Biofuel or Biofraud? The Vast Taxpayer Cost of Failed Cellulosic and Algal Biofuels

By Almuth Ernsting

Biofuels consumed today are usually ethanol made from the sugar in sugar cane (or sugar beet) or they may be made from starch in grains. In the US this is mostly corn starch. Alternatively, biodiesel may be made from plant oils such as soybean or canola oil.

Cellulosic biofuels, on the other hand, are biofuels made from crop residues (e.g. corn stover), wood, or whole plants, especially grasses (e.g. switchgrass). Cellulosic biofuels include cellulosic ethanol (made by isolating, breaking down and then fermenting the complex sugars in the cell walls of plants), as well as ‘drop in biofuels’. These biofuels are chemically almost identical to fossil-fuel based kerosene, diesel or gasoline.

In November 2014, cellulosic biofuel company KiOR filed for bankruptcy, having shut down their refinery in Columbus, Mississippi earlier that year. There have been many unsuccessful biofuel ventures of this type, but KiOR’s stands out for four reasons:

1)  They had sold the first-ever cellulosic biofuels made in a commercial-scale facility in the US and produced the first cellulosic gasoline ever accredited as such by the US Enviornmental Protection Agency (EPA);

2)  They were the highest valued ‘advanced’ biofuel company backed by venture capitalist Vinod Khosla and his company, Khosla Ventures, having been valued at over $1.5 billion when they launched on the stock market. Khosla has been one of the most influential advocates of cellulosic biofuels in the US.  Back in 2010, the EPA set a target for cellulosic ethanol, that relied almost entirely on Khosla’s promises about what another company he’d invested in – Cello Energy – could deliver. Cello Energy filed for bankruptcy that same year, after they had been found guilty of fraud;

3) KiOR had obtained a $75 million loan from the State of Mississippi of which they had repaid just $6 million by the time they filed for bankruptcy.  The Mississippi Attorney General Jim Hood has described this as “one of the largest frauds ever perpetrated on the State of Mississippi.” He has initiated a fraud suit against former KiOR executives as well as against Vinod Khosla, alleging that they misled investors about the quantities and yields of biofuels they could achieve.  A separate class suit has been raised on behalf of shareholders who claim to have incurred financial losses because they bought shares as a result of misleading claims by KiOR executives and Vinod Khosla about the company’s achievements and capabilities.

4) As a result of the bankruptcy proceedings and the fraud suits, information about what went wrong are entering the public domain.

The reasons behind KiOR’s failure are simple: Most of the time, they couldn’t get their technology to work enough to produce biofuels and when they did manage it, yields were far lower than KiOR had claimed.  The plant, built to produce 13 million gallons of biofuels a year, produced a mere 133,000 gallons in 2013, sold another 97,000 gallons in early 2014, and then shut down. KiOR had claimed to achieve a yield of 67 gallons from each ton of dry biomass and to be working towards a target of 90 gallons/ton. Yet according to internal documents cited in Mississippi’s lawsuit, KiOR’s actual yields remained a mere 20-22 gallons/ton.

The fraud for which Cello Energy was sued and ultimately convicted involved mislabelling fossil fuels as biofuels for ‘test’ programmes. KiOR on the other hand is alleged to have knowingly misled investors and possibly the Securities and Exchange Commission about the amount of biofuels they could produce and the yields they could gain.  Yet similarly hyped claims about ‘advanced biofuels’ are widespread and commonplace on different companies’ websites, in industry magazines and press releases.

A closer look at another cellulosic biofuels company – Red Rock Biofuels – suggests the federal government has not learned any lessons from KiOR or Cello, nor for that matter any of the other failed cellulosic or algae biorefineries. They are still eager to offer grants and loan guarantees on the basis of wildly hyped up claims about unproven technologies.

Red Rock Biofuels: Another KiOR in the making?

On 19th September 2015, the federal government announced a total of $210 million in grants, split evenly between three companies each of which was to build one biorefinery, paid under the Defense Production Act.  The three refineries are to produce biofuels for the military.  One of the three companies – Emerald Biofuels – has been secretive about their precise feedstock but their technology relies on the same kind of process as conventional biodiesel, i.e. plant oils and animal fats.  Their facility (based in Texas) is to be the largest of the three refineries, the technology is proven and already used in several large biofuel refineries worldwide, including for refining palm oil.  The other two companies – Fulcrum and Red Rock Biofuels (RRB) –  are to build refineries which produce cellulosic biofuels.  Here we will focus on RRB, although the technology that Fulcrum plans to use is nearly identical to RRB’s.

RRB was recently acquired by Joule Unlimited, an advanced biofuels companies which has so far focussed on a very different technology and feedstock, albeit at a demonstration rather than commercial-scale. RRB’s technology relies on a process that was invented in Germany in the 1920s.  It consists of three stages: In the first stage, fuel (in this case wood, but fossil fuels can be processed in the same way) is exposed to high temperatures under controlled oxygen conditions – called gasification.  This turns most of the fuel into a gas that consists mainly of hydrogen and carbon monoxide but still contains many impurities which then need to be removed.  The cleaned gas – called syngas – is then put through a series of chemical reactions, using chemical catalysts – a process called Fischer-Tropsch reforming.  It is used to create different fuels and chemicals with almost identical properties to ones derived from mineral oil, including jet-fuel.

So far, nobody in the world has successfully operated a commercial-scale plant which gasifies biomass and turns the syngas into liquid fuels using the Fischer Tropsch process, despite decades of Research and Development. The company that appears to have got furthest with this technology was a German firm, Choren.

Between 1998 and 2011, Choren moved from operating a very small pilot biomass gasification plant (initially just producing gas to burn for electricity) to a demonstration gasification and Fischer-Tropsch plant.  At one time Choren attracted investment from Shell, Daimler and Volkswagen, but those investors withdrew when it became clear that Choren were unable to move towards commercialization, instead spending years in a cycle of temporary operations, shut-downs and plant modifications to resolve one technical problem after another.  Choren declared bankruptcy in 2011.  In the US, two companies, Coskata and Range Fuels, built commercial-scale plants using this technology.  Range Fuels – another Khosla-funded venture filed for bankruptcy in 2011, having produced just small quantities of methanol rather than large quantities of ethanol.  According to a Wall Street Journal article, “taxpayers have committed $162 million (along with at least that much in private financing) to produce four million gallons of a biofuel that others have been making in quantity for decades.”  Yet another Khosla-backed venture, Coskata, received a $250 million loan guarantee from USDA, failed to produce any commercial quantities of biofuels using gasification and Fischer-Tropsch technology, and in 2012 switched to fossil-fuel natural gas as a feedstock instead.

Each of these projects failed because of technical challenges, which, for this technology, include build-up of tars, which can clog up vital parts, difficulties with removing impurities from the gas, problems with finding the right catalysts, and with achieving the required ratio of carbon monoxide and hydrogen.

It is impossible to predict whether it might one day become possible to overcome those challenges.  But that is what it would take to allow a plant like the one now proposed by RRB to operate successfully.  What seems clear from past experience is that any credible contender would have to spend large sums of money and many years on Research and Development, moving very slowly from pilot to demonstration scale and beyond.  Even so, there would be no guarantee of success: An EU-backed biomass gasification/Fischer-Tropsch project in Austria has so far failed to move beyond the laboratory stage since 2004.

RRB meanwhile, has no experience with the technology at all.  They have never operated any plant, however small. The partner companies chosen to provide the most important technologies appear no more credible.  TCG, who are to supply the gasifier, say on their website that they are operating a gasifier which was built in Denver in 2007 and moved to Toledo, Ohio in 2010.  In Toledo, TCG’s gasifier formed part of a demonstration project, which had received a grant of nearly $20 million from the Department of Energy (DoE) in 2009. According to the final project report, problems with the gasifier in Denver had prevented any syngas sample from being collected.  After it had been re-engineered in Toledo, syngas was obtained in late 2008 but it was too contaminated with tars to produce any biofuels.  After major investments and modifications, clean syngas was finally obtained over a four day period in late 2009, after which the project came to an end.  TCG’s record of producing clean syngas from biomass – syngas clean enough for biofuel production thus appears to be limited to just
four days of operation.

Velocys, part of the Oxford Catalyst Group, are to provide the Fischer-Tropsch technology for the RRB refinery.  Back in 2010/11, Oxford Catalyst Group participated in the Austrian laboratory-scale trials mentioned above.  There are plans to finally move the Austrian project to a larger (but still small) demonstration phase, but the company is no longer on the list of project partners.  Their biggest contract before RRB’s had been one with Solena, a company that had entered into partnerships with various airlines, to build waste-to-kerosene refineries, including in London.  However, Solena never built a single plant and went bankrupt in October 2015.

At the time the federal government announced the $70 million grant for RRB in September 2014, KiOR’s refinery had already closed and the government had been provided with evidence that they never came close to their claimed yields of 67 gallons per dry ton of wood, which was hardly surprising since there is no evidence of anyone ever having achieved such high yields of cellulosic biofuels.  Yet KiOR’s claims look modest compared to RRBs: RRB claims they can make 16 million gallons of biofuels from 175,000 dry tons of wood, a yield of more than 91 gallons per dry ton.  Apparently, lessons have not been learned.

The bigger picture:

The disastrous experience with Fischer-Tropsch biofuels is just one part of a much larger failure of cellulosic and algal biofuels, on which billions of dollars of public subsidies have been spent.  At the end of 2015, Spanish energy company Abengoa mothballed their cellulosic ethanol refinery in Kansas due to financial problems – after receiving a $97 million grant from the DoE. Their facility officially ‘opened’ in October 2014, but an article in July 2015 indicated that it was still not operating – and there is no evidence that it ever had.  Here, too, technical problems appear to have preceded the company’s financial troubles.  Another company that obtained generous subsidies for a cellulosic biofuel plant was Ineos-Bio. They attracted a $50 million DoE grant and a $75 million loan guarantee from the US Department of Agriculture (USDA) for a plant in Florida, which officially opened in 2013.  By early 2015, the plant had been closed for some time because this company’s process released a toxic gas that poisoned the bacteria needed to ferment the biomass into ethanol.  There are no reports of the facility having re-started.

Those are just the largest subsidised cellulosic biofuel refineries that have failed.  They don’t include the even far greater number of ‘demonstration’ projects supported with government funds – such as a small refinery by American Progress Inc., who took a $22.3 million grant from the DoE and a $4 million grant from the State of Michigan and then formally closed their plant last year.  Just one company might have ensured its ‘success’: Quad County Corn Processors have slightly modified a standard corn ethanol refinery in Iowa.  They now add enzymes supposed to break up cellulose in the corn residues to the process.  The assumption is that this increases yields by 6% and that 2 million gallons of the corn ethanol will actually be ‘cellulosic’.  There seems to be no easy way of testing whether it really is.  Simply by continuing to run their corn ethanol plant, Quad County appears to be guaranteed credits for 2 million gallons of cellulosic ethanol annually – which happens to account for almost the total production of such fuels in the US in 2015.

Algal biofuels have fared no better.  A small number of companies have successfully used their public subsidies to get algal oil production off the ground – but alas, not for use in biofuels.  Sapphire Energy took $50 million from the DoE to develop algal biofuels in Florida.  They are selling limited amounts of algal oil for nutritional supplements instead.  And there is Solazyme, a Californian company who took $22 million from the DoE and another $2 million from a public institute for making algal biofuels.  They sold one batch to the Navy for a “Great Green Fleet” trial for the exorbitant cost of $149 per gallon. Since then they have been making most of their income from anti-wrinkle skin care products.  A great deal more subsidies for such unproven and so far failing technologies can be expected under Obama’s Clean Power Plan, and his “Mission Innovation” plan to massively boost spending on “clean tech”.

Cellulosic and algal biofuels are still regarded as a sustainable alternative to corn ethanol and other conventional biofuels, even by many environmental organizations.  It is time to put the myths to rest and prevent this colossal waste of public funds still being spent on obviously ill-fated schemes.  This is funding that could instead help reduce carbon emissions if they were spent, say, on insulating homes or on supporting solar power, a proven technology with a tiny land footprint compared to that of biofuels.

Almuth Ernsting, Co-Director, Biofuelwatch (www.biofuelwatch.net)

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