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Ready for take-off: A deep dive into CO2-to-fuel pathways

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Last month, in our report “Direct Air Capture’s $10 Billion Carbon Bounty,” we explored how carbon capture is vital to slow down the climate problem and achieve aggressive climate targets over the next few decades. This brings us to the next big question: Where will this captured carbon dioxide (CO2) eventually end up? In this report, we discuss how different startups are utilizing captured CO2 to develop sustainable fuels.
We discuss three CO2-to-fuel pathways: 1) the electrochemical approach, 2) the biological approach, and 3) the algae-based approach. All three are still in their early stages and are yet to be proven commercially. However, more recently, there have been some exciting developments in this space. Just last month, Twelve produced its first batch of sustainable aviation fuel from CO2 emissions, while Carbon Engineering revealed plans for its first CO2-to-fuel facility. Earlier this year, Prometheus Fuels entered into an agreement with American Airlines to supply 10 million gallons of carbon-neutral jet fuel. LanzaTech too has been exploring several commercialization pathways recently.  
These recent developments suggest a dynamic shift within the CO2-to-fuel space. Carbon utilization pioneers like LanzaTech have been around for quite some time now (nearly a decade and a half) and have gradually improved the efficacy of their operations to reach commercial potential. On the other hand, almost all CO2-to-fuel pathways are highly energy-intensive and rely heavily on cheap renewable energy. Widespread adoption of solar and wind power as well as the declining costs over the past decade have made CO2-to-fuel processes more feasible. The push from the emerging carbon capture industry has also been critical.

Why CO2-to-fuel?

CO2 is already an important input in many industries, with a global demand of around 250 million metric tons (MT) per year according to International Energy Agency (IEA) estimates. However, major CO2 consumers like urea production and enhanced oil recovery (EOR) operations are somewhat out of reach for startups. 
Urea is produced as an extension of ammonia production and often uses circular emissions from ammonia in the process. This limits the commercial demand for CO2 in urea production. EOR uses around 68 million MT of CO2 in the US. However, around 75% of this comes from natural sources, while the rest is man-made. The cost gap between natural and man-made CO2 is USD 30–50/MT for captured CO2 and USD 10–20/MT for other man-made CO2. This makes EOR too somewhat less desirable for captured carbon. It is mostly O&G companies that take this approach to maintain the circularity of operations, using CO2 captured from their own flue stacks in EOR. 
This leaves just around 9% of the commercial CO2 demand addressable for captured carbon. This includes CO2 consumption in F&B, metal fabrication, medical applications, fire suppression, etc. However, this space is already highly penetrated, with top industrial gas companies like Air Products, Linde, and Air Liquide leading the market. This leaves little room for captured carbon to be utilized through conventional methods—pushing most startups to focus on alternative pathways. 
Among these, companies like CarbonCure and Solidia Technologies have had some early success in utilizing CO2 in cement production (as an additive to improve strength), collectively serving 350+ global concrete manufacturers. However, the potential as an optional additive in a USD 500 billion global cement market is somewhat restricted. In contrast, CO2-to-fuel provides better headroom for growth as a potential “substitute” for a two-trillion-dollar fossil fuel industry. 

Comparing CO2-to-fuel pathways 

Electrochemical and biological pathways seem to already be commercially viable cost-wise and are most likely to go to market first. The algae-based approach is still somewhat expensive and will need significant process innovation to make commercial sense.
Let’s look at each pathway in detail.

1. Electrochemical approach: The most in-demand CO2-to-fuel technology

How does it work? 

This is perhaps the most sought-after CO2-to-fuel technology and is used by startups like Prometheus Fuel, Twelve, and Carbon Engineering. The process inputs are CO2, water, and renewable electricity, while the biofuels produced include both hydrocarbon-based drop-in fuels (can be used as a direct alternative for fossil fuels without further processing) and alcohol-based additives like ethanol and methanol (mixed with fossil fuels to be made more sustainable). 
In a typical process, CO2 and green hydrogen, generated through water electrolysis (read more on our Hydrogen Economy industry hub), are optimized inside a reactor using either heat or pressure to generate sustainable fuel. The process is commonly known as hydrogenation. A chemical catalyst is usually added to make the process more efficient; hence, the process is also known as a thermocatalytic approach.
Carbon Engineering Process
Source: Carbon Engineering
The electricity required for electrolysis and to optimize the bioreactor makes the process highly energy-intensive, but the technology has become a lot more affordable over the past decade, with cheaper renewable energy and developments in green hydrogen. Identifying and developing effective catalysts to make the process more efficient is also emphasized. This will also bring down the energy requirement. 

Cost: Methanol production cost is close to commercial parity 

The following cost models estimate a methanol production cost of USD 566/ton and USD 560/ton using the CO2 hydrogenation approach. The commercial price of methanol is around USD 500/ton, suggesting that the technology is already feasible. The latter study also identifies that the cost is highly sensitive to energy cost and when the energy cost falls from around EUR 60/MWh (USD 70/MWh) to EUR 20/MWh (USD 23/MWh), the payback period of the model falls from just over 14 years to around three (see the diagram below). 
Payback period is highly sensitive to energy cost
Carbon utilization 2
Source: University of Pisa, Swiss Federal Institute of Technology in Lausanne

Key developments: Prometheus and Twelve are nearing commercialization

The technology is proven, with companies like Prometheus Fuel stating that they are already ready to go to market at prices competitive with gasoline. The company has agreed to supply American Airlines with 10 million gallons of sustainable aviation fuel (SAF) and plans to launch carbon-neutral gasoline by 2022. Just last month, Twelve produced its first batch of SAF from CO2 emissions, while Carbon Engineering revealed plans for its first air-to-fuel facility. The proposed facility in British Columbia is expected to generate 100 million liters of sustainable fuel by 2026. 

2. Biological approach: Use of microbes to convert CO2 to fuel

How does it work? 

LanzaTech uses a slightly different approach to the above to convert CO2 into ethanol. The first part of the process is the same, with CO2 and water molecules being split into carbon monoxide and hydrogen using electrolysis to produce syngas. Afterward, the syngas is sent to a reactor, but instead of using energy to induce the reaction, LanzaTech uses its proprietary bacteria, which ferments the gas to produce ethanol.
The advantage of this process is its lower energy use—with energy only being used for water electrolysis. LanzaTech’s proprietary bacteria is its key differentiator. The company has put in a lot of time (a 15-plus-year development timeframe) and resources (around USD 300 million in funding)  into product development and has over 1,000 patents to date. 
LanzaTech 1
Source: LanzaTech
Ethanol is not a drop-in alternative for fossil fuels. Therefore, after converting CO2 to ethanol, LanzaTech has two main pathways. One is to produce chemicals that will be used in day-to-day products such as plastic, detergents, and perfumes. LanzaTech has already carried out several pilot projects on each. The second option is to produce biofuels, more specifically, SAF. This was also tested on a Virgin Atlantic flight a few years ago. 
LanzaTech 2
Source: LanzaTech

Cost: Sustainable ethanol is already at a commercially feasible cost point

LanzaTech does not disclose any cost information. However, looking at their process, the only major operating cost seems to be energy (apart from the obvious capex and development costs). Based on the numbers on this research paper, we can estimate that LanzaTech’s process has an energy cost of around 90 cents/gallon. Other operational costs would include the cost of storing and transporting ethanol from the fermentation plant to the end consumer. The cost of transporting ethanol is estimated to be around 13–18 cents/gallon for short-distance trucking. This puts LanzaTech’s ethanol already at a commercially feasible cost point of around USD 1.1/gallon versus the current ethanol price of around USD 2.2/gallon. 

Key developments: LanzaTech has spun off its SAF business and raised additional funding

LanzaJet is a LanzaTech spinoff focusing on producing SAF using CO2-ethanol. LanzaTech has partnered with Mitsui & Co. (a Japanese conglomerate), Suncor Energy (a Canadian oil and gas producer), and All Nippon Airways (the largest airline in Japan) for this new venture. The spinoff has raised USD 64 million to date in disclosed funding. Earlier this year, LanzaJet announced the world’s first commercial-scale ethanol-SAF production facility in South Wales to produce around 330 million liters of blended SAF per year. LanzaJet has also partnered with Carbon Engineering to investigate the feasibility of a commercial facility in the UK to produce more than 100 million liters of SAF per year.
LanzaTech is currently the only company taking a biological approach to convert CO2 to fuel. Startups Oakbio and NovoNutrients take a similar approach to convert CO2 into other high-value products such as alternative proteins—but they have not yet shown an interest in sustainable fuel.

3. Algae-based approach: Use of natural photosynthesis 

How does it work? 

Algae can grow and multiply in the presence of sunlight and CO2 using the natural photosynthesis process. Captured CO2 can be used to grow algae, which can then be used to develop algae-based commercial products such as nutraceuticals, animal feed, bioplastics, green cosmetics, pharmaceuticals (protein therapeutics), and eventually biofuels. However, experts say that producing biofuel from algae is probably its final use case, as it would need to compete with fossil fuels for cost. Biodiesel produced from algae will cost between USD 30 and USD 60 per gallon according to experts (versus diesel cost of around USD 3/gallon). Nevertheless, companies like Algenol are claiming that algae-ethanol and other biofuels can be produced at around USD 1.3/gallon
Algae production has a few key steps. The first is algae cultivation. The most common way of doing this is by developing large algae ponds that require a sizable area and access to water. An alternative to this is growing algae inside photobioreactors. This would make algae production more efficient, thereby reducing the land requirement. The second step of algae production is dewatering. Algae naturally hoard sugar (and other outputs of photosynthesis) when water is scarce. Therefore, water needs to be removed from algae (a process called dewatering) to extract fattened and solid algae. According to experts, this is the most energy-consuming part of the process.
Carbon Utilization 2
Source: Compiled by Edge based on multiple sources

Cost: High capex and land requirements are big challenges

This algae farm cost model prepared for the Department of Energy puts algae cost at USD 1,137 per ton when produced using a 1,000-acre photobioreactor-based system with an annual production capacity of 4,000 tons. The total capital investment for the project is assumed to be USD 133 million.
The technology is still expensive. This is mostly because the natural algae extraction process is highly inefficient. Innovations are required to improve efficiency but scientists have not had much success even with decades of work. Despite the use of bioreactors, the land requirement is still a concern, along with other prerequisites like good sunlight and access to water. 

Key developments: Pond Technologies and Algenol achieve some early success

Algae has a variety of use cases as a base product. This provides a gradual pathway for development. Biofuels will be the ultimate target but there are short-term monetization opportunities in nutraceuticals, food colorants, animal feeds, etc. and medium-term opportunities in biomaterials, plastics, and pharmaceuticals. Algae-based biofuel is also a drop-in alternative for fossil fuels. 
Pond Technologies is already producing algae-based nutraceuticals at its 10,000-square-foot algae production facility in British Columbia almost at a profit. The company has also set its sights on other algae-product markets worth billions of dollars (see diagram below). Algenol is another algae startup with a focus on sustainable fuels, which has had some early success. The company already produces algae-ethanol at its demonstration facility and plans to set up an 18 million-gallon commercial facility in Florida.  
Carbon Utilization 4
Source: Pond Technologies

SPEEDA Edge CO2-to-fuel watchlist

With startups Prometheus Fuel, Twelve, and LanzaTech nearing commercialization, CO2-to-fuel, mainly via electrochemical and biological approaches, is likely to become a prominent carbon utilization pathway over the next decade or so. It is greatly supported by growth in carbon capture, falling renewable costs, and efficiencies from scaling-up. Both approaches have already proven their commercial viability and are ready to go to market. The algae-based approach, with its variety of use cases, also shows potential for gradual development in the medium to long term. 
We identified eight CO2-to-fuel startups to watch out for over the next few years.

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