(Bloomberg) — The mood was celebratory on a humid June evening in 2011 as a red-and-white Gulfstream G450 belonging to Honeywell International Inc. took off from a New Jersey airport at sunset on a history-making flight to Paris.
I was onboard the executive jet to report on the first transatlantic flight powered by biofuels. One of the Gulfstream’s engines was burning a blend of petroleum and a sustainable aviation fuel made with oil from the seeds of the inedible weed camelina.
Video screens tracked the G4’s route retracing Charles Lindbergh’s pioneering 1927 flight across the Atlantic, though our journey was far plusher. At the touch of a button, pleated white shades descended over the aircraft’s large oval windows and fresh air filled the optimally pressurized and quiet wood-trimmed cabin.
Technology from Honeywell’s subsidiary UOP had refined the camelina into renewable jet fuel, and as we reached cruising altitude executives settled into wide leather seats and clinked wine glasses. The trip avoided emitting 5.5 metric tons of carbon dioxide compared to a conventional flight.
“We’re ready to go to commercial scale and commercial use,” said Jim Rekoske, a Honeywell vice president.
Yet nine years later, biofuels account for only a tiny fraction of global jet fuel consumption—less than 0.1% in 2018 according to the International Energy Agency. In the U.S., the federal Energy Information Administration projects that the consumption of all biofuels will rise from 7.3% of total fuel consumption in 2019 to just 9% in 2040 if oil prices remain low. Even if petroleum prices skyrocket, biofuel consumption is predicted to increase to just 13.5% by 2050.
Global investment in biofuel production capacity, meanwhile, plunged from $22.9 billion in 2007 to $500 million in 2019, according to BloombergNEF. That has significant implications for decarbonizing transportation, which is key to keeping global average temperature rise to 1.5C to avoid catastrophic climate impacts.
“Although biofuels production has grown in recent years, the current growth is clearly insufficient to support the requirements of the energy transition,” the International Renewable Energy Agency concluded in a 2019 report.
Biofuel’s dramatic fall stands in stark contrast to other renewable energy technologies. Over the past decade, solar and onshore wind prices dropped 90% and 70% per megawatt-hour, respectively, according to BloombergNEF, and they’re now the cheapest form of new energy generation for two-thirds of the world. The price of lithium-ion battery packs fell 87%, and BloombergNEF predicts electric cars will become cost competitive with gasoline vehicles by the mid-2020s.
But many advanced biofuels startups have either collapsed or now use their technology to make additives for cosmetics, dietary supplements, and food.
What went wrong? In short, a mismatch between government policy and the investment and time needed to ramp up complex biofuel supply chains. Venture capitalists accustomed to the relatively quick returns delivered by tech industry startups weren’t prepared to finance what could be a decade-long slog to develop new biofuels. Entrepreneurs were overly confident about their technologies’ potential while government policy did not offer the types of incentives and mandates that allowed the nascent solar and wind industries to take on fossil fuels and become self-sustaining.
Above all, biofuels’ competitiveness was whipsawed by widely fluctuating crude oil prices. Now the industry faces new challenges from the Covid-19 pandemic that has devastated airlines and resulted in a petroleum glut.
“Low oil prices makes it very hard for biofuels to compete,” says BloombergNEF analyst Daisy Maugouber. “That’s why policy has to support advanced biofuels.”
Back when the Honeywell Gulfstream touched down at Paris-Le Bourget Airport on a bright June morning in 2011, it seemed that the green jet age had dawned. Investors were still pouring billions of dollars into biofuel startups, and at the Paris Air Show that week, airline executives told me of their plans to transition to liquid renewables to meet expected government mandates and as a hedge against then-soaring oil prices.
Over the next several years, I tracked the flight path of advanced biofuels, assuming it would follow the trajectory of solar and wind and upend the old energy order. I was wrong—as were the investors and entrepreneurs who misread the market.
Demand remains, though. United Airlines Holdings Inc. powers flights operating out of Los Angeles International Airport with biofuels, and JetBlue Airways Corp. announced plans to start using biofuels at San Francisco International Airport this year. Qantas Airways Ltd. had previously pledged to fuel its LAX flights with biofuels beginning in 2020. On Wednesday, Amazon.com Inc. announced a 12-month deal to buy sustainable aviation fuel for its Amazon Air fleet.
And the need for biofuels hasn’t diminished. There’s currently no feasible alternative to decarbonizing two huge and growing sources of CO₂ emissions—aviation and shipping. If a Green New Deal is to spark another biofuels boom, then it’s crucial to get it right this time.
In July 2012, I boarded another historic flight, this one decidedly less luxe. Strapped backwards into a Navy C-2A Greyhound and wearing an inflatable survival vest and helmet, I was on the first military transport powered by advanced biofuels to land on an aircraft carrier, in this case one refined from algae and used cooking oil.
After a short, deafening flight from Honolulu, the twin-prop plane landed on the deck of the USS Nimitz. The nuclear aircraft carrier was steaming off Oahu for a demonstration of the Navy’s Great Green Fleet, the first strike force running on biofuels, though just for two days.
Two destroyers, a guided missile cruiser and 71 aircraft were burning biofuels. F/A-18 fighter jets screamed across the sky while E-2C Hawkeyes patrolled the perimeter and Seahawk helicopters ferried Navy brass to the Nimitz.
The military is the nation’s largest single consumer of fuel, so the Navy’s purchase of 450,000 gallons of biofuel for the exercise signaled a potentially huge defense market for liquid renewables. Unlike corn ethanol, advanced or so-called second-generation biofuels use nonfood feedstocks like camelina, algae, waste oils, and tallow and don’t require modifications of engines or pipeline infrastructure.
Utilities under state renewable-energy mandates often sign decades-long agreements to buy electricity from solar and wind developers. The Navy, however, typically issues one-year fuel contracts. That left investors wary of financing biofuel refineries without some guarantee of long-term demand, says Jim Anderson, global project development director for renewables at Honeywell UOP. “That continues to be a challenge,” he says.
The Navy contracts were not only short-lived but also sporadic. It would be another three-and-half years before the Navy formally launched the Great Green Fleet on January 20, 2016, with a strike force powered by a one-time purchase of 77 million gallons of biofuel. Exactly a year later, Donald Trump took the oath of office and effectively sunk the Obama administration’s Great Green Fleet, though some financial support for biofuels continued under previously signed contracts.
Mandates like state renewable portfolio standards turbocharged the solar and wind markets by requiring utilities to obtain a growing percentage of electricity from green energy sources. Industry veterans say that instituting similar requirements that government agencies, airlines, and other fossil fuel customers use a certain volume of biofuels could spur long-term investment. “I think it certainly helps to drive the demand for biofuels,” says Anderson of sustainable aviation fuel mandates.
A month after the 2012 Great Green Fleet demo, I visited the Green Crude Farm, 30 acres of oblong ponds growing algae under the blazing sun in a remote patch of the New Mexico desert. A San Diego startup called Sapphire Energy Inc. built the demonstration project, having secured $104.5 million in federal grants and loan guarantees and raised $244 million in venture funding.
With the encouragement of the Navy, Sapphire aimed to produce 1.5 million gallons annually, which it said would be competitive as long as oil prices stayed at around $100 a barrel. Three years later, crude oil prices had dropped below $50 a barrel and Sapphire and other promising startups were faltering. By 2017, Sapphire was out of business.
“A number of things happened all at once as these companies began to scale,” says Tim Zenk, a former Sapphire executive. “They spent their initial capital and didn’t have a long enough runway to survive a very difficult energy market in the absence of policy to support biofuel production.”
One takeaway from biofuel executives is that the sector needs sustained investment from corporations and other institutional investors, the type of commitment Silicon Valley typically cannot provide. “The venture capital market is not really the right financial vehicle for biofuels,” says Zenk.
What can governments do to revitalize the promise of biofuels?
The main federal policy to spur production, the 15-year-old Renewable Fuel Standard program (RFS), has proved insufficient to make advanced biofuels competitive. The RFS mandates that gasoline and diesel producers blend a growing volume of second-generation biofuels to reduce greenhouse gas emissions. Yet annual targets have been slashed because of a lack of supply. The 2020 statutory target of 30 billion gallons had to be revised to 20 billion gallons. In other years, targets for specific classes of advanced biofuels were lowered by as much as 86%. The program expires in 2022.
For solar and wind producers, feedstocks—sun and breeze—are free and inexhaustible. Feedstocks for biofuels can constitute 50% or more of production costs. “Any viable feedstock must have the potential to be available cost-effectively in very large quantities,” says Gene Gebolys, chief executive officer of biofuels refiner World Energy Inc.
Most advanced biofuels today are made with scavenged feedstocks, such as used cooking oil collected from restaurants. So far, efforts to cultivate nonfood feedstocks at mass scale have failed.
In late 2013, I was ushered into an unmarked one-acre greenhouse in a San Diego suburb where a startup called SGB Inc. was raising jatropha. The drought-resistant inedible bush bears walnut-sized seeds rich in oil and can be grown on marginal land. By sequencing jatropha’s genome, SGB scientists created hybrid strains that produced oil in volumes that they said could make an aviation biofuel competitive with petroleum, then selling for around $100 a barrel. When oil prices crashed, so did SGB.
“We had the technology, but when energy prices contracted, the mass market lost interest in biofuels,” says Kirk Haney, a venture capitalist and former SGB CEO. “Farmers won’t grow your crop if there’s no market.”
Industry analysts say that to buffer biofuels from gyrations of the oil market, liquid renewables need the type of government incentives that allowed solar and wind companies to build supply chains, production capacity, and achieve economies of scale. They cite policies such as California’s Low Carbon Fuel Standard (LCFS), which requires that petroleum refiners reduce the carbon intensity of transportation fuels at least 20% by 2030. They do that by purchasing credits generated by biofuel producers.
“Policies like the LCFS in California and the U.S. RFS nationwide provide the basis for monetizing carbon reductions and, in so doing, drive innovation,” says World Energy’s Gebolys, whose company is spending $350 million to expand annual production capacity at its Los Angeles area refinery nearly seven-fold to 306 million gallons.
In January, Norway began requiring jet fuel to contain at least 0.5% advanced biofuels, and Sweden is considering a similar mandate. The 191 member states of the International Civil Aviation Organization have agreed that biofuels should replace conventional jet fuel “to a significant percentage” by 2050.
Despite the challenges, the search for breakthrough feedstocks continues. Exxon Mobil Corp. says it has invested hundreds of millions of dollars in advanced algae biofuel technology with the goal of producing 10,000 barrels a day by 2025. And a Los Angeles area startup, Marine BioEnergy Inc., secured a $2.1 million federal grant in 2016 to develop ways to cultivate kelp in offshore farms for harvest as biofuel.
“Kelp raised in the open ocean doesn’t require land, fresh water, pesticides, or artificial nutrients,” says Cindy Wilcox, Marine BioEnergy’s president and co-founder.
To test the feasibility of the concept, University of Southern California scientists constructed a “kelp elevator.” During a trial off Catalina Island last year, giant kelp was attached the triangular device and lowered to a depth of 260 feet at night to absorb cold-water nutrients, then brought back to the surface at dawn.
The kelp grew three times faster and weighed four times more on average than kelp growing naturally at a control site, according to Diane Kim, associate director of special projects at USC’s Wrigley Institute for Environmental Studies.
Wilcox says kelp biofuel could be competitive with oil at $60 a barrel. Whether that projection is realistic depends on overcoming technological, financial, and regulatory hurdles.
“At the end of the day, the cheapest product in a commodity market wins,” says Haney. “I don’t see biofuels coming from plants or algae will be a realistic alternative without some form of government policy to drive this.”
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