The failure to commercialize cellulosic ethanol has led many industry players to write off the much-touted advanced biofuel — but not everyone is giving up.

Last week, a Detroit Three automaker joined the handful of mostly oil companies that have been willing to take a chance on homegrown ethanol made from woody biomass, not corn, as the industry strives to move beyond the pilot stage.

Chrysler Group says it will form a strategic partnership with Colorado-based ZeaChem to help bring cellulosic biofuels to gas pumps and into the tanks of Chrysler’s “flexible-fuel” vehicles, which have become a centerpiece of the automaker’s clean-car strategy.

About half of Chrysler’s 2012 production will be capable of running mainly on biofuels, said Reg Modlin, director of regulatory affairs for Chrysler. But the problem is that “people aren’t using ethanol in the vehicles.”

The reason is twofold: There is a lack of service stations selling ethanol, especially outside the Midwest. The second — and related — problem is low consumer demand for biofuels. 

“We determined that it is really time for us to do something to help people realize they can buy [ethanol] that they can use in their cars,” Modlin told SolveClimate News. A breakthrough in production of climate-friendlier and more efficient cellulosic biofuels can help on both fronts, by boosting awareness and distribution of renewable fuels, he suggested.

“Our interest is in selling a product that has a … [capacity] to reduce carbon emissions and enhance energy security,” he said of Chrysler’s vehicles.

Eight-year-old ZeaChem makes ethanol through a unique approach that involves breaking down biomass — mainly from hybrid poplar trees — into sugars, which then get fed to a bacteria found in termite guts to produce a chemical building block known as acetic acid. The acid, a solvent used in making paint, is then combined with hydrogen to make ethanol. 

According to ZeaChem, the method delivers 95 percent fewer greenhouse gases than conventional ethanol processes and yields five times more ethanol than corn per acre.

Modlin noted that Chrysler is not taking a financial stake in ZeaChem, nor explicitly endorsing cellulosic fuels over corn ethanol, but rather is trying to make potentially viable gas alternatives available to Chrysler customers. 

He said that when ZeaChem initially approached Chrysler with the partnership idea, the automaker felt the firm’s cutting-edge technology was mature enough that it could “really give us a boost in the production of cellulosic ethanol.

“They’re nicely funded, which is the shortcoming of other cellulosic ethanol companies,” he said. “We’re excited about their process and we’re excited about their product.”

2 Million E85-Compliant Cars

The auto giant has about two million vehicles on U.S. roads today that are capable of running on E85 — a blend of 85 percent ethanol and 15 percent gasoline — out of the nearly 9 million flex-fuel cars nationwide, which make up 3 percent of the nation’s light-duty vehicles.

But only about 2,350 fueling stations of the nearly 170,000 nationwide, less than 2 percent, offer the E85 blend, according to the U.S. Department of Agriculture. Meaning that nearly all of Chrysler’s E85-compliant cars run mostly on gas.

The Renewable Fuels Association (RFA), an ethanol lobbying group, estimates that more than 90 percent of all gasoline sold in the U.S. is mixed with some amount of conventional ethanol like corn, with the standard blend comprised of 10 percent ethanol.

Already, most of the flex-fuel vehicles being manufactured today can run on the stronger blend, and the Obama administration aims to add 10,000 flex-fuel pumps for E85 within the next five years. Chrysler hopes that large-scale production of cellulosic ethanol will encourage financing of even more pumps and other infrastructure.

Modlin said he could not disclose exactly how the new partnership would play out but did say that Chrysler is working with ZeaChem to build a “full-scale production facility” somewhere in the Midwest.

ZeaChem currently has a pilot plant in Menlo Park, Calif. A larger demonstration facility in Boardman, Ore., is 80 percent complete after breaking ground in June 2010. When finished, the plant will be capable of producing 250,000 gallons of ethanol per year. With enough investment, ZeaChem could scale up annual capacity to 25 million gallons by 2014. Domestic ethanol demand reached around 13 billion gallons in 2010, according to RFA figures.

ZeaChem raised around $40 million in 2009 in mostly venture capital cash from Globespan Capital Partners, PrairieGold Venture Partners, Mohr Davidow Ventures and Firelake Capital, as well as oil refiner Valero Energy, the country’s top corn ethanol producer. 

In 2010, the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy awarded ZeaChem $25 million in stimulus grants to start construction on the facility.

‘Positive Domino Effect’

Brent Erickson of the 1,100-member Biotechnology Industry Organization, to which ZeaChem belongs, said that Chrysler’s support for advanced ethanol signals to investors that existing technologies are quickly approaching commercialization.

“If you look at the industry as a whole, the technology is right at that stage where people are trying to get it from the laboratories to the field and leap over the valley of death,” he said. “Chrysler’s leadership in cellulosic ethanol could help mitigate the perceived risk for other private investors and have a positive domino effect for the advanced biofuels industry.”

The same has been said of General Motors, which made an undisclosed investment three years ago in the then-fledgling Coskata. The startup uses bacteria and gasification technology to convert woody biomass into cellulosic ethanol.

In January it received a $250 million loan guarantee from the USDA to build a plant in Alabama capable of making 55 million gallons per year.

“To the extent that these large [car] companies can help accelerate the commercialization of new technologies, these are all good deals,” Matt Hartwig, spokesperson for RFA, said of Chrysler and GM.

Such votes of confidence are critical in an industry struggling to fund the plants needed for commercial-scale production, which can cost more than $100 million each. No such facilities exist yet, while more than 200 plants making mostly corn-based ethanol are operating nationwide.

With no cellulosic biofuels production expected this year, the U.S. EPA recently lowered Congress’s production targets for the ethanol for the third consecutive year. A few million gallons could be produced next year, though federal mandates had originally required 500 million gallons for 2012.

The EPA has since proposed lowering the 2012 target to between 3.6 million and 15.7 million gallons. The final goal will be set in November.

Production would likely maintain its sluggish pace if an expiring $1.01-per-gallon tax credit for cellulosic biofuels is not renewed by the end of 2012, industry groups say. A bipartisan compromise reached in the Senate in July would have extended the tax credit for three more years in exchange for ending a 45-cent-per gallon subsidy for corn ethanol, known as the “volumetric ethanol excise tax credit,” at the end of August. 

But the measure wasn’t included in the final debt agreement agreed by Congressional leaders. Observers say that makes it unlikely that any ethanol reform will happen before the end of the year, potentially further tarnishing the bankability of cellulosic plants.

Chrysler Support ‘Very Good Sign’

For ZeaChem CEO Jim Imbler, however, the involvement of major firms like Chrysler in cellulosic ethanol’s development is just as critical as any federal subsidy.

“Cellulosic ethanol may need a bit of a hand up to get started, but you don’t want the perpetual handout,” he told SolveClimate News in an interview. “The Chrysler announcement … is a very good sign that automakers are continuing to support it.”

Jesse Prentice-Dunn, a Washington, D.C.-based policy analyst for Sierra Club, said the Obama administration’s new fuel economy standards for passenger vehicles, trucks and buses was another signal that car manufacturers would continue to invest in gasoline alternatives.

Under the rule, cars and light trucks must achieve 35.5 miles per gallon in 2016 and 54.5 miles per gallon by 2025, as well as reduce greenhouse gas emissions to 163 grams per mile.

“The target to hit is out there, and all of these companies are looking across the range of technologies to get them there,” he said.

“I see [advanced biofuels’] future as bright, and certainly not dimming.”

The real catalyst for companies like ZeaChem, however, may come from consumer product giants who are eyeing renewable feedstocks to produce sustainable plastics and chemicals. In June, for instance, Cincinnati-based Proctor & Gamble signed a multi-year agreement with the startup to jointly develop biochemicals for the global conglomerate’s products and packaging.

“The big marquee consumer companies are saying, ‘We want green, and we’re going to pull it through the chain,'” said Imbler. “It will be so much better with them pulling [cellulosic technologies] in the market than the government making people do it.”