BioFuel Startup strives to meet Ambitions of New Administration

EMERYVILLE, California — "We have 203 employees — and we're growing," John Melo, CEO of alt-fuel startup Amyris, said as he stepped jauntily through the glass doors at his company's gorgeous new digs just down the street from Pixar in this industrial town outside Oakland.

In the worst financial climate in decades, the company is pushing ahead with its audacious plans to make 200 million gallons of synthetic biofuel a year at $2 per gallon by 2011.

Last week while other companies handed out pink slips and contemplated cutbacks, Amyris had a modest party — cheese, bread, and wine in their not-quite-Google cafeteria — to celebrate the completion of a new pilot plant with 2.4 million gallons of annual capacity.

"It's the first time you put all the pieces together and you let it go," Melo said. "From beginning to end, it's commercial process."

The synthetic biology startup, which uses genetically engineered yeast to rearrange the molecules in sugars to create higher-value products like diesel fuel or malaria medication, is a very bright, very green story amidst the torrent of bummer headlines: More than 500,000 people filed jobless claims last week, the highest number since 9/11; The well-regarded International Energy Agency released a new report last Thursday declaring that "current trends in energy supply and consumption are patently unsustainable;" And the S&P 500 and Dow Jones Industrial Average are down almost 40 percent this year.

The young company has become a corporate face, or a beacon on the hill, for the green revolution that President-elect Barack Obama and his administration hope will pull the U.S. economy out of recession.

Amyris, in short, could disrupt the energy marketplace the way Google sent the media world into disarray. And by staying a step ahead of the rest of the world through science and engineering, America could recreate the living-wage jobs that have left the country over the last two decades and recharge the economy.

The Lawrence Berkeley National Laboratory spin off has been talked up and invested in by uber-V.C. Kleiner Perkins as the model for green growth. John Doerr and Al Gore have used the company in their clean-energy stump speeches for years. Indeed, the Amyris offices, a refreshingly open set of high-design rooms and hallways that look out on a lush courtyard garden, seem like the very incarnation of renewal.

Packing powerful science that allows the company to turn any carbon-containing sugar into liquid transportation fuel, Amyris sidesteps the energy intensive crude-oil refining process. They claim that allows them to reduce the "well-to-wheel" greenhouse gas emissions of their fuel by 80 percent over conventional diesel. Though emission accounting for biofuels is notoriously difficult — particularly calculating the secondary effects of land use changes — it's safe to say that Amyris is better for the environment than petroleum. And if the company really can make $2-a-gallon diesel, there is little doubt they'll find a market, even if the price of a barrel of oil stays under $100.

The company's continuing march towards commercialization represents the maturation of the first-generation of venture-backed companies in the recent clean-tech boom. But it's not just the sector's scientific potential that excites people in both Silicon Valley and Washington, D.C. Because clean-tech companies compete in industrial sectors, they could generate lots of real factory jobs where people are employed making actual products.

Or at least that's the story that green-tech investors and savvy politicians have sold to the laid-off workers of Michigan, Pennsylvania, and Ohio.

"It's not clear, in the absence of the concerted effort to make investments in the clean-tech sector, what geographies or sectors are going to pull the U.S. out of the recession," Eric Janszen, a prominent investor and author, told Wired.com earlier this year. "What tends to happen is that policymakers survey this scene and say: 'What are we going to do to get people working?' They focus on the one sector of the economy that can drag us out."

Obama's energy plan calls for five million new jobs in the low-carbon and alternative energy sector. That would mean creating 20 new General Motors-size companies, each employing 250,000 people. But green tech companies are nowhere near the scale of the economy they are supposed to replace, no matter how fast they're growing. Just 200 jobs is a lot in Silicon Valley's startup landscape.

The pilot plant, after all, isn't that big. In fact, you'd be hard-pressed to play a game of half-court basketball in it. And unlike a real fuel plant, it's not dirty or industrial-looking. Liquids gurgle inside bulbous silver tanks. Surfaces gleam. Rows of empty folding chairs face a podium at the front of the room, the leftovers from a press conference earlier in the week.

"We actually had a harvest yesterday that made the place smell and look great," Melo said, pointing out the steel 300-liter fermenters that grow the fuel-producing yeast. The heady brewery smell lingers.

In the full-size plant the company plans to build next year, the fermenters — and everything else — will need to be ten times larger. And to make an impact on climate change or the world's liquid fuels ledger, there would need to be thousands of similar plants.

Still, the pilot plant is a major step towards commercialization. While it might seem trivial to turn in-lab discoveries into real-world products, the engineering process is fraught with challenges. It's like the difference between cooking for your family and cooking for 500 or 10,000 people; it's rare that the food in the school lunch line tastes good.

Melo's team, happily, has found that their yield — the amount of fuel they get out per unit of sugar put in — has actually increased using the commercial process. But they are still a long way from a profitable process.

"We have a four-fold improvement year-to-date and we have a three-fold improvement to go," Melo said.

And getting there isn't a certainty. Scaling up green technologies takes time and money — both of which the American economy is short on. And just as politicians have latched onto the green collar job meme, investors are getting cold feet, particularly about the big, expensive commercial operations that provide large amounts of jobs. In addition, the price of oil, which drove much of the biofuel investment over the last couple of years, has fallen in response to a slowing world economy.

At a clean tech conference last week, more than 60 percent of a group of investors surveyed said they did not expect financing to be available for companies "looking to commercialize or scale" their projects. But the problems that inspired the science — climate change and rapidly-depleting oil fields —remain in play.

"The number of projects I've seen fall off, both because of the debt markets and because of the economics, the price of oil, is pretty significant," Melo said. "We're setting ourselves up for a bigger problem," Melo added.

The International Energy Agency report painted a grim picture of oil fields declining faster than expected while growth in the demand for crude has only slightly slowed.

"Even if oil demand was to remain flat to 2030, 45 [million barrels a day] of gross capacity – roughly four times the current capacity of Saudi Arabia – would need to be built by 2030 just to offset the effect of oilfield decline," Nobuo Tanaka, the IEA's executive director said in a release.

Melo said Amyris has taken in enough money — about $120 million to date — to continue growing for the next 18 months. The deteriorating economic conditions, however, have put the company's plan to go public sometime in the next two years on the back burner.

With the pilot plant complete, Amyris will now focus on building a similar plant in Brazil, where they've established a joint-venture with SantalisaVale, the second-largest ethanol producer in that country. SantalisaVale has promised two million tons of sugar cane crushing capacity, which will provide the feedstock for their full-size facilities.

Despite its green appeal, Amyris has its critics. Some environmental organizations are opposed to biofuels generally, and others, like the Ottawa-based ETC Group, target the techniques and business models that synthetic biology companies employ. They take aim at the fledgling industry in a report released last week, saying it will be as environmentally destructive as the system it replaces.

"Advocates of converging technologies promise a greener, cleaner post-petroleum future where the production of economically important compounds depends not on fossil fuels — but on biological manufacturing platforms fueled by plant sugars," the group writes. "It may sound sweet and clean, but the so-called 'sugar economy' will also be the catalyst for a corporate grab on all plant matter — and destruction of biodiversity on a massive scale."

Groups like ETC argue that biofuels, of any type, will eventually cause serious environmental damage — by eroding and degrading soils, reducing biodiversity, and increasing food insecurity — merely shifting the world's energy problem from "Peak Oil" to "Peak Soil".

And it doesn't help Amyris' case with hardcore environmentalists that Melo was brought in from British Petroleum to scale up the company.

Liquid fuels, though, underpin the world's transportation system. They are useful because they are their own storage. Electric vehicles need batteries to store energy and batteries are expensive, said Ron Cogan, editor of Green Car Journal.

"What is the answer? There is no single answer," said Cogan, who has been following alternative energy for cars since the early 1990s. "I think we're in a position where we can't afford to ignore any fuel or technology."

The incoming administration sees the interlinked urgency of the economic and climate crises. The head of Barack Obama's transition team, John Podesta, co-authored a report earlier this year through the Center of American Progress detailing a plan for a $100-billion green stimulus package.

The clean-tech investment situation is deteriorating quickly, though, and the amount of growth that must occur for the industry to transform the energy economy is huge. With deep recession and catastrophic climate change looming, the green cavalry — in the form of loans and incentives — might arrive too late. That could leave companies like Amyris with only their shiny, empty pilot plants, which are too small to hold the ambitions of the people pushing a new, clean economy.