
A market mechanism refers to the process by which a market solves
resource allocation problems, such as deciding how much of a good or
service should be produced. It also offers an alternative to allowing
decisions to be made by government. But it is not a perfect system for
sustainability, because government policies and regulations dene the
market mechanisms for developing sustainable industries. New
market mechanisms (Aasrud et al., 2009) put forward by the UN
climate change conference offer a prime example.
In line with current literature, we describe green business
models as those that exploit new market mechanisms and markets
to create and capture value by innovatively sustaining their external
environment. Strategic choices for business model designs, in terms
of markets, customers, and value propositions, thus are made in
such a way as to maximize environmental benets, beyond the level
achieved with traditional business models.
2.2. Enablers of green business models
The evolution of green industries requires a balance among
four components: an enabling technological system, innovative
 S. Nair, H. Paulose / Energy Policy ()
and customized business models, a market adoption strategy that
ensures a foothold, and favourable government policies (Johnson
and Suskewicz, 2009). We argue in turn that innovation, exibility,
and sustainability constitute basic enablers of green business
models. Sustainability identies problems and future needs in a
social and environmental context; innovation creates the solutions
to these needs; and exibility grants the organization dynamic
capabilities for choosing the most productive method of staying
sustainable.
Innovation also can extend the efcient frontier of performance.
Simultaneously improving nancial and non-nancial performance
typically requires innovation sometimes on a major scale in
factors such as processes, products, and business models. Further-
more, innovation can extend the efcient frontier of performance
uncertainty. Thus it is not only the type of corporate action but also
the timing of adoption and implementation that is important.
Business models also may be necessitated by technological innova-
tion, which creates both a need to bring discoveries to market and
the opportunity to satisfy unrequited customer needs (Teece, 2010).
Pace of innovation is a critical success determinant of green
business models. The risk of waiting is detrimental, as is true of
any technological cycles, and early adoption and risk taking
generally are rewarded. However, even when it is possible to
detect trends and changes, it is difcult to determine in advance
how to take advantage of them through business model innova-
tions. Such uncertainty places a premium on experimentation. As
technology management literature reveals, a major change in an
underlying technology tends to spark an era of ferment that ends
only when key design decisions produce a dominant' design
(Tushman and Murmann, 1998). The history of technological shifts
suggests that most experiments with new technologies fail, but
without such failures, the eventually victorious design would
never have had a chance. Something similar occurs with business
model breakthroughs; new business design concepts produce
massive amounts of experimentation, without any clear under-
standing at the outset of who the winners will be (McGrath, 2010).
It often appears easier to adhere to the lowest environmental
standards for as long as possible. Instead, it is smarter to comply
with the most stringent rules, before they are widely enforced.
Doing so yields substantial rst-mover advantages (Wittneben and
Kiyar, 2009), especially in terms of fostering innovation.
As Fig. 1 indicates, for rms to be competitive in these dynamic
environments, they must be exible enough to respond effectively
to changes. Flexibility thus is a dynamic capability of the business
model. It might entail the agility needed to shift focus in response
to external factors (e.g., changing markets, new technologies,
competition). Thus, a rm's success can be gauged by the transi-
tional ability it displays (Nair et al., 2012). This competence factor
enables the organization to implement innovative strategies and
policies in the most efcient, cost-effective methods, to avoid
business slow downs.
According to Oke (2005), a exible rm undertakes necessary
continuous learning about customers preferences or threats from
competitors, then changes its game plans accordingly, to maintain
its competitiveness. The learning curve for green business models
involves social pressures, environmental factors, and economic
needs such as government reforms, environmental issues, and
prot maximization. Moreover, the new market mechanism is a
dynamic, evolving opportunity, and adapting to it requires rms to
have dynamic, exible business models that enable them to
exploit opportunities. For example, business model exibility
might ensure the ability to cross-subsidize, which might deter-
mine if rms can sustain long-term entrenchment in new tech-
nologies until green products and services become protable.
Strategic exibility implies a rm's ability to choose among
different business models, as well as create new business models
Please cite this article as: Nair, S., Paulose, H., Emergence of green business models: The case of algae biofuel for aviation. Energy Policy
(2013), http://dx.doi.org/10.1016/j.enpol.2013.10.034i
3
that have ingrained exibility. Buckley (1997) indicates that strate-
gic exibility enables rms to implement measures or actions,
which are non-routine and unstructured in nature, in response to
marketplace changes. Similarly, Sull (1999) recommends that deci-
sion makers should be open-minded and regularly review their
rms strategies, processes, relationships, routines, and values to
avoid organizational inertia.
Various authors, theorists, and practitioners highlight the
importance of business for making progress in sustainable con-
sumption and production (Johnson and Suskewicz, 2009; Tukker
et al., 2008; Tukker and Tischner, 2006; Wells, 2008, p. 80). In this
context, business models are meta-factors and strategic innova-
tions that can support the adoption of cleaner products and
processes, sustainable supply chains, and further transitions
toward sustainability (Tukker et al., 2008). Wells (2008, p. 95)
concludes that alternative business models are fundamental to
the achievement of sustainable production and consumption, and
furthermore, a business is probably best placed to respond
positively to sustainability challenges via radical innovative pro-
ducts, services and related new business models (Tukker et al.,
2008, p. 1220). New entrants in a wide array of industries
demonstrate repeatedly that innovative business models can
provide a basis for sustainable business success, even in compe-
titive settings with well-established incumbents. If rms subscribe
to sustainability strategies, their business models can help bridge
technological innovations, organizational aspects, and market
positions. Furthermore, the business model itself may become
subject to eco-innovation and thus support the realization of
business cases for sustainability.
Sustainability offers a vitally important business goal for multi-
ple stakeholders, including investors, customers, and policymakers
(Epstein and Roy, 2003; Hart, 2007; Nidumolu et al., 2009; Pfeffer,
2010; WBCSD, 2008; WEF, 2009; Werbach, 2009; Worldwatch
Institute, 2008). Lubin and Esty (2010) characterize sustainability
as an emerging megatrend and note that most executives are
acutely aware of the profound signicance of their response to this
challenge for their rms competitiveness and even survival.
Greenness and environment concerns have direct inuences on
nancial performance (Molina-Azorin et al., 2009; Yu et al., 2009).
In the future, only rms that embrace sustainability as a goal will
achieve competitive advantage, which requires rethinking busi-
ness models, products, technologies, and processes.
To achieve sustainability, rms must consider social and
environmental issues in their decision making and business
planning. The sustainability quotient of a rm is the outcome of
its innovative approach and exibility. It refers to a process of
identifying the needs of the majority and working toward meeting
them, without affecting the benets to stakeholders. These issues
relate mainly to basic necessities of life, such as food, water,
sanitation, energy, and shelter. Sustainability models thus must
cater to diverse needs and situations, depending on the demo-
graphic and socio-economic features of a particular community.
The complex market offers a broad scope for innovation but also
demands advanced, exible business models that can satisfy
maximal numbers of people (George et al., 2012). Simultaneous
improvements in both non-prot and for-prot wings would be
difcult without substantial costs. Assuming there is an achievable
level of sustainability for each organization, the desired level still
is increasing, due to changing environmental and social expecta-
tions and innovations.
3. Framework for green business models
Green business models evolve from highly dynamic industrial
scenarios, in which market shifts are common. The inadequacies of
4 S. Nair, H. Paulose / Energy Policy ()
Fig. 2. Framework for the emergence of green business models.
such a complex system can facilitate the emergence of a variety of
business models that grow and interconnect to grant a new
dimension to the business. Green and sustainable business models
might follow the same path, but the factors that trigger the trend
differ. For example, future green business models likely will derive
from multiple interconnections among industry, business models,
and the external environment. In Fig. 2 we depict a framework for
the emergence of green business models.
3.1. Interaction of industry and environment
The combination of virtual markets with tangible and intangi-
ble commodities gives rise to new market mechanisms, which
demand that the industry be open to all methods of trading. Such
mechanisms often emerge from the inadequacies of the triangular
interactions of industrysocietyenvironment as solutions. How-
ever, market mechanisms that involve sustainable business mod-
els remain highly regulated and restricted by government actions,
which dene their evolution to a certain extent. San Romn et al.
(2011) describe the challenges, in terms of regulation and business
models, for integrating plug-in electric vehicles (EVs) within
electric power systems; they propose a conceptual regulatory
framework for charging EVs that allow opportunities for more
sophisticated business models to emerge. Policies and regulations
force organizations to adopt sustainable measures, such that
opportunities might become prerequisites. To take advantage of
the opportunities, it thus is important for rms to respond before
the regulations are imposed on them (UK Committee on Climate
Change, 2010b). However, Chesbrough (2007) suggests that rms
that are too internally focused may fail to recognize and capture
changes in the business environment. Industry can act as a plat-
form for connecting rms to the environment, which should help
them capture the changes as quickly as possible. Furthermore,
policies without appropriate planning can hinder an industry's
shift to sustainability and discourage innovators who come for-
ward with sustainable solutions, even despite bitter experiences
Please cite this article as: Nair, S., Paulose, H., Emergence of green business models: The case of algae biofuel for aviation. Energy Policy
(2013), http://dx.doi.org/10.1016/j.enpol.2013.10.034i
with environmental and social hazards that reafrm the need to
take the path of sustainability. Such events mark points at which
strategies and methods are re-examined and restructured to
incorporate important but widely ignored facts.
3.2. Interaction of business models and other industries
Partnership building is a core process for establishing green
businesses. Having partners who are aware of the environment or
helping them develop corporate social responsibility is a step
toward sustainability (Yang and Feng, 2008). The essential require-
ment of business models that cater to new customers is establish-
ing strong connections among rms, which grants the rm exible
frameworks for reshaping itself, according to the demands of each
market. For example, SELCO International's Jolly et al. (2012)
nancial success is a combined result of its business model, which
focuses on a marginal segment (new market), and its smooth
collaboration with other business enterprises from nance, tech-
nology, renewable energy, education, the local community, and
government. Such connections enhance the value offering by
ensuring an uninterrupted ow of resources, technology, and
information to consumers. Long-term planning and the continu-
ous improvement of supply chains enhances social value growth
while maintaining the economic efciency of the rm.
3.3. Interaction of business models and environment
Firms continuous contributions to sustainability equilibriums
include economic, environmental, and social dimensions, as well
as inter-relations within and over time (Lozano, 2012). Sustain-
ability is an attribute or demand of the business environment,
which triggers rms innovative thinking. However, the environ-
ment refers to not just the natural environment but a wide range
of aspects, including business operations, regulatory frameworks,
and social and cultural characteristics. Analyzing and redening
sustainability from this perspective thus becomes an imperative
 S. Nair, H. Paulose / Energy Policy ()
for connecting with consumers. A business model must be exible
(Nair et al., 2012) if it is to meet the continuously changing
demands and needs of the environment effectively way, which
in turn determines the growth of the organization in the environ-
ment and industry. New market mechanisms demand that rms
maintain high degrees of exibility in their operations and
strategy formulations. The combination of virtual markets with
tangible and intangible commodities makes it difcult for rms to
stick to a particular trading or operational method though. Chan-
ging consumer perceptions of sustainability will help the industry
redene its methods. Rethinking sustainability, beyond the con-
ventional view of environmental or eco-friendly systems, is
necessary to formulate novel, efcient solutions.
In short, if effectively manipulated, sustainability can be a key
to social acceptance. However, social acceptance also depends on
the effectiveness with which the rm's sustainability goals are
reected in its strategies, operations, products, and services.
Improper goal expression can have adverse effects on all the rm's
efforts to stay sustainable, as well as lead to ineffective connec-
tions with customers.
3.4. Interaction of industry and business models
Innovation implies nding better alternatives that do not
threaten rms competitiveness (Freeman, 1996). It combines
two contradictory elements of problems and opportunities. That
is, interactions of problems in the industry with opportunity-
seeking rms result in innovative business models. A good
measure of innovation thus would address how quickly the rm
adopts new strategies. Timely adoption, in a sustainability context,
grants competitive advantages to the rm and gives it an edge
among its rivals in terms of social value addition (Cruz and Pedro,
2009), innovation, and brand value (Biloslavo and Trnavcevic,
2009; FORA, 2010). Risk management and decision-making pro-
cess also play important roles in this setting. However, it is
essential to retain the core values in times of rapid social growth,
to avoid the breakdown of the rm as a result of activities that are
outside the organization's scope or vision. Foreseeing changes
should help rms formulate strategies to take advantage of and
adapt to the change before it becomes a compliance issue (Prahlad,
2009. The risk associated with incorrect forecasts can slow the
rm's pace of growth, which makes it necessary to stay exible.
Fig. 3. Industry commitments to emission reductions (Association of European Airlines (AEA), 2010).
Please cite this article as: Nair, S., Paulose, H., Emergence of green business models: The case of algae biofuel for aviation. Energy Policy
(2013), http://dx.doi.org/10.1016/j.enpol.2013.10.034i
5
However, the social acceptance and industrial advantage of
embracing the forecast makes it worthwhile to take the risk.
An important factor that determines the position of a rm in
the industry is its brand management capabilities (Prahlad, 2009).
Efcient brand management is a prerequisite for developing
supply chain networks and forming partnerships. In situations
marked by increasing competition, the effort to maintain brand
value cannot be separated from taking risks or being innovative.
Staying sustainable implies consuming sustainably. Therefore,
resource management is an area that offers rms multiple oppor-
tunities to enhance their sustainability; most resources have direct
relationships with nature and the environment (Halme et al.,
2007). Choosing the right resources and suppliers is crucial in
the shift to sustainable business models.
Capitalizing on different consumer segments provides various
options for business model evolution and growth. Each need or
regional living style can be converted into a market, with effective
strategic product design and marketing. The minimal buying
power of a large consumer segment remains unexplored, such
that they might seek services, products, and attention.
4. Bio-fuel for the aviation industry
A case study approach is especially appropriate for addressing
how and why questions in new topic areas (Yin, 2009); the
selected case should be particularly suitable for illuminating and
extending the proposed conceptual model (Eisenhardt and
Graebner, 2007). Accordingly, to shed light on the explanatory
power of the conceptual framework and effectively communicate
how green business models can build businesses of the future, we
look at the case of the emerging bio-fuel industry that supplies the
aviation sector. It has the potential to change the current world
economic order and thus form a basis for the sixth wave of
innovation.
Commercial air transport is a signicant source of greenhouse
gas emissions, responsible for around 700 million tonnes of jet-
fuel derived CO2, or approximately 2.31% of total anthropogenic
carbon dioxide. Forecasts of aviation growth suggest that its CO2
emissions will rise rapidly and inexorably, to more than 1 billion
tonnes by 2025. The aviation industry is looking at the potential of
bio-fuels to address its growing fuel supply and emission control
difculties, in addition to introducing aircraft with better fuel
consumption (Marsh, 2008). The industry-wide commitment to
6 S. Nair, H. Paulose / Energy Policy ()

reducing green house gas emissions also grants individual airlines
clear roadmaps for long-term sustainability strategies (Fig. 3).
Modern jet engines can run satisfactorily on fuels derived from
live plants and other organic matter, rather than oil from plants
fossilised millennia ago. The leading early adopters have been the US
Air Force, United Airlines, Virgin Atlantic, Lufthansa, and Airbus. Use
of an algae-based bio-fuel (Subbaraman, 2010) integrates several
factors, including innovation, exibility, and sustainability, that dene
a green business model. This case of a next practice platform
(Nidumolu et al., 2009) thus challenges, through a sustainability
lens, the dominant logic for businesses. It provides an innovation
opportunity, through platforms that enable customers and suppliers
to manage energy uses in radically different ways.
In the algae-based model, the main actors remain largely the
same, but they serve totally different functions. In the production
phase, carbon emissions are much less than those produced by
current industrial petroleum industry (Russo et al., 2012). For the
same amount of fuel, the algae-based system would produce
approximately 13% of the carbon dioxide released by a petroleum
production system. It thus could reduce the carbon footprint of the
aviation industry by as much as 85%. Geroski's (2003) description
of the entry and exit pattern of rms in an industry ts the algae
bio-fuels industry (Fig. 4). Recently, this industry also has gained
maturity, as is evident from the founding and exit dates of the
companies active in the United States and Europe. The trend line is
very similar to that of other industries: long lead times after initial
technology invention, rapid growth in the number of entrants,
followed by consolidation and nally high exit numbers.
The goal is an innovative energy system that reduces harmful
emissions drastically by establishing a bio-fuel-based business
model that can be incorporated into the current airline industry
(Table 1). The business model involves the development of a new
energy source, using genetically modied, algae-based bio-fuel,
with value comparable to that of the coefcient of fuel combustion
as aviation fuel, in an economically and ecologically sustainable
manner. The core capabilities of bio-fuel business model projects
are substantial reductions in atmospheric pollution and economic
development, without demanding technological modications in
terms of existing engine designs or congurations. Marketing and
distribution channels can employ existing networks and thus
require fewer additional resources. Value migration resulting from
this model then can bring about immense changes in the aviation
industry and society. The business model directly appeals to
airlines, which are already exploring and implementing greener
alternatives to fossil fuels.
The main products of the industry are aviation-grade algae bio-
fuel, special algae-based hydrocarbons to be used as additives if
necessary, and biomass generated after the fuel separation. The
biomass has utility as an animal feed and organic fertilizer, thereby
generating additional income. The supply chain should involve
sourcing of raw materials such as nutrients, farming and harvest-
ing equipment, bio-fuel- and biomass-processing equipment and
ingredients, and the distribution network conguration (i.e.,
number, location, and network missions of suppliers, production
facilities, distribution centres, warehouses, cross-docks, and cus-
tomers). Even though the bio-fuel-based supply chain uses exist-
ing infrastructures, it is radically different from the petroleum
industry, in that it removes inefciency from the existing system
due to the different dynamics involved in the model. Key problems
in the aviation energy supply chain include the lack of a seamless,
integrated supply chain from the oil rig to the airplane, largely due
to scattered and remote resources, inefcient means of transpor-
tation (e.g., tankers that can cause oil spills), political instabilities,
uctuating prices, and depleting resources. The wave of corporate
social responsibility in business models can be transferred across
different levels of business, through the supply chains, such as

Fig. 4. Entries and exits in the algae-based bio-fuel market (Van den Heuvel, 2011).

Table 1
Innovations that lead to industry development.

Costs associated with harvesting and transporting micro algae, which are low compared with those associated with biomass from trees and plants
Micro-algae can be easily processed due to their relatively small sizes
Micro-algae use non-arable land and do not compete with food crops; they also have a higher oil yield per unit area than oil crops
Micro-algae use CO2 from harmful ue gasses, thus reducing atmospheric CO2 levels and ultimately global warming
Micro-algae can be grown in efuents, resulting in bio-remediation
A smooth transition from petroleum-based aviation fuels to biojet can be incorporated in stages and use the current infrastructure of the petroleum industry

Please cite this article as: Nair, S., Paulose, H., Emergence of green business models: The case of algae biofuel for aviation. Energy Policy
(2013), http://dx.doi.org/10.1016/j.enpol.2013.10.034i
 S. Nair, H. Paulose / Energy Policy ()
when bio-fuel business models inuence airline business models.
The airlines also should explore relationships with development
agencies and non-governmental organizations, because potential
land resources might be available in less developed regions, which
would enhance and secure social sustainability. Airbus is already
leading an ambitious global program to connect farmers, reners,
and airlines to form regional sustainable alternative fuel value
chains (Airbus, 2012).
The bio-jet fuel industry thus can trigger the growth of a next
practice platform, which is currently in an emergent stage, at the
intersection of the Internet and energy management (Awudu and
Zhang, 2012; Nidumolu et al., 2009). An e-business-based trans-
portation, rening, distribution, and marketing system can pro-
duce a value chain to facilitate coordination and collaboration
across existing, fragmented supply chains. A better strategic
partnership among suppliers, distributors, and customers results,
in which communication channels support critical information
and operational improvements, such as cross-docking, direct
shipping, and third-party logistics. As the end customer, the airline
has the nal say in the system, which encourages a more efcient,
sustainable energy supply system.
Technologies such as vertical algae-growing techniques and
indoor closed circuit algae nurseries (Borowitzka, 1996; Green Star
Products, 2009; International Air Transport Association (IATA),
2010) can encourage the more timely adoption of algae bio-fuels.
The use of technology in farming to monitor algae growth and
temperatures or identify harmful varieties of algae might be
automated, leading to efcient farming that relies on solar and
other non-conventional energy sources. The extraction and blend-
ing of biojet fuel from algae also can be done in existing petroleum
reneries, with minor modications to the hardware and pro-
cesses. Algae can be grown in waste lands, near seashores that are
already rich in nutrients such as phosphate rocks and that host
petroleum reneries in the vicinity (Singh and Gu, 2010). Such
practices might encourage the development of regions such as
non-arable parts of Australia, north-western Africa, parts of the
Arabian Gulf, and deserts in the United States where salt water is
available as ground water.
5. Joint policy making and emergence of business models
Algae-based bio-fuels provide an excellent economic advan-
tage, with overall positive effects on economic expansion. But the
bio-fuel-based model also proposes restructuring economic
resources Oltra (2011). Airlines y across continents and need to
refuel anywhere, so the goal is to establish local value chains on
every continent. Such global supply chains require the infusion of
huge amounts of capital, which can be achieved only through
policy initiatives by airline alliances that combine aircraft manu-
facturers, allied industries, regulatory organizations, and various
governments. The initiatives in this eld include the Brazilian
Alliance for Aviation Biofuels (ABRABA); the European consortium
of airlines and bio-fuel conversion technology providers led by
Airbus; an Australian consortium led by Qantas, the Sustainable
Aviation Fuel Users Group (SAFUG), which features 21 airlines,
three aircraft manufacturers, and a bio-fuel conversion technology
provider; and the Sustainable Way for Alternative Fuel and Energy
in Aviation (SWAFEA) of the European Commission. These alli-
ances are characterized by a wide variety of involved stakeholders,
as expected of a non-market strategy. In actual market initiatives
though, partnerships are business oriented, and collaborations
among competitors are rare. A lack of government interest or
investment in developing and commercializing alternative fuels
also remains a concern, in that it would leave the development
costs to the private sector. The EU emissions trading scheme,
Please cite this article as: Nair, S., Paulose, H., Emergence of green business models: The case of algae biofuel for aviation. Energy Policy
(2013), http://dx.doi.org/10.1016/j.enpol.2013.10.034i
7
though it has been met with signicant international resistance,
may play a key role in encouraging airlines to advance their
sustainability strategies.
According to the Dow Jones annual sustainability indices of
2012, Air France-KLM has taken a leading role in setting the
agenda for sustainable development in the airline industry, advo-
cating the use of next-generation bio-fuels and route planning
technologies, as well as calling for new policies and legislation. In
November 2009, KLM enabled the rst ight supported by bio-
fuels (50% in one engine of a Boeing aircraft). Following the
successful test ight, KLM founded SkyNRG, a joint venture for
sourcing sustainable bio-fuels, including algae, for ights in 2011.
SkyNRG established a sustainability advisory board, consisting of
the Dutch chapter of the World Wide Fund for Nature (WWF
Netherlands), Solidaridad, and the Copernicus Institute of the
University of Utrecht. SkyNRG develops and sells sustainable jet
fuel for the global aviation market based on a unique low cost
business model. It has developed a local supply chain for sustain-
able jet fuel that is both scalable and affordable. It also has
initiated unique partnerships with non-governmental organiza-
tions, universities, energy companies, governmental bodies, and
other businesses (e.g., airports).
The emergence of green business models can be fraught with
tensions, which could prevent them from meeting the require-
ments of the sixth wave of innovation. Examples of such barriers
are evident in the electric transportation industry, where many
participants in the existing transportation infrastructure have
huge stakes in maintaining the status quo. Sovacool and Hirsh
(2009), analyzing signicant impediments related to customer
acceptance, historical aversion to new technologies, and hearty
resistance from stakeholders in an existing infrastructure, propose
that work to improve the technical performance of hardware must
be coupled with attempts to overcome economic, behavioural,
cultural, and infrastructural obstacles. Although these latter types
of barriers might not t neatly into traditional R&D categories and
remain deeply embedded in the social and institutional fabric,
overcoming them likely requires substantial effort and discussion.
But of late, the electric car industry has achieved considerable
success with new business models (Christensen et al., 2012; Kley
et al., 2011) and efcient joint policy initiatives. For example, the
policy process in California (technology-forcing approach, setting
ambitious goals like zero emission vehicles, establishing strict
deadlines and issuing penalties for non-compliance) relies on
substantial participation from the public, media, the academic
community, and interest groups affected by the regulation. Calef
and Goble (2007) argue that California's stringent regulation has
spurred the development of innovative hybrid and fuel cell
vehicles. Richter (2013), analyzing sustainable business model
innovation among German utilities, argues that new regulation
should encourage conventional energy rms to strive for sustain-
able new business modelsa signicant challenge for policy-
makers who need to address such issues if green business
models are to be the harbingers of the sixth wave of innovation.
6. Discussion and conclusion
Green business models are evolving in many sectors. Busi-
nesses of the future can be buoyed by this development of a sixth
wave of innovation and new market mechanisms. It is of utmost
importance to understand the industry dynamics and character-
istics of the external environment in which these business models
operate. Such an understanding will enable rms and policy
makers to formulate strategies for creating new business models
by leveraging the opportunities that the dynamic environments
present. It also grants the business models inherent exibility to
8 S. Nair, H. Paulose / Energy Policy ()
build on the foundations of innovation and sustainability, as is
needed to survive in the dynamic environments that new market
mechanisms present.
From the case of the bio-fuel industry, we see how innovations
can lead to potential new business models, including technological
innovations such as new strains of algae, innovative production
methods (closed loop algae growing), logistical innovations such as
the use of existing networks and reneries of petroleum industry,
innovative partnership building (e.g., bio-fuel companies, airlines,
non-governmental organizations), innovative uses of new market
mechanisms such as carbon credits from arid land development,
innovative brand management and marketing by taking advantage
of the customer perceptions of going green, and innovative cost
reduction by locating production facilities at the sources of raw
materials (e.g., algae farms near sunny shorelines with phosphate
nutrients). The timely adoption of these innovations is critical
because, for example, partnerships between airlines and bio-fuel
rms demand new technological and operational standards and
new global supply chains. Innovative business models can have
devastating effects on incumbents (Johnson and Suskewicz, 2009).
Early movers enjoy an edge in terms of patents, control over supply
networks, integration into the business model of the customer, and
setting regulations and quality measures that match its technolo-
gical capabilities.
These innovations relate directly to the sustainability of the
green business model. Becoming environmentally friendly lowers
costs, because rms end up reducing the inputs they use. In
addition, the process generates revenues from better products or
enables rms to create new businesses. Because these are the
goals of corporate innovation, we nd that smart rms treat
sustainability as innovation's new frontier. Our case analysis
reveals that marketing and distribution channels for bio-fuel can
exploit existing networks and thus require few additional
resources. Such efcient resource management is rooted in sus-
tainability. The business case for sustainability integrates societal
and environmental matters into the rm's core business
(Schaltegger and Wagner, 2006). The main challenge is improving
competitiveness and business success through outstanding and
voluntary social and ecological performance, whereas simply
being in compliance with regulations or standards does not always
or automatically bring about nancial benets. That is, businesses
must be created proactively. Prado-Lorenzo et al. (2009) research
the social disclosure of greenhouse gas emissions and conclude
that a company's environmental activities directly affect its nan-
cial performance.
The growing gap between conventional markets and the mar-
ginal community might be rectied through green business models.
The marginal community is often ignored in the existing industrial
setup, because it does not focus on marketing commodities at prices
that the majority can afford; an approach that appeals to marginal
groups as whole new markets that need to be served with entirely
new business models can be benecial for rms. Most marginal
groups embrace different issues, each of which needs special
models, which creates the true opportunity. Firms can be economic-
ally successful while still supporting community and environ-
mental development, as exemplied by the bio-fuel industry, for
which the business models involve arid land development, the
creation of employment in undeveloped regions of the world,
and the provision of livestock feed and fertilizers, which should
create wealth in new regions. Thus Airbus is pursuing a global
program to connect farmers, reners, and airlines to form
regional, sustainable, alternative fuel value chains. Work on
bottom-of-the-pyramid issues also provides insights into the
potential opportunities, or pitfalls, of integrating social and
environmental goals with economic ones in developing econo-
mies Prahlad, 2006. To solve problems such as land acquisition
Please cite this article as: Nair, S., Paulose, H., Emergence of green business models: The case of algae biofuel for aviation. Energy Policy
(2013), http://dx.doi.org/10.1016/j.enpol.2013.10.034i
and supply chain development, support should come from policy
initiatives by governments that aim at social development.
Flexibility should be ingrained into systems that require radical
changes. Such exibility can be displayed by the use of modied
petroleum reneries and existing pipelines by algae bio-fuel
rms. The development of new markets, such as cattle feed,
adds to the diversity of the business model.
The cost of green energy has been falling rapidly, such as solar
energy costs falling by 30% annually. Energy is a primary economic
driver, so the development of new and abundant green energy
might produce other resources, through the harmonic conver-
gence of technology elds. Firms building partnerships and busi-
ness models structured to accommodate these partnerships can be
inuential. This approach has advantages for branding, supply
chains, and the emergence of new business models. The case in
this article reveals that airlines benet from associating them-
selves with green rms, which leads to advantageous branding by
creating a positive perception; new business models potentially
emerge from derived products, such as livestock feed, organic
fertilizers, bio-fuel additives, and next-practice platforms. For
example, KLM's partnership with the World Wildlife Fund to make
aviation more sustainable by increasing CO2 efciency and thus
achieve climate control, develop an international market for
sustainable bio-fuel, and protect natural resources has helped
the airlines better full their corporate social responsibilities.
Airlines using greener biojet fuel can advertise themselves effec-
tively and attract customers who like the idea of travelling in
energy-efcient aircraft, thus adding to overall brand value
(Curras-Perez et al., 2009). In this sense, Sustainable business
models with a focus on technological innovation are market
devices that overcome internal and external barriers of marketing
clean technologies; of signicance is the business model's ability
to create a t between technology characteristics and (new)
commercialization approaches that both can succeed on given
and new markets (Boons and Ldeke-Freund, 2012, p. 14).
Governments and other policy makers (e.g., the UN) should
proactively encourage the emergence of renewable energy initia-
tives. Generally, governments are important because aviation is an
inherently multinational industry. International agreements come
into play, such as those pertaining to emissions. The new market
mechanisms pioneered by the UN have great potential for creating
new business models that can resolve the world's energy crisis in a
more sustainable way. But various governments at national and
local levels must support these initiatives. Airlines look to their
regional connections for ways to integrate this model. As the case
study in this article reveals, resources need to be redirected to
subsidize the high initial costs of the new systems for airlines and
bio-fuel companies. Such policies might rely on cost offsetting
through carbon credits, airport taxes, environment taxes, or direct
subsidies on the bio-fuel price paid by governments. It should be
easier to obtain arid lands for developing algae farms, with the
active participation of the local population. Internationally
accepted, effective sustainability frameworks, enforced by legal
requirements and backed by agro-ecological zoning by govern-
ments, are required to secure sustainable land uses. Because many
of these regions host impoverished populations, these uses should
be linked to social development and prot sharing. The proper
certication of bio-products for cattle feed and other uses also
should be initiated.
Because the initial supply prices of such fuels are higher than
the current prices of fossil fuels, industries and government
sectors should direct funds, such as those from carbon offsetting,
to subsidize end users and ensure that the transportation industry
does not hesitate to adopt the innovation, simply for economic
reasons (Jaeger and Egelkraut, 2011). An initial solution is to
promote the product with subsidies in airport taxes, environment
 S. Nair, H. Paulose / Energy Policy ()
taxes, or fuel prices (Wiesenthal et al., 2009). In turn, aircraft
manufacturers can take some share of the funds allocated to green
projects and use it to develop efcient fuel systems that are
compatible with the use of bio-fuels. Algae-based bio-fuels, pro-
duced in lands that are not currently economically or socially
developed, could enhance economic prosperity. This outcome
might offer the greatest motivation; many rms that are not even
related to the aviation industry might want to participate by
providing economic support that would enable them to link their
brand to the initiative, which could make the plan more feasible
and easy to implement.
Regulations inuence, encourage, and distort green business
models. The new market mechanisms are evolving and can set the
guidelines for the sixth wave of innovations. But they can be either
an enabler of or a limitation on green business models, whose
success depends on the complex interactions among the business
model, the industry, and the wider environment in which it
operates. Firms should design business models that anticipate
these changes and that have the exibility to evolve and adapt to
external environments, created by the new market mechanisms.
They also need the exibility to assimilate all the innovations and
sustainable opportunities that arise in dynamic environments.
Such developments are possible only with effective policies and
regulations, reecting a holistic view of the environment, together
with the cooperation of multiple industry segments that aid in the
emergence of business models, as exemplied by the bio-fuel
industry that serves the aviation sector. Such green business
models, supported by relevant policies, can drive the sixth wave
of innovation.
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