Case Study


Promise Dimmed by Market and Policy Trends, but Niche Markets Remain

Looming over the cornfields near Hugoton, Kansas is a massive new facility built by Spain’s Abengoa. Constructed with the help of a $132.4 million loan guarantee and a $97 million grant from the U.S. Department of Energy, the $350 million refinery was designed to make up to 25 million gallons of ethanol a year, and generate a claimed 21 MW of electricity.

But unlike traditional ethanol facilities, which turn corn into fuel, the Abengoa plant planned to run on agricultural waste, mostly corn stalks. The plant held an official grand opening in October 2014, attended by luminaries like U.S. Secretary of Energy Ernest Moniz and Kansas Governor Sam Brownback, and began to slowly ramp up production. The investment by Abengoa and U.S. taxpayers even brought a boost to the economy of Hugoton, a rural hamlet in southwestern Kansas, leading to a new motel and grocery store. Moreover, the plant was just one of three new cellulosic biofuels facilities in the U.S.. POET-DSM Advanced Biofuels, LLC, a joint venture of Royal DSM and POET, LLC, opened its 20 million gallon per year plant in Emmetsburg, Iowa, in September 2014, and DuPont and Danisco held a grand opening for their plant in Nevada, Iowa, in October 2015.

But this story doesn’t have a happy ending. In late 2015, Abengoa decided to seek bankruptcy1, and the company shut down production at the Hugoton plant.

Such a fate wasn’t what Congress had in mind in the 2000s when lawmakers laid out a bold bipartisan vision of replacing nearly one sixth of all gasoline with “clean” biofuels made from renewable sources like corn stover in Iowa, municipal waste in California, or algae growing in plastic bags in Florida. In the Energy Policy Act of 20052, Congress decreed that the U.S. must use 7.4 billion gallons of renewable fuel by 2012. The Energy Independence and Security Act of 20073 then raised the ante to 36 billion gallons by 2022, of which 21 billion gallons had to be ‘advanced’ biofuels, such as those made from cellulose instead of corn. The government backed up those goals with tax breaks, loan guarantees, and scores of millions of dollars in grants.

Those inducements stimulated investments of more than $3 billion and spawned a new industry. Giants like BP, Shell and DuPont built demonstration plants to turn sources of cellulose, such as wheat straw and corn stalks, to fuel, while startups like Amyris and Solazyme aimed to harness yeast or algae to produce renewable fuels.

The investments, in turn, have brought enormous scientific and technical progress. Companies figured out how to use enzymes or catalytic processes to crack the tight bonds that hold the carbon atoms in cellulose together. They’ve been able to go beyond ethanol to fuels that can be put directly into a car’s gas tank or airplane’s jet engine. They’ve scaled up promising lab experiments into giant commercial fermentation vats—and dramatically boosted yields. With what it calls a ‘vertical bioreactor,’ which resembles transparent air mattresses hung from a line, Florida-based Algenol has claimed to be able to produce more than 8,000 gallons of fuel per acre from algae, far more than the 500-900 gallons of ethanol that come from an acre of corn. “These technologies are moving forward,” says James McMillan, Chief Engineer for the National Renewable Energy Laboratory’s National Bioenergy Center. “It’s possible to make almost anything.”

In addition, various estimates suggest that several hundred millions of tons of biomass could be harvested sustainably nationwide each year—enough to make billions of gallons of cellulosic ethanol.

Yet despite the wave of innovation, the advanced biofuels industry has so far largely failed to become a commercially viable business. In addition to Abengoa’s move toward bankruptcy, Range Fuels burned through more than $70 million in taxpayer dollars before closing down its Soperton, Georgia, factory, which aimed to convert wood into ethanol and methanol. BP walked away from a $750 million cellulosic biofuel investment, shuttering its demonstration plant in Jennings, Louisiana, a technology center in San Diego and other facilities, saying that second generation biofuels didn’t make sense financially. Exxon ended a major investment in Synthetic Genomics to make fuel from algae. Algenol slashed 25 percent of its staff and its CEO resigned in late 2015. And dozens of start-ups have gone belly up.

In addition, most of the biofuel companies that have managed to survive have done so by shifting their focus from renewable alternatives to oil to products more likely to bring profits. South San Francisco-based Solazyme, for instance, is producing lubricants, skin care products and food. What Amyris President & CEO John Melo called “our fastest product start” is a hand cleaner for mechanics called Muck Daddy. The Emeryville, California-based company also makes drugs, cosmetics and fragrances.

Those that remain committed to advanced biofuels, such as Poet-DSM, are “struggling,” as Poet-DSM President Dan Cummings remarked at a meeting in late 2015. The company has put on hold its plans to adopt the cellulosic technology at up to two dozen ethanol plants in the U.S., he said. Meanwhile, even before the bankruptcy decision, Chris Standlee, executive vice president for global affairs at Abengoa Bioenergy, said his company had given up on new cellulosic biofuel investments in the U.S. and was looking overseas for new projects.

Why the struggles in the U.S.? Part of the problem is concern that, when full life cycle analyses are done, advanced biofuels aren’t always as clean as they first seem. Yes, corn stalks or switchgrass are renewable resources—and can be turned into fuel with very low carbon emissions. But to what extent does removing crop residue from fields reduce nutrient recycling and cause soil carbon to be lost into the atmosphere? And might growing crops for fuel cause land conversions elsewhere, such as deforestation, that increase emissions? These questions have yet to be fully answered.

For the most part, however, the industry’s woes are due to simple economics. “Producing fuel is the absolute bottom of the barrel,” explains J. Craig Venter, CEO of Synthetic Genomics. Companies can produce a range of products from algae, engineered yeast, or plant feedstocks, such as pharmaceuticals, cosmetics or plastics that may be worth hundreds or many thousands of dollars per liter. “ Or you can produce a liter of oil, worth maybe a buck,” says Venter. “People would be pretty dumb not to shift away from fuel to higher-valued products.”

In fact, the markets—and the economics—look worse today than they did a few years ago. Ironically, one reason has been the remarkable increase in the fuel efficiency of America’s cars and light trucks, which has cut demand for gasoline even as miles traveled has increased. “As efficiency increases and demand correspondingly falls, there is a less and less ‘room’ in the fuels market, and thus less and less willingness for Big Oil to yield any of this market to biofuels,” explains NREL’s McMillan. The oil companies—and also some auto companies— have fiercely fought the idea of gasoline blends that contain more than 10 percent ethanol, citing concerns over the potential effects on engine wear and fuel systems and arguing for a limit—called the ‘blend wall’—on the amount of biofuels that the nation can use. EPA has recently allowed gasoline blends to slightly exceed the 10 percent threshold4.

The other big reason is the plunge in the price of oil, which dipped as low as $26.12 per barrel in February 20165, which makes it harder for biofuels to compete in the marketplace.

Moreover, the biofuels industry is almost entirely the creation of government policy in the first place—and that policy commitment has waned since Congress passed the Renewable Fuel Standard mandate. Because of the limited availability of ‘advanced’ biofuels and the fact that the U.S. is hitting the blend wall, the EPA has been forced to scale back the mandate for biofuels. Without that strong commitment—or a high price on carbon to level the playing field—the industry faces a tough future. The policy backsliding “has chilled the outlook for us, for further investing,” said Poet-DSM president Dan Cummings at a recent meeting.

If the challenge isn’t tough enough already, competing technologies haven’t stood still. With more than 70,000 all-electric Nissan Leafs and Teslas (and tens of thousands of plug-in hybrids) already plying U.S. roads along with a few hydrogen-powered fuel cell cars, biofuels run the risk of being yesterday’s solution to the problem of slashing auto carbon emissions.

Still, electrification has its limitations. Batteries will never fly us from New York to Tokyo—and would also have a hard time powering the heavy trucks that keep America’s commerce humming. And even if most new cars are powered by electricity, the millions of older ones still on the road will need liquid fuel.

That’s why there is some continued government support for biofuels. That support can be seen in California’s Low Carbon Fuel Standard, which essentially raises the price of high-carbon fuels like gasoline to subsidize low-carbon fuels like cellulosic ethanol or biodiesel. It can also be seen in the military’s efforts to find low carbon alternatives for its planes and ships. In 2015, the Pentagon handed out $210 million to Fulcrum BioEnergy and two other bio jet fuel companies, Emerald Biofuels and Red Rock Bio, towards the construction of biorefineries to produce cost-competitive, drop-in military biofuels6. “The nation that leads the clean energy economy will lead the global economy of the future,” said Deputy Secretary of Energy Dan Poneman when he made the announcements. “Winning the race to cost-competitive drop-in biofuels is a huge win for our country and for the future.”

Facing the prospect of increasingly strict regulations on greenhouse gas emissions, airlines are also keeping their options open. United Airlines announced in June 2015 that it was investing $30 million in Fulcrum BioEnergy7. That move followed a previous agreement with AltAir Fuels to supply aviation fuel made from natural oils and agricultural waste to power planes flying out of United’s Los Angeles hub. “Investing in alternative fuels is not only good for the environment, it’s a smart move for our company as biofuels have the potential to hedge against future oil price volatility and carbon regulations,” explained United’s Executive Vice President and General Counsel Brett Hart.

The bottom line: Thanks to billions in investment and technical advances, companies already know how to make most of the renewable liquid fuels the nation would need to forge a low carbon future. And because of efficiency gains and progress in electric cars, we may not need as much as we once thought. So with a change in policy to provide more support, biofuels for some markets, especially aviation and shipping, could become a reality.

View footnotes

  1. Pentland, W. 2015. “Spain’s Renewable Energy Powerhouse Abengoa Teeters Toward Bankruptcy,” November 30,, available at
  2. U.S. Environmental Protection Agency. 2016. “Summary of the Energy Policy Act,” February 8, available at
  3. U.S. Environmental Protection Agency. 2015. “Summary of the Energy Independence and Security Act,” August 10, available at
  4. Parker, M. 2015. “There Goes the `Blend Wall’ Keeping More Ethanol Out of Gasoline,” November 30,, available at
  5. Riley, C. 2016. “Oil crash taking stocks down … again,” February 11, available at
  6. Lane, J. 2014. “US Navy, DOE, USDA award $210M for 3 biorefineries and mil-spec fuels,” September 19, available at
  7. United Air Lines. 2015. “United Airlines Purchases Stake in Fulcrum BioEnergy with $30 Million Investment,” June 30, available at

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