Algal Biofuels in the US: Overview and Proposal

The purpose of this paper is to examine the potential benefits and costs of and obstacles to the greatly increased use of algal biofuels in the United States, with the goal of forming a comprehensive policy recommendation. The assumption made here will be that policymakers are planning for greatly increased global energy demand and that existing energy sources will at some point be insufficient to meet that demand. The examination of algal biofuel will be in the context of comparing it to other, more established energy sources, as well as a scrutiny of its utility compared to other renewable energy sources.

Policy Comparison

There are essentially three types of energy available on Earth: solar, nuclear, and geothermal. All petroleum products, for example, are essentially stored solar energy. However, unlike employing direct solar power, using ancient biomass as an energy source is not a sustainable strategy; we are consuming the world’s stores of petroleum at a rapid rate. This has been a looming problem for decades, and solutions to that problem do exist, but they haven’t been implemented to any great extent except in a few nations. The U.S., with its relatively abundant petroleum supplies, hasn’t had any real incentive to switch to renewable energy sources; the impetus to do so is sporadic at best and usually coincides with political unrest in the Middle East. After things cool down there (temporarily), so does the fervor for converting to alternative energy sources.

Goals of policy change. As simply continuing to depend on fossil fuels is an obviously unsustainable strategy, the goal of policymakers must be to address the nation’s future energy needs, even if short-term solutions, such as hydrocarbon fracking, are found to temporarily increase the supply of such fuels. In other words, legislators must avoid the temptation to kick the can down the road. But many senators and congresspersons are beholden to special interests in their constituent states; these include traditional energy companies.

The need to wean America away from petroleum is manifest, but it’s also easier said than done. Aside from the aforementioned legislative issues, there is a simple economic concept that the “low-hanging fruit” gets picked first. In other words, as long as petroleum is cheap enough, little or no incentive will exist to consume alternative energy sources. While some individuals and even companies may switch to renewable energy sources out of a sense of ethics or environmental responsibility, the fact remains that those who do so will be at a competitive disadvantage vis-à-vis those who stick with fossil fuels—at least until the cost of renewable energy drops below that of fossil fuel energy. That will, of course, happen eventually, but the goal of policymakers should be to make that transition sooner rather than later and in an atmosphere of planning and cooperation rather than crisis and panic.

Algal biofuel presents a possible solution to the cost of renewable energy. Algae grow throughout the world’s oceans without any help from man. Algae only need two things: a habitat and sunlight. Photosynthesis takes care of the rest. Therefore, growing algae for biofuel is a “passive” activity in that all you need to do is provide the habitat, then sit back and watch it grow. Therefore, relatively little infrastructure is needed, as opposed to renewable energy sources such as wind farms and solar plants. In turn, this means that algal biofuel production requires relatively little capital investment. Pittman, Dean, and Osundeko (2011) noted that, in fact, algal biofuel production can be attained in the process of treating environmental problems such as wastewater: “Wastewaters derived from municipal, agricultural, and industrial activities potentially provide cost-effect and sustainable means of algal growth for biofuels. In addition, there is also the potential for combining wastewater treatment by algae, such as nutrient removal, with biofuel production” (Pittman et al. 17). This suggests that existing infrastructure can be used to produce algal biofuels and that the process can be combined with existing environmental cleanup efforts. This comes very close to the canonical, supposedly unattainable “free lunch.” Compare algal biofuel production to the current massive and costly efforts to extract petroleum from thousands of feet under the ground; the savings from the former are potentially huge.

Nature of the problem. Of course, considering the low-hanging-fruit principle, one would imagine that there are significant obstacles to large-scale algal biofuel production; otherwise, the Shell Oil Company would already be the Shell Algal Biofuel Company. In fact, there are several such obstacles. Subhadra and Edwards (2011) examined the benefits and costs of algal biofuel and concluded that “Algal biomass provides viable third-generation feedstock for liquid transportation fuel that does not compete with food crops for cropland. However, fossil energy inputs and intensive water usage diminishes the positive aspects of algal energy production” (Subhadra and Edwards, 4897). Water supply is always the overriding limiting element in the production of any organic crop, whether that is livestock, fruit, grains, wood, or algae. The world’s water supply is already overstressed and though the U.S. is not in as much trouble in that regard as much of the rest of the world, there is not much water to spare—a problem that may be exacerbated by climate change.

Subhadra and Edwards (2011) mentioned an additional problem. Algal biofuel production consumes energy. While the algae form and grow with relatively little intervention, still, there are other capital- and energy-intensive elements in the process of manufacturing algal biofuel. It is a rather ironic “bootstrapping” problem that in order to produce biofuels to reduce our dependence on fossil fuels, we might have to increase our consumption of fossil fuels in the short term. While doing so may serve a worthwhile long-term goal, it should be noted that an energy- and resource-intensive enterprise is less attractive as a startup endeavor than it might otherwise be. Therefore, there will exist certain inertia in terms of new or existing energy companies adopting biofuel production.

It should be taken into account when forming a new energy policy that every action has an opportunity cost. The first generation of biofuels was corn-based ethanol. While ethanol has proved to be a viable gasoline additive/substitute, its production carried a significant opportunity cost: it consumed corn that could have otherwise been used as food. Farmland that was used to grow corn for ethanol production was removed from food production. The choice of fuel vs. food is not sustainable. Biodiesel has similar problems and its production raises the same objections. In both cases, the burning of those fuels increases carbon emissions, another consequence that is not sustainable. By contrast with these earlier-generation biofuels, however, algal biofuel has a low opportunity cost in that land that is viable for food production need not be used. While in 2010, Johnson and Wen noted that “Algal biofuel production has gained a renewed interest in recent years but is still not economically feasible due to several limitations related to algal culture” (Johnson & Wen 525), they in their study proposed a novel solution to an engineering problem that had affected the feasibility of seawater-based algal aquaculture. Since then, major industry players have expressed a growing interest in algal biofuel production, signifying that the problems to be overcome are matters of engineering and adopting the most efficient processes rather than any inherent limitations of the technology. It can be expected that economies of scale will also come into play. As algal biofuel becomes more “mainstream,” the processes, equipment, and infrastructure will become less expensive, much as has happened to solar power, wind power, and recycling.

Players and payoffs. In just about any alternative fuel proposal discussed in the U.S. in the past several decades, it has been assumed that existing energy companies would be heavily involved, even dominant in the resulting industries. This is because energy production companies are for the most part energy distribution and energy retailing industries, due to vertical integration that dates back to the 19th century. No one is going to produce algal biofuels for free; the market and the means with which to serve it are needed. The problem with inducing traditional energy companies to switch over to biofuel production is that in a very real sense, they would be competing with themselves by doing so. Therefore, they would need a very strong incentive to make such a switch, and it is doubtful whether the energy market as it stands provides such an incentive. Therefore, such an incentive may very well need to be supplied by the government.

Of course, government intervention in energy markets is nothing new. Particularly in terms of renewable and sustainable energy resources, the current administration, in particular, has vowed to focus on making renewable energy sources a practical possibility. However, due to the shifting nature of politics, the next administration may very well be hostile to renewable energy initiatives. Therefore, the algal biofuel market will have to eventually be self-sustaining. This means that algal biofuel will have to be cost-effective: the price of the finished product will have to be attractive to the consumer. Pienkos and Darzins, in 2009, seemed to feel that this was possible, because of the relative efficiency of algae as an energy producer: “The high productivity of algae suggests that much of the US transportation fuel needs can be met by algal biofuels at a production cost-competitive with the cost of petroleum seen during the early part of 2008. Development of algal biomass production technology, however, remains in its infancy” (Pienkos & Darzins 431). Notably, the authors did not say that algal fuels had to be cheaper than petroleum fuels, only that they had to be competitive. Forward-looking energy companies should and probably will prefer sustainable energy resources to non-renewable ones.

Cost-benefit analysis. It is a truism (though by no means universally accepted) that if a market confers a social good, then the government has a role to play in encouraging and supporting that market. Here, the social good is the beneficial effect of switching from non-renewable to sustainable energy sources, complemented by the attendant reduction in carbon emissions due to less use of fossil fuels. Therefore, any overarching cost-benefit analysis should take into account the positive externalities that will result from players in the energy marketplace adopting algal biofuel cultivation. In other words, U.S. policymakers should not sit back and wait until the market (because of the rising cost of fossil fuels) makes that changeover attractive; they should actively encourage such changes. Hossein, Salleh, and Boyce et al. (2008) noted that “Renewable, carbon-neutral, transport fuels are necessary for environmental and economic sustainability” (Hossein et al. 250). The authors were referring to the overall economic sustainability of the U.S., not to the financial health and market share of any one particular company or industry. The overarching goal of U.S. policy should be to create a world in which sustainable energy is the norm rather than an interesting novelty.

It must be acknowledged that many traditional energy producers will be reluctant to make changeovers that will cost them in the short term. The classic behavior of “smart for one, dumb for all” and the phenomenon of the “tragedy of the commons” must be overcome, in order that energy producers don’t make decisions that are good for those companies in the short run but are damaging to the American body politic as a whole. Again, since companies cannot be expected, nor should they be coerced, to act against their own self-interest, the role of government should be to encourage the adoption of business practices that result in a benefit for society as a whole. In fact, many macroeconomic theorists state that the most essential role of government is to regulate externalities: to discourage activities that produce negative externalities and encourage activities that produce positive externalities, usually by increasing the cost of the former and reducing the cost of the latter. (This is seen in, for example, the creation of a market for carbon credits.)

In terms of the economic viability of algae as an energy source, many researchers have noted the relative lack of energy in x volume of algae versus that in the same volume of fossil fuels, suggesting a possible practical difficulty in terms of the volume of algae needed to fuel a vehicle, heat a building, etc. But this is an engineering limitation more than an absolute obstacle. Moreover, since algal biofuel is produced from living organisms, the organisms themselves can be engineered. Radakovitz, Jinkerson and Darzins et al. (2010) reported that “Eukaryotic microalgae possess several unique metabolic attributes of relevance to biofuel production…Although the application of genetic engineering to improve energy production…is in its infancy…it is likely that many of these advances can be extended to industrially relevant organisms” (Radakovitz et al. 486). The somewhat science-fiction-sounding phrase, “industrially relevant organisms” is key here. There exist very few industrial processes of the last two hundred years that have not been continually refined, made more efficient, and optimized for production. One can anticipate, given the will of U.S. energy companies to create bioengineered energy-producing organisms, that the productive capabilities of both algae and the process used to grow it will be increased by several orders of magnitude. Therefore, it is much more an issue of the willingness of the energy sector to enter this field than of any other potential obstacles.

Recommendations. It is manifest that something has to be done about the United States’ dependence on fossil fuels. Algal biofuels offer a solution without the problems attendant to other options, such as infrastructure development, capital investment requirements, insufficiently developed technology, and environmental impacts. However, algal biofuel production will not take place on a large scale until the energy markets provide an incentive to do so. It may not be advisable to wait until that happens. Therefore, the U.S. and state governments should actively encourage algal biofuel research, development, and production.

The government can accomplish this in several ways, which can be divided into two categories: the carrot and the stick. The carrots would be to offer tax credits to companies (market-entry as well as existing players) that engaged in algal biofuel R&D and production; to subsidize the cost of algal biofuel to the consumer, especially in the early stages of the market’s development; and to promote the superiority of algal biofuels to other fuels in terms of energy sustainability, reduced environmental impact, and so forth. The sticks would be to increase taxes on fossil fuels (with the idea of using such revenues to pay for the subsidies mentioned above); to mandate the blending of algal fuels with fossil fuels as an interim measure (as has already been done with ethanol), and to switch monies from traditional beneficiaries such as government-subsidized oil leases to the development of biofuels. Existing policy structures can be easily altered to support biofuel production. Hochman, Sexton and Zilberman (2008) noted that “Biofuel policy can substitute for a traditional agricultural policy intended to boost farm welfare” (Hochman et al. 6.2). This suggests that no major political upheavals would occur.

Legislative History

As the process of algal biofuel production is in its infancy, there are not many existing laws in the U.S. that deal with it. However, in California, the topic of biofuels, in general, has been a major issue, with several laws and initiatives already on the books and many more being hotly debated. A major component of the debate is jurisdiction.

In California, several laws, as well as legislative resolutions, have been passed to encourage the use and development of algal and other biofuels. For example, the California Assembly Joint Resolution 21 of 2013 urged “The U.S. Congress or the U.S. Environmental Protection Agency to take action to amend the U.S. Renewable Fuel Standard to favor non-food crop biofuel feedstocks and promote the development of advanced fuels, such as cellulosic ethanol” (USDOA 2013). While many energy policies fall under the aegis of federal rather than state laws, the individual states do set their own energy policies to some extent. Particularly in California, this is reflected in the state’s distinctive policies regarding automotive and other fuel formation, auto and industrial emission standards, and other environmentally-based initiatives. The Resolution quoted above, together with California’s history as a pioneer in environmental legislation, suggest that if the federal government does not act sufficiently to promote alternative fuels, California may carve out its own path.

However, California is not an island. In 2006, California passed an anti-global-warming initiative that contained, among many other provisions, a mandate to decrease the use of fossil fuels and increase the use of biofuels by a series of interlocking and increasing percentages. However, that part of the initiative did not survive a 2011 challenge in a federal District Court. As reported by Derek Mead (2012), “In the end, California's goal of reducing greenhouse emissions “may be legitimate," the judge said in his ruling, but in this case, "it cannot be achieved by the illegitimate means of isolating the state from the national economy." Judge O'Neill also said that by valuing fuels based on farming and production practices, the state was attempting to regulate out-of-state conduct, which is beyond its constitutional power” (Mead n.p.). The judge’s ruling was that California only had the power to regulate commerce within its own borders and that imposing fuel emissions standards on fuels that would be imported or exported to or from California exceeded California’s legislative authority.

However, within its undisputed aegis, that over commerce within its own borders, California has passed a number of initiatives regarding biofuels and emissions standards. For example, the Center for Energy and Climate Solutions (C2ES) (2013) reported that “To address some of the concerns with biofuel mandates, California implemented an LCFS through Executive Order S-1-07 (issued on January 18, 2007), which set a goal of reducing the carbon intensity of passenger fuels statewide by a minimum of 10 percent by 2020” (C2ES, n.p.). (Emphasis by this author.) The right of California to set fuel emissions standards independently of those of the federal government has long been established. However, the question arises of what might happen when other states’ emission standards fall below those of the federal government. Does federal authority take precedence? In terms of the broader picture, is the environment the province of the federal government and not the individual states? This would seem to be an intuitive conclusion, in that like it or not, environmental effects across state borders. For instance, air pollution is borne on winds that cross the boundaries of states. If one state with strict air pollution standards is downwind from another with no such standards, then the stricter state’s standards become moot. This, along with the Congressional power to regulate interstate commerce, raises the ongoing question of California’s authority in these matters.

Executive Summary Q & A

• Q: Why should policymakers pursue the development of algal biofuels, when so many other forms of renewable energy, such as biodiesel, ethanol, wind and solar, etc. already exist?

• A: Algal biofuels have many advantages that those technologies do not: the ability to use existing infrastructures and technology, their minimal use of resources that are needed for other purposes, low startup and development costs, and low environmental impact.

• Q: How can policymakers be assured that the energy production from algal biofuels will be worth the capital investment? Will algal biofuels be a viable alternative?

• A: While algal biofuel development is still in its early stages and the energy production potential from existing processes is limited, the field is ripe for technological innovation and exploration. In particular, increased energy yield from bioengineered organisms shows great promise.

• Q: What market incentives currently exist for players to develop, market, and distribute algal biofuels? Are those incentives sufficient to encourage investment and development?

• A: Recent resource commitments by major energy companies seem to indicate that sufficient incentive does indeed exist. However, government policies can be shaped to speed this process up considerably. The long-term benefits to providers of switching their products to renewables are many, and it should be easy to convince stakeholders of this.

• Q: What are the limitations of this technology?

• A: Available water supplies, upper limits of energy generation by these organisms, the power consumption of support facilities, and existing limitations of energy distribution networks.

Letter of Support

Dear Sir:

Our organization is writing this letter in the hope of encouraging you to support the increased adoption and use of algae and microalgae-produced biofuels in state industries. As you are no doubt aware, biofuels, in general, have become a hot topic nationwide, and California is a leader in the technology that will be used to make them the energy source of choice for our great state.

California has been a nationwide leader in environmentally aware legislation for the last several decades. Biofuels are now at the cutting edge of environmentally friendly, sustainable technology. As our national energy appetite grows and grows, we are faced with not only this increasing demand but also competition from the newly booming economies of Asia for what have proved to be painfully finite energy sources. This has been and no doubt will be a source of major tension and conflict.

Renewable energy sources, however, are by definition virtually infinite. If we adopt the attitude that we will consume no energy resource that is not replaceable, then we will never run out of energy. Certainly, the days of the petroleum industry are numbered. The technologies that have evolved to replace Big Oil have had their own problems. Nuclear power generation has many downsides, some of them experienced right here in California. Solar power generation is viable but faces many technological bottlenecks. Wind farms have been shown to decimate bird populations, and their applicability is limited. In terms of biofuels, ethanol, and biodiesel both generate carbon emissions when burned. Virtually alone among renewable energy resources, algal biofuels are cheap, efficient, and produce minimal pollution.

Perhaps the strongest argument in favor of the development of algal biofuels is that it can use existing infrastructure. Municipal wastewater treatment plants can easily be adapted to serve as algal generation facilities. Also, algae can be cultivated in open areas of seawater and freshwater, and such cultivation facilities will interfere only minimally with other uses.

We, therefore, urge your active support of algal biofuel production and use in California. Thank you for your consideration.

Sincerely,

The Sierra Club

(Benefits/Costs Chart omitted for preview. Available via download)

Works Cited

Center for Energy and Climate Solutions (C2ES). Biofuels overview. C2es.org.

Hochman, Gal, Steven E. Sexton, and David D. Zilberman. "The economics of biofuel policy and biotechnology." Journal of Agricultural & Food Industrial Organization 6.2 (2008).

Hossain, ABM Sharif, et al. "Biodiesel fuel production from algae as renewable energy." American Journal of Biochemistry and Biotechnology 4.3 (2008): 250.

Johnson, Michael B., and Zhiyou Wen. "Development of an attached microalgal growth system for biofuel production." Applied microbiology and biotechnology 85.3 (2010): 525-534.

Mead, Derek. “Landmark California biofuel law struck down in federal court.” Greentech Media. Retrieved on from greentechmedia.com.

Pienkos, Philip T., and Al Darzins. "The promise and challenges of microalgal‐derived biofuels." Biofuels, Bioproducts and Biorefining 3.4 (2009): 431-440.

Pittman, J. K., Dean, A. P., & Osundeko, O. (2011). The potential of sustainable algal biofuel production using wastewater resources. Bioresource Technology, 102(1), 17-25.

Radakovits, Randor, et al. "Genetic engineering of algae for enhanced biofuel production." Eukaryotic Cell 9.4 (2010): 486-501.

Subhadra, Bobban, and Mark Edwards. "An integrated renewable energy park approach for algal biofuel production in the United States." Energy Policy 38.9 (2010): 4897-4902.

United States Department of Energy (USDOE). (2013). California Laws and Incentives for Biodiesel. Alternative Fuels Data Center.