GM Launches Partnership With Coskata To Pursue Its Ethanol Dreams
January 13, 2008

By Dale Buss

WARRENVILLE, Ill. –- Here in a cluster of tiny laboratories, in a nondescript one-story office building, in a cookie-cutter industrial park in suburban Chicago, scientists and engineers –- as of Sunday, officially partnered with General Motors –- may be coming up with one of the most feasible solutions yet to the wrenching problem of global dependence on oil for gasoline.

It’s called cellulosic ethanol. It’s created by proprietary strains of bacteria that convert farm waste, wood chips, old tires, landfill plastic and a whole bunch of other organic materials into ethanol. The process was licensed and is being commercialized by a startup called Coskata Inc.

Specifically, the promise is that Coskata plans to produce enough cellulosic ethanol here by later this year to begin fueling the GM test fleet at the Milford (Michigan) Proving Grounds. And if that works, Coskata projects that it could be running its first commercial-scale plant, producing 50 million to 100 million gallons of ethanol annually, by 2011 –- including the two years it will take to build the plant.

“This can revolutionize the transportation-fuel business,” said Bill Rowe, a three-decade veteran of the water-treatment and process-chemical industry who now serves as Coskata’s CEO. “Just as important, it’s a speed-to-market play.”

It would be a remarkable achievement -– from nonexistence to a potential global energy savior -– in the space of just five years. Coskata was founded in 2006 when Todd Kimmel, a venture capitalist, and scientist Rathin Datta licensed waste-chomping microorganisms that had been nurtured by several university researchers.

Cellulosic vs. Corn

Coskata executives believe that their process can be a huge player in the energy future because of several fundamental advantages. Waste is the easiest source to procure for ethanol output and doesn’t compete for food supplies as using corn does. The entire production and distribution cycle can be local, making cellulosic ethanol a potential energy contributor nearly anywhere on the globe.

Most important, Coskata said its process can produce cellulosic ethanol for less than $1 a gallon, about half of today’s cost of making gasoline. Some outsiders calculate that its cost would come out to about $1.30 a gallon on an energy-equivalent basis to gasoline and could debut in the marketplace at a retail price of around $2 a gallon.

Cellulosic ethanol has significantly higher octane content than gasoline, which boosts engine efficiency. It reduces carbon-dioxide emissions by up to 84 percent compared with gasoline, according to a “well-to-wheel” analysis by Argonne National Laboratory, and it generates up to 7.7 times the energy used in its production process, a much better ratio than corn-ethanol production. It also uses two or three times less water in production “than the best technologies today,” Rowe said.

What’s more, its use in vehicles doesn’t require exotic new powertrains or complicated engineering innovations, as plug-in hybrids or fuel-cell vehicles do; nor does it depend on the planning and construction of a complete, mammoth new fuel-distribution infrastructure from scratch. Cellulosic ethanol can power any existing flexible-fuel vehicle, and GM alone has 3.5 million of those on the road around the world -– and is producing more than one million new flexible-fuel vehicles a year.

Another propitious factor is that the just-enacted federal Energy Independence and Security Act calls for a dramatic increase in America’s biofuels production, from 7.5 billion gallons in 2012 to 36 billion gallons a year in 2022. And cellulosic and biomass sources are expected to produce up to 21 billion gallons of that total, outstripping the 15 billion gallons annually that are being counted on from corn- and other grain-based sources. Rowe and his colleagues are supremely confident that, among other things, Coskata will qualify for the upcoming round of federal research grants created by the bill.

GM On Board

But here’s the biggest boon: GM believes all this, too. In fact, today [Sunday, January 13], GM announced its partnership with Coskata, which includes the first fuel for Milford, an undisclosed equity stake by GM in the company, joint research and development into emissions technology and investigation into making ethanol from GM facilities’ waste and non-recyclable vehicle parts. Potentially, that could be just the beginning.

“We are very excited about what this breakthrough will mean to the viability of biofuels and, more importantly, to our ability to reduce dependence on petroleum,” said Rick Wagoner, GM’s chairman and CEO, in a prepared statement.

And while GM continues to look for other savvy investments in biofuels, Coskata is “heads and tails above the rest,” said Mary Beth Stanek, GM’s director of energy and environment policy and commercialization, who visited Coskata here last week with other company executives. “Their metrics are fantastic. And they can do it right away.”

Learned outsiders were ready to jump on the Coskata bandwagon as well. “This is a bigger deal than just about anything we’ve seen for a long time in the whole energy picture,” said David Cole, chairman of the Center for Automotive Research, in Ann Arbor, Michigan, and a member of the Michigan Renewable Fuels Commission. “Assuming the pilot facility works, and the costs are in range, this is really huge.”

Even some biofuels competitors agreed. Luis Humberto Goyzueta is founder and CEO of Pure Biofuels Corp., a California-based company that was founded by Goyzueta’s family-owned commodities empire in Peru. His startup is betting on biodiesel, but he believes that “cellulosic [ethanol], if someone figures it out, is the true challenge to the oil cartel. It is the only feedstock source that has the true potential to displace oil.”

Factors Lined Up for Coskata

Several developments laid the groundwork for Coskata’s meteoric rise to game-changer. Skyrocketing oil prices, of course, were the first, creating an ever-rising cost floor under which new biofuels technologies, formerly considered too expensive, have been able to establish a foothold.

In the wake of $3-a-gallon U.S. gasoline, corn-based ethanol finally gained a market and took advantage of an existing resource base. But recently its prospects as a panacea have come under fire because producing ethanol from corn is relatively inefficient. “Not many years ago,” Cole said, “the ‘energy bounce’ you got from producing corn ethanol was negative; it’s only a little bit positive now. But the energy bounce you get from cellulosic is very high. It’s a no-brainer.”

Moreover, the energy demand for corn began to put pressure under corn prices just as the prospects for significant food scarcities around the globe have become more ominous. Not only is cellulosic ethanol extremely versatile in the variety of feedstocks it can accommodate, but Coskata can produce about 100 gallons of it from just a ton of dry material, Rowe said.

These materials can include crops specifically grown for their high ethanol yields. One huge advantage of some “energy crops,” including switchgrass, is that they can thrive on land that is too marginal for production of mainstream food crops. This is a particular advantage for China, which has only 84 percent of the arable land as the United States but a population about four times as large, noted Candace Wheeler, a technical fellow in GM’s Research & Development and Planning department.

At the same time, GM and other automakers have been embracing E85 fuel (85 percent ethanol, 15 percent gasoline) as a major means of diversifying the propulsion sources for their vehicle fleets. GM has committed to doubling North American production of flex-fuel vehicles from 400,000 to 800,000 by 2010 and to make half of its vehicles flex-fuel capable by 2012. In the 2007 model year, GM produced 14 flex-fuel models totaling 760,000 vehicles. GM also has helped to open 300 E85 refueling stations in 15 states over the last two years.

The company also has been a leader in flexible-fuel powertrains in the Brazilian market, where ethanol is made mainly from sugar cane. It’s no coincidence that the ethanol boom took place during the '90s in Brazil, where Wagoner, GM CFO Frederick Henderson, and Brent Dewar, executive vice president of sales service and marketing, each were posted for a time.

“The market was tough there, but [GM] got back on its feet under them with flex-fuel vehicles,” Stanek said. “Now those same leaders are running the company globally.”

Back in the Muck

While all this was happening -- and for eons before, of course --  trillions and trillions of bacteria belonging to particular strains have been cavorting in swamp muck and other oxygen-deprived environments, happily converting plant cellulose and other organic materials into ethanol. University of Oklahoma, Oklahoma State and Brigham Young University researchers were studying some of these strains, mainly for possible applications in biotechnology.

The nexus of researchers comprised “one of the very few centers of excellence in this research in the world,” said Kimmel, who was an energy venture-capital investor. Originally interested in coal gasification, he figured out that a better bet was pursuing commercialization of ethanol production via these microorganisms. He persuaded the university scientists to cast their lot with a startup rather than go the traditional route of licensing their intellectual property to a big company.

Kimmel acquired exclusive rights to the organisms and lined up VC funding from Khosla Ventures, Advanced Technology Ventures and Great Point Ventures. Borrowing the company name from that of a nature preserve on Nantucket Island, Coskata was in business by last May. By August, the rights to more than 16 patents on the Coskata process either had been issued or were under consideration.

Kimmel, Rowe and their colleagues also wanted to get backing from a big company or two that could greatly contribute to as well as benefit from the commercialization of the Coskata process. “We needed a value chain behind us, so we approached the logical candidates, including [oil] feedstock companies like BP, Archer-Daniels-Midland, [gasoline] retailers like Costco, and the automotive OEMs,” Kimmel recalled.

“To our surprise, GM was thinking about this proactively -– they were actually ahead of us,” Kimmel said.

Stanek said that GM, like the rest of the auto industry, would “like to see stability restored” to energy prices. Even if that stability comes at higher levels than they would like, at least OEMs could plan future models knowing how important fuel economy might be to consumers over the course of several years.

She believes that cellulosic ethanol could be crucial to that endeavor. In any given market, Stanek said, consumers need to see availability of a given fuel at about 6 percent of surrounding filling stations “for them to feel it’s all around them.” That’s the level at which Americans became comfortable with diesel fuel as a mainstream source several years ago, she said –- and now diesel is available at about 40 percent of U.S. gas stations.

GM elected to partner first with Coskata after looking at “about 15 to 18 other players” in cellulosic ethanol, Wheeler said. But Stanek cautioned that GM isn’t betting only on Coskata to pursue its ethanol ambitions.

And there are other reasons to temper optimism about the significance of Coskata’s process and, indeed, about cellulosic ethanol overall. For one thing, Coskata isn’t guaranteed of getting a piece of the Energy Department’s planned disbursement in February of up to $200 million for small-scale cellulosic biorefineries of the type that the company is developing, even though GM is supporting Coskata in the solicitation.

Consumers might be confused or put off by the fact that a gallon of ethanol yields about 25 percent less mileage than gasoline, even though ethanol is expected to remain far less expensive on an energy-equivalent basis. And even a decade or so from now, it’s expected that full-out production of cellulosic ethanol still will provide only a fraction of the solution to America’s oil dependence. The nation’s annual oil consumption is about 140 billion gallons now, and Stanek said she can see that amount “easily rising to 180 billion gallons by 2030.”

But Cole said that cellulosic ethanol is firmly on track to make a big contribution. “Until a few years back, I was a skeptic on the commercial possibilities for it,” he said. “But now I’m not, because it’s become only an engineering and development issue instead of an invention issue.”

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