MARCH 2017

Algenol: Case study of an unsuccessful algae biofuels venture

EXECUTIVE SUMMARY Algenol is a Florida-based biotechnology bring a product to market. company that has received considerable attention as one of the most promising 2. Algenol’s genetically engineered (GE) algae biofuel startups. Since its founding cyanobacteria pose potentially significant in 2006, the company has received $35 - threats should they be released into $50 million in public support, alongside the wild. Such a release will be difficult tens of millions in private-sector to prevent in an industrial refinery investment. environment.

Despite significant hype, however, We conclude that government support Algenol has remarkably little to show for for algal biofuels – as with fossil fuels its investments – a prime example of an and other harmful energy sources – is a industry kept aloft by empty promises, foolhardy use of taxpayer resources, given while developing technologies with the lack of demonstrated environmental potentially serious impacts on ecosystems benefit or successful commercial and human health. application.

This briefing demonstrates that: Public sector funding would be put to better use on research, development, 1. Despite rosy claims to the contrary, and demonstration of proven measures Algenol faces significant economic to reduce energy waste and over- and technological hurdles to consumption while also ensuring commercialization. This experience equitable access and control over mirrors that of other algae and cellulosic production and distribution. biofuel startups that have received public sector support yet have so far failed to

ALGENOL: CASE STUDY OF AN UNSUCCESSFUL ALGAE BIOFUELS VENTURE ~ MARCH 2017 ~ 1 INTRODUCTION Algae play a key role in the regulation on genetically engineering algae species of the earth’s systems, and are found in to promote certain traits beneficial to almost every ecosystem on the planet. energy production. While there is no universally agreed upon definition of algae, most biologists Founded in 2006, Algenol was one confine the term to photosynthetic life of hundreds of startup algae-based ranging from unicellular microorganisms biofuel companies that aimed to pick to macro-scale seaweeds, as well as up where the ASP left off.2 Many of bacteria capable of photosynthesis – these companies have since folded or known as cyanobacteria, or “blue-green gone bankrupt, but Algenol continues algae.” Algae are thought to have played to attract private and public investment a significant role in drawing down – despite its failure, after ten years of atmospheric CO2 levels in a previous existence, to produce commercially viable spike around 50 million years ago, and are biofuel. responsible for much of the oxygen we currently breathe. Algenol was successful in attracting attention and investment based on Research on algal biofuels has been the claim that its proprietary algae ongoing since the mid-20th century. could cost-effectively transform CO2, Beginning in 1978, the U.S. government an industrial waste gas, into ethanol – funded the Aquatic Species Program a process that’s been described as the (ASP), which over its 18 years of existence “holy grail” of bioenergy production.3 If identified two main pathways for successful, this process would allow large producing algal biofuels – growing algae polluters to avoid measures to reduce in open ponds or raceways, or inside of emissions by substituting “reuse”. They plastic tubes called photobioreactors.1 could potentially derive profits from

sale of CO2 derived products, and also The ASP was eventually defunded in command elevated prices in the context 1996, with its scientists concluding that of renewable fuels standards or other raceways faced difficult hurdles due to subsidized markets for such biofuels. contamination, while photobioreactors were too expensive for use in biofuel Algenol’s system involves vertically production. However, the program laid aligned closed plastic photobioreactors, the groundwork for today’s algal biofuels filled with seawater and GE blue-green boom, especially in catalyzing research algae, into which CO2 is pumped as a

ALGENOL: CASE STUDY OF AN UNSUCCESSFUL ALGAE BIOFUELS VENTURE ~ MARCH 2017 ~ 2 feedstock. The algae, which possess the beginning. Despite years of research natural capacity to secrete tiny amounts and development, the company’s of ethanol, have been genetically ethanol-producing algae continue to engineered to produce significantly underperform, leading to the company’s more ethanol, in addition to other traits 2015 decision to shelve its ethanol beneficial to commercial production. pathway for the time being.5 Prohibitively high costs plague the company This ethanol leaks into the surrounding throughout its production process, seawater medium and evaporates leading to a questionable profitability in the headspace at the top of the margin. photobioreactor, condensing and draining off into an energy-intensive These fundamental issues, alongside refining system designed to separate the poor market conditions, appear to fuel from water and other chemicals. The underpin Algenol’s recent turn towards process eliminates the need to crush and non-fuel-based commodity production – kill each batch of algae to extract the oil a pattern that defines the trend among a – allowing for repeated harvests, in what slew of algae and microbial fuel startup the company likens to “milking the cow, companies. This trend, exemplified as opposed to butchering it.”4 by companies such as Algenol and Solazyme, raises serious questions However, technological and economic about why biofuel investors and the barriers have beset Algenol’s roadmap U.S. government continue to provide towards commercialization from the very significant finance.6

A CHRONOLOGY OF ALGENOL

Algenol’s roots go back to the 1980’s, barrel, Woods teamed up with former when co-founder Paul Woods spent pharmaceutical executives Craig Smith $700,000 financing research on GE and Ed Legere to launch Algenol in cyanobacteria with the capacity to March of 2006. The company had an produce ethanol.7 The results of that immediate boost from Mexico City-based research were published in 1999, with businessman Alejandro González, who U.S. patents on two GE algae strains contributed the bulk of $70 million in secured in 2001 and 2004.8,9,10 startup capital and also extended $100 million for the rights to use Algenol’s After oil prices surpassed $50/ proprietary technology in Mexico.11,12

ALGENOL: CASE STUDY OF AN UNSUCCESSFUL ALGAE BIOFUELS VENTURE ~ MARCH 2017 ~ 3 With the support of González, the owner Algenol continued expanding after of a major cardboard recycling company Indian petrochemical conglomerate and heir to the Corona beer fortune, Reliance Industries sunk $93.5 million Algenol quickly expanded its operations. into the company, and by 2014, it was The company opened laboratories in ranked the “#1 hottest U.S. biofuels Germany, Spain and Florida to research company” by Biofuels Digest.19,20 That and test algae systems, and hired year, the federal government approved researchers at Johns Hopkins and the three of Algenol’s GE algae strands under University of Maryland to start a lab that the Toxic Substances Control Act (TSCA), would function, in their words, as “the and also approved Algenol’s ethanol as world’s largest algae library.”13,14,15 qualifying for advanced biofuel credits under the Renewable Fuels Standard In 2009, the company partnered with (RFS).21,22 Dow Chemicals on a successful bid for an American Recovery and Reinvestment Act In 2015, however, shortly after (ARRA) grant via DOE, netting $25 million announcing a deal to build a $1.3 to build a pilot-scale algae-to-ethanol billion commercial biorefinery, Algenol’s biorefinery with a projected output of investors pushed through a major 100,000 gallons of ethanol per year.”16 overhaul in their corporate strategy.23 The project was initially slated to be built The company’s board, led by González, at Dow’s facility in Texas, but a souring announced plans to scale back from relationship and a $10 million grant biofuels and pivot towards near-term from Lee County, Florida enticed Algenol commercial prospects in carbon capture, to move operations to the Sunshine food additives and nutraceuticals. CEO State.17,18 Paul Woods resigned shortly thereafter.24

ALGENOL: CASE STUDY OF AN UNSUCCESSFUL ALGAE BIOFUELS VENTURE ~ MARCH 2017 ~ 4 The commercial biorefinery plans were Solazyme received $22 million from the quietly scrapped. DOE for algae biofuels, and after failing to succeed, now sells anti-wrinkle skin- In shifting to non-fuel-based products, care products.25 Algenol is following a long line of algal biofuel companies scrambling for return Biofuelwatch believes it is unlikely that on investment amidst poor energy taxpayers would knowingly approve market conditions and underperforming of millions of dollars being handed to technologies. After $50 million in DOE companies that only appear capable of support, Sapphire Energy now makes producing niche cosmetic compounds algal oil for nutritional supplements. made from risky engineered microbes.

ISSUES WITH ALGENOL’S TECHNOLOGY

A closer look at Algenol’s production published in 2016, “it is unclear whether process reveals high capital and operating closed photobioreactors will ever be a costs, a low energy return on investment, viable commercial option.”26 and – despite the green hype – less- than-stellar greenhouse gas emissions An even more problematic situation arises reductions. from the productivity and stability of the algae itself. In 2013, Algenol reported Algenol has maintained that contrary a loss in productivity once its cell lines to the findings of the Aquatic Species were subjected to outdoor conditions, Program, it could cost-effectively produce alongside issues related to batch algae biofuels with a photobioreactor contamination by ethanol-consuming system. However, the company’s bacteria.27 In a subsequent 2015 report, experience seems to be confirming, it once again flagged contamination as rather than refuting, the ASP’s findings. an issue, and placed ethanol productivity In its initial horizontal PBR model, and genetic stability as top priorities for Algenol encountered chronic issues with lowering capital and operating costs.28 photoinhibition (and hence, productivity), That’s because the productivity of the leading the company to switch to a algae has a determining impact on hanging, vertical PBR model. However, the entire production process – with it appears that the new model faces the low performance driving up costs and same fundamental scale-up constraints lifecycle greenhouse gas emissions, due to capital expenditure, leading DOE while driving down the energy return on to remark, in a peer review of Algenol investment.

ALGENOL: CASE STUDY OF AN UNSUCCESSFUL ALGAE BIOFUELS VENTURE ~ MARCH 2017 ~ 5 Among the many energy requirements in EPA’s approval presents tight constraints the production process, the downstream on the energy sources used in separation of ethanol from the seawater production, detailing “only electricity and medium stands out as a “major consumer heat that [is] produced from an onsite of energy and a significant contributor to combined heat and power (CHP) unit that the carbon footprint.” 29 Algenol begins is powered exclusively by a combination with an initial concentration of 0.5% – of natural gas and bio-methane,” with 2% ethanol in the seawater medium, no more than 50.8 MJ of natural gas per and uses a variety of energy-intensive gallon of ethanol produced.32 Moreover, technologies to concentrate it to 99.7%, it turns out that without being awarded fuel-grade ethanol.30 A 2010 paper co- credits for the co-production of bio-oil published by the company notes that, and biogas, Algenol’s ethanol is unable to “Total greenhouse gas emissions from the meet the 50% lifecycle GHG reductions algal ethanol process depend strongly on to qualify for advanced biofuel RINs. EPA the initial ethanol concentration and on awards these credits on the assumption the energy system used to concentrate that biogas produced by gasifying the ethanol.”31 Put another way – if the residual organic matter is burned onsite algae fails to produce at the expected in the CHP unit, and that bio-oil produced levels, significantly more energy is through hydrothermal liquefaction of required in the downstream refining spent algae would displace a hypothetical process. mass equivalent of soybean oil in the market.33 This dynamic also impacts Algenol’s ability to receive credits (RINs) under This data suggests that Algenol’s claim to the Renewable Fuel Standard, which advanced biofuel RINs is tenuous at best. obligates gasoline refiners and importers The company is unable to utilize even to purchase certain quantities of low- low-carbon grid electricity, and must carbon fuels. Fuel producers are required rely upon natural gas delivery in order to to submit their production process to continue qualifying for RINs. It also leaves a lifecycle greenhouse gas analysis in the company vulnerable to fluctuations order to demonstrate GHG reductions in the price of natural gas, which could from a baseline. Algenol won approval make a particular commercial biorefinery for advanced biofuel RINs in 2014 for its unprofitable when combined with algae-to-ethanol process. underperforming algae cultures.

ALGENOL: CASE STUDY OF AN UNSUCCESSFUL ALGAE BIOFUELS VENTURE ~ MARCH 2017 ~ 6 WHAT IF GE ALGAE ARE RELEASED INTO THE ENVIRONMENT? In its 2015 report on synthetic biology, Algenol consent to additional testing, the secretariat of the Convention on recordkeeping, and restrictions.36 While Biological Diversity notes that, “It is Biofuelwatch has not yet been able to widely acknowledged among microbial access Algenol’s MCAN submission or the biologists and ecologists that physical 5e consent agreement, it is possible to containment [of GE microorganisms] analyze the company’s claims based on is never fail-proof.”34 However, rather written comments it submitted to EPA in than a holistic, systematic review of all the fall of 2015.37 relevant risk dimensions associated with a release of GE microorganisms, the U.S. Responding to concerns about the Environmental Protection Agency relies release of GE algae into the environment, upon an outdated regulatory regime, the company states that “the burden TSCA, that’s incapable of assessing the should not be on the submitter to novel risks of new biotechnologies. ‘demonstrate’ that a containment system is secure,” noting that EPA’s standard Under TSCA, companies like Algenol practice in reviewing MCANs has are only required to file a Microbial “generally acknowledged that contained Commercial Activity Notice (MCAN) when systems cannot prevent all accidental moving forward with commercialization release.” of a new GE microorganism.35 Research and development is thus exempt from This dismissive claim flies in the face of proper risk assessment. This exemption, the precautionary principle, and belies a while originally promulgated under surprisingly cavalier attitude in the face the assumption that R&D activities of a serious possibility – the irreversible would occur in a closed laboratory, has release of novel organisms into the wild. been expanded to include activities in Algenol’s facility is surrounded by storm refineries and other industrial plants water drainage canals and is about 5 operated primarily by workers with no miles from Estero Bay, on the southwest background in biosafety – creating a tip of Florida. The company itself in 2013 dangerous loophole that accelerates the flagged a “major hurricane strike” as a top likelihood of release. future risk, but focused on the attendant costs and delays – with no comments In 2014, EPA granted Algenol MCAN about the potential impacts of a release approval to commercialize three strains of GE cyanobacteria into the surrounding of GE cyanobacteria, with the condition ecosystems.38 (known as a 5e consent order) that

ALGENOL: CASE STUDY OF AN UNSUCCESSFUL ALGAE BIOFUELS VENTURE ~ MARCH 2017 ~ 7 In the event of a release, there are the release of fast-multiplying, novel still many questions yet unanswered. microorganisms into a dynamic tidal Algenol simulated a spill amid dry soil ecosystem. While it is unclear whether conditions by mixing GE cyanobacteria Algenol is required to carry out more and soil in uncovered, illuminated petri comprehensive tests as part of its 5e dishes in the lab, noting that the strain consent agreement, given what we know was unable to re-grow “to visible levels” about TSCA, it’s likely that the company’s after 9 days of simulated exposure. GE cyanobacteria will not undergo a Similarly, the company filled incubation systematic review of all relevant risk bottles from five local water bodies, dimensions – thus amplifying potential added GE cyanobacteria “at a high cell risks to human health and ecosystem concentration,” and left them for a week, stability. Furthermore, Algenol’s inability noting that the organism “failed to to maintain stable genetics even under proliferate” and that the green coloration controlled cultivation raises additional in the bottles cleared after a week. concerns about unforeseen genetic alterations or gene transfer should the Simple laboratory experiments like these company’s species be released into the are far from adequate in capturing all of wild. the potential unknowns associated with

ALGENOL: CASE STUDY OF AN UNSUCCESSFUL ALGAE BIOFUELS VENTURE ~ MARCH 2017 ~ 8 THE HYPE OF SUCCESS WITHOUT THE RESULTS Like many other algae-based biofuel Biofields and Algenol purchased 22,000 startups, Algenol relied heavily upon hectares of land surrounding Puerto

hype in generating public and private- Libertad, planning to use CO2 from sector investment. Algenol’s colorful the thermoelectric plant – owned by CEO and co-founder, Paul Woods, led the the Mexican federally owned utility charge, issuing grandiose statements company, CFE – as feedstock for the such as “This planet has one chance at algae.42 The developers of the “Sonora diverting climate change, and it’s Algenol” Fields Green Project” initially announced – despite any demonstrated evidence of that it would aim to produce 100 million commercial success for its technologies.39 gallons of ethanol by the end of 2009, and 1 billion gallons by the end of 2012.43 The Sonoma Fields Green Project, which Their intention was to take advantage appears to have been on hold for over five of renewable fuel standards by selling years, serves as an excellent early example ethanol to the Mexican oil company, of this dynamic. Pemex, in addition to meeting the US demand for advanced renewable fuels. In 2008, Algenol announced that it was teaming up with Biofields, a company But the company continually pushed back owned by González, on a massive $850 dates on commercial production. million biorefinery project in the desert of Sonora, Mexico.40 The company decided In February 2009, after Biofields had to locate the project in the small seaside invested $30 million in land, personnel, town of Puerto Libertad, on the Sea of and research, the company announced Cortes and home to one of Mexico’s it sought to produce 250 million gallons largest thermoelectric plants. by 2013, with a long-range goal of 2 billion gallons by 2020.44 By December To manage the project, Alejandro of that year, the company had pushed González recruited a former Mobil back its 250 million gallon mark to 2014, Petrochemicals executive, along with a and cut its 2020 target by half, to 1 billion former executive of Southern Copper gallons.45 Corporation, Eduardo González. Eduardo González would go on to serve as the By May 2010, questions were being raised chair of Algenol’s board of managers from about the state of the project, including 2011 – 2016.41 an article in Green Tech Media noting that Algenol has “hitherto over-promised and

ALGENOL: CASE STUDY OF AN UNSUCCESSFUL ALGAE BIOFUELS VENTURE ~ MARCH 2017 ~ 9 under-delivered,” having “made splashes and Natural Resources, but there is no with an announcement of an $850 million evidence that it has moved forward since commercial project in Sonora Fields, then.47 Mexico that has yet to materialize.”46 Why would a project of this scale be It is unclear what the current status of the mothballed for over five years? One can $850 million “Sonora Fields Green Project” only surmise that it ran aground on poorly is. On December 15th, 2011, the project performing technology, combined with received a conditional authorization from a difficult energy market due to low oil the Mexican Secretary of Environment prices.

CONCLUSION

The experience of Algenol, with its government’s ability to serve the public potentially insurmountable technological good and intervene in energy markets. hurdles, poor energy balance, and high This presents a double-edged sword for environmental risk, should present a energy justice campaigners – cutting off major red flag for private actors and financial and ideological support for false government agencies considering solutions to climate change, at the same investment in advanced biofuels. Far time as strengthening the power of the from a silver bullet to solve the climate fossil fuel industry to deflect any efforts crisis, so-called next generation biofuels to transition to a genuinely renewable represent at best, a black hole for energy regime. investors, and at worst, a new catalyst for land and resource conflicts and ecological For more on the consequences disruption. of the Trump administration for energy justice campaigning, view Politically, it appears that US government this Biofuelwatch statement here: support for next generation biofuels http://www.biofuelwatch.org.uk/2017/ will be discontinued, as part of a broad statement-about-trump/ attack by the Trump administration on

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