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Big Oil's Big in Biofuels


BP (BP) has invested $7 billion in alternative energy since 2005. ExxonMobil (XOM) is spending $600 million on a 10-year effort to turn algae into oil. And Royal Dutch Shell (RDS/A) has invested billions of dollars in a Brazilian biofuels venture, buying up sugar cane mills, plantations, and refineries to make ethanol. In the U.S., Shell produces small lots of so-called drop-in biofuels—engine-ready products that can replace gasoline—from a pilot plant in Houston that uses sugar beets and crop waste.

On the way to a renewable energy future, a funny thing has happened: Big Oil has become the biggest investor in the race to create green fuels. In the last decade, the industry says, it has put $71 billion into zero- and low-emission and renewable energy technologies. The U.S. government, by contrast, has spent about $43 billion on similar efforts during the same period, according to the American Petroleum Institute (API), a trade group. “We are making huge bets” on biofuels and also investing in wind and low carbon technologies, says Katrina Landis, chief executive officer of BP Alternative Energy, noting that her division has grown from a handful of employees in 2005 to 5,000 today. BP is now “winding down” its solar operations, says Landis.

Algae secreting oil-like lipidsAlgae: Exxon; Dishes/Hands: David MaungAlgae secreting oil-like lipids

Many environmentalists doubt that these investments represent more than window dressing. An API report shows that just $9 billion of the $71 billion is for renewable energy while the rest has gone toward greening up Big Oil’s fossil-fuel business. And the industry has, after all, bankrolled research casting doubt on climate change while lobbying to defeat a White House-backed climate bill in 2010, says Simon Mui, a scientist with the Natural Resources Defense Council. “Their interest is a validation of the promise of cleantech,” he says. “But I don’t want to imply that this is something we should be falling out of our chairs over.”

The investments are less impressive, Mui says, when measured against Big Oil profits—ExxonMobil reported 2011 net income of $41 billion—and the money the companies still devote to the hunt for conventional oil and gas. Mui estimates the industry has spent about $341 billion developing tar sands, which contain heavy crude that is energy-intensive to recover and refine, over the same period that it touts its $71 billion in carbon reduction and renewables. The API dismisses such criticisms, saying it put together the report on clean investing to dispel the notion that the industry isn’t interested in climate change or reducing greenhouse gases.

Exxon says it's still unclear whether algae-based fuels can be commercially viableAlgae: Exxon; Dishes/Hands: David MaungExxon says it's still unclear whether algae-based fuels can be commercially viable

The oil industry also has a major incentive for its green spending: the federal Renewable Fuel Standard. The law, signed by President George W. Bush in 2005, now requires about 15 billion gallons of alternative fuels such as ethanol in the nation’s energy mix annually, and that number is mandated to grow to 36 billion gallons by 2022. (U.S. drivers consume about 134 billion gallons of gasoline a year.)

Oil and gas companies, the act says, are among the “obligated parties” to help the U.S. reach these goals. “Inside these companies the thinking is, ‘We can’t get caught out without having an answer and a way to meet our obligations,’ ” says Wesley Bolsen, chief marketing officer for Codexis (CDXS), a Redwood City (Calif.) enzyme maker that has a five-year-old partnership with Shell. “In some ways they can’t afford not to invest. On the other hand, I think a lot of oil companies today think, ‘If we do this right, we can make a lot of money.’ ”

For Sheeraz Haji, CEO of Cleantech Group, a 10-year-old green technology consulting firm, the industry’s investments represent pragmatism, since oil companies see that long term they won’t be able to meet demand with conventional oil and gas. While PR concerns are a factor, with cleantech providing cover for carbon-centric core businesses, Haji also says it’s a matter of pride and fear. He notes that oil companies, with their technological prowess at deepwater drilling and the like, don’t want to be seen as stodgy—or worse, wake up one day to find the renewables world exploding with profits they aren’t sharing. “We’re not talking about oil companies turning into green activists,” says Haji. “It’s tied to their view that this is economically rational.” And the scale of their investments is immense. Sizing up Exxon’s algae play, he says, “$600 million is big money. Maybe it’s not big dollars to Exxon, but it’s still big dollars for the sector.”


Exxon’s algae project is a partnership with Synthetic Genomics, a La Jolla (Calif.) company co-founded by human genome pioneer J. Craig Venter. On paper, algae has a lot going for it. It produces energy-storing molecules called lipids similar to those extracted from crude oil. And it can be grown in saltwater on marginal land, so it won’t compete for fresh water or valuable farm acreage. Although the project, in its third year, recently moved out of a San Diego greenhouse to an outdoor facility in Texas, Exxon says billions more in research dollars are needed before it will know whether commercial production is possible.

Shell’s partnership with Codexis uses enzymes to turn grass, stalks, and sugar cane waste into biofuels. The company has so far put about $60 million a year into the project. Such research portends the production of renewable fuels without displacing food crops. And there’s a ready supply of raw material: The Department of Agriculture estimates that U.S. farms produce 1 billion tons of crop residue each year.

Mark Brownstein, chief counsel for the Environmental Defense Fund’s energy program, warns that Big Oil will have trouble winning over skeptics. “This is an incredibly conservative and hard-headed industry,” he says. “They have a lot to prove before people are willing to believe that there has been a fundamental shift about how they think about climate and other environmental matters.” Nonetheless, Brownstein adds, “I wish ExxonMobil all the success in the world in figuring out how to commercialize biofuels. That would be great for everybody.”


The bottom line: Big Oil says it has invested $71 billion in green tech. Environmentalists question the sincerity of the industry’s environmental efforts.







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