Biofuels launch biotech’s ‘third wave’

Ellinghuysen & AgBiosBiotechnology was first applied in medicine, then farming. Today, dozens of lifesaving drugs are on the market, while many crops are genetically engineered to withstand weed killers.

Now, a 2-year-old push to develop alternative fuels is driving biotechnology’s growth into the industrial sector.

Thousands of corporate executives and scientists gather this weekend in Orlando, Fla. for an industry trade show specifically aimed at touting biotechnology’s so-called third wave, industrial applications. The word on everyone’s lips: ethanol.

After decades of unfulfilled promise and billions in government corn subsidies, energy companies may finally be able to produce ethanol easily and inexpensively thanks to breakthroughs in biotechnology.

Most of the 5 billion gallons of ethanol produced annually in the United States is still made by fermenting corn, but the crop is expensive and its use in biofuels cuts into the nation’s food supply. So the Canadian biotech company Iogen Corp. has developed a method for deriving ethanol from a variety of plants including wheat, oats and barley. Others are genetically engineering microbes to produce enzymes that will convert the cellulose in crop waste, wood chips and other plants into ethanol.

President Bush helped breathe new life into this once-sleepy biotech sector by touting the need to ramp up production of this “cellulosic ethanol” in his last two State of the Union speeches.

The president wants to reduce the country’s oil consumption by 20 percent within 10 years and he sees alternative fuels as the way to get there. Bush visited the North Carolina biotechnology company Novozymes Inc. last month to underscore the industry’s vital role in accomplishing that ambitious goal.

Government agencies led by the Department of Energy are sinking millions into biotech projects aimed at making ethanol more efficiently. And startups dedicated to turning plants into fuel have captured the fancy of deep-pocketed venture capitalists like Vinod Khosla. The billionaire co-founder of Sun Microsystems Inc. is investing hundreds of millions of dollars in green technology and will be a featured speaker this year at the World Congress on Industrial Biotechnology & Bioprocessing.

Other heavy hitters attending the conference include University of California scientist Jay Keasling, Discover magazine’s Scientist of the Year in 2006 and a leader in the burgeoning “synthetic biology” field, which aims to create living species that will spit out drugs and fuel.

Oil companies are also investing heavily in biotechnology these days, and executives from ConocoPhillips Co., Chevron Corp. and Shell Oil Corp. will also be on hand at Walt Disney World for the conference, which starts Thursday.

By contrast, these annual gatherings have historically been sleepy affairs. Last year’s industrial biotech meeting, sponsored by the Biotechnology Industry Organization, drew little interest even though it was held in Hawaii in January. That state’s lieutenant governor may have been the biggest draw.

Past conferences have featured discussions on topics like biotech’s role in manufacturing enzymes used to help laundry detergent break down dirt and give blue jeans the stone-washed look. But this year’s meeting will be focused on the industry’s role in making ethanol and other alternative fuels.

The DOE has awarded up to $385 million over four years to six companies to develop ethanol.

“We are moving into a very diversified fuel era,” said Ron Pernick, who co-founded Portland, Ore.-based Clean Edge, which tracks venture capital investment. “Private investment is really taking off.”

Pernick said venture capital investment in biofuels has increased from less than $1 million in 2004 to $20.5 million in 2005 to $813 million last year. Much of that investment is flowing to biotechnology companies that genetically engineer microbes that produce enzymes needed to break down crops into alcohol.

At least one industrial biotechnology company has radically remade itself into an energy company in hopes the alternative fuel craze is here to stay.

San Diego’s Diversa Corp., which has lost $329.5 million since its inception in 1994, bought the Cambridge, Mass.-based ethanol company Celunol in January for $154.7 million in stock, plus debt financing. The Celunol management team will take over the new energy company once the deal is approved.

Still, even industrial biotechnology’s adherents concede that commercial success in the alternative energy industry is years away — if ever.

“Taking any invention from the lab to the marketplace is a long-term process and takes a lot of patience,” said Celunol spokesman John Howe, who said the company’s plan to convert sugar cane into ethanol will take many years to become profitable.

Others wonder if trend to making more ethanol has created a bubble that may soon burst.

Economist Lester Brown, who launched the Washington-based think tank Earth Policy Institute, said it’s easier to make automobiles more fuel efficient than it is to radically alter the country’s fuel supply.

“If we were to raise fuel efficiency standards, we could save as much oil as the president wants,” Brown said. “Ethanol is not a winning ticket.”

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