05/31/2012 04:17 pm ET | Updated Jul 31, 2012

'Drop-In' Biofuels: The Best of All Possible Worlds?

It's the next big thing you've never heard of: environmentally friendly fuels so structurally similar to petroleum, they "drop in" to existing technology and infrastructure. Companies currently researching and developing this new generation of biofuels claim that their processes extract value from naturally occurring resources without wreaking environmental havoc. Their raw materials, or "feedstock," range from sugar cane processing waste to algae and bacteria. But what's even more exciting than drop-in biofuel's green potential?

Jobs, right now. In late 2011, Louisiana Gov. Bobby Jindal (R) and Sundrop Fuels announced the construction of a $450 million biofuels refinery to create "the world's first renewable green gasoline that's adaptable to existing pumps, pipelines, engines and transportation infrastructure." Construction on the initial phase of Sundrop's facility will take place this year, with a 50 million gallon per year refinery due for completion in 2014. Its Alexandria, La., site will benefit from 150 well-paid manufacturing and research and development jobs, with the potential for 1,300 indirect jobs for the Central Louisiana region.

To realize an operation of this scale, a number of pieces had to fall into place. In this case, it took a combination of resource availability, the right technology, investment, state aid and legislation. Geographically, Alexandria is well positioned to access to Sundrop's feedstock: natural gas coupled with wood byproducts from renewable forests are made into fuel using Sundrop's proprietary conversion technology and ThyssenKrupp Uhde's High Temperature Winkler gasification process. Venture capital and a significant investment from Chesapeake Energy, Louisiana's biggest natural gas company, provided funding, while Louisiana's Economic Development (LED) team actively pursued Sundrop with performance-based grants, tax credits, subsidies, and a robust workforce development program. Not every state incentivizes alternative fuel investment, and LED achieved its objective without using federal funds.

In 2005, former President George W. Bush signed the Renewable Fuel Standard into law, which stipulates that, by this year, 7.5 billion gallons of renewable fuels must be blended into gasoline. The EPA later upped the volume to 9 billion gallons in 2008, with a projected goal of 36 billion gallons in 2022. Nine billion of anything may seem like a lot, but in fact this figure represents only around 6.7 percent of America's current gasoline consumption. In 2009, the EU set its own targets: in EU member states, a 20 percent share of energy must come from renewable resources by 2020, 10 percent in the transportation sector, leading to an annual savings of 10 billion euros. While growth and profit drive corporations to find innovative solutions to problems such as diminishing energy supplies, legislation and government oversight can stimulate markets and dispel uncertainty.

Given the potential of drop-in biofuels, the U.S. and EU have every reason to raise renewable fuel thresholds even higher. Advantages include energy security, reduced dependence on foreign oil, fewer carbon dioxide emissions and domestic job creation. More than a dozen alternative fuels are currently in production, use, or under development, but the U.S. government forecasts that ethanol primarily will be used to meet the 36 billion gallon standard for 2022. When President Bush and the EU set targets, ethanol seemed the most promising area of alternative fuel development. Yet ethanol presents as many problems as it purports to solve, and it has proven difficult to champion.

While ethanol is renewable and corn is plentiful in the U.S., it's not as environmentally sound, or as user-friendly, as initially expected. Unlike drop-in fuels, ethanol requires blending with gasoline to ameliorate its corrosive effects on pipelines, car engines and fuel systems. Ethanol contains less combustible energy than petroleum, which means poor mileage, and while it emits fewer greenhouse gasses, it also creates smog. Critics of ethanol and biodiesel from soybeans point out that their production can have devastating environmental effects, including deforestation and polluting run-off from fields. They drive up food prices, compete for farmland, and contribute to global food shortages.

Big Oil has already invested $71 billion into renewable, low- and zero-emission technologies, including drop-in biofuels. Royal Dutch Shell and enzyme producer Codexis have been developing "cellulosic" ethanol from sugar cane waste and straw. However, earlier this year, Shell, using technology developed by Madison, Wis.-based Virent, constructed a pilot plant in Houston to make small lots of drop-in biofuels rather than ethanol. In 2010, ExxonMobil and Synthetic Genomics opened a La Jolla, Calif., industrial greenhouse to create fuels derived from algae. Occurring through photosynthesis, algae biofuel can be produced on unarable land like desert. However, the oil giant's research team has yet to find a natural strain of algae that yields fuel on a significant scale. While next-generation biofuels producers will undoubtedly face similarly unforeseen hurdles and challenges, it is possible that being green just may be getting easier.