BIOFUELS:

Airlines piggyback on DOD's test flights, push for expanded production

Last of three stories about airline biofuels. Click here for the first part and here for the second.

Facing dwindling profit margins and few alternatives to expensive petroleum, the aviation industry is looking to biofuels for an edge toward cutting costs and reducing emissions.

Airlines have formed regional partnerships around the globe in efforts to build biofuel markets, and Boeing Co. and other airplane manufacturers are pressing Congress and federal agencies for support.

But the airlines' all-out effort, industry officials say, won't fly without the U.S. military.

"The primary customer for a large volume of jet fuel, the customer that will drive the first adoption of large production, is the Department of Defense," said Eric McAfee, CEO of Aemetis Inc., a company trying to commercialize aviation biofuels. "The reason why is that they're the only customer that has the capacity to buy large quantities on long-term contracts and the operational strategic reason to do it."

Commercial aviation is pushing to commercialize renewable jet fuel made from vegetation, waste and algae-derived oils. The goal is to ease pressure from escalating petroleum costs and reduce emissions of greenhouse gases (Greenwire, Jan. 14).

But the effort faces a chicken-and-egg conundrum: Airlines won't purchase biofuels until more producers supply them and lower prices, and biofuel producers won't supply them until they are assured of a market. This is where the military comes in.

It's not uncommon for commercial aviation to follow the military's lead to push out new technologies, said Andrew Holland, a senior fellow for energy and climate policy at the American Security Project.

"The military has a long history of leading, especially in aviation. We wouldn't have a civil aviation without military leadership on everything from jet engines to transport planes," Holland said. "There's a clear interconnection here."

The commercial and military aviation worlds have been intertwined over renewable jet fuel since around 2006, when the Department of Defense's Defense Advanced Research Projects Agency funded UOP LLC, the fuels subsidiary of Honeywell International Inc., to develop fuel from oil-seed crops. The goal was to find a fuel that could power U.S. Air Force and North Atlantic Treaty Organization planes.

Since then, military planes have greatly contributed to aviation biofuels, providing test flight experience needed to approve fuel technologies under the ASTM, the international standard-setting body.

On Earth Day 2010, the Navy flew a fighter plane dubbed the "Green Hornet" for the first time on a 50-50 blend of camelina-derived biofuel and traditional jet fuel. A year later, the Navy flew its first military helicopter, a Seahawk, on biofuel using a 50-50 blend of algae-derived fuel and jet fuel.

Last year, the military demonstrated its "Great Green Fleet," a 71-plane demonstration of biofuels that took place off an aircraft carrier in the Pacific Ocean 100 miles off Hawaii. The demonstration was part of a goal by Navy Secretary Ray Mabus to power half the service's energy by alternative means by 2020 (Greenwire, July 19, 2012).

On the ground, the Pentagon has teamed with the Energy and Agriculture departments to invest $510 million in commercial-scale biorefineries, an initiative that last year survived attempts by Sens. John McCain (R-Ariz.) and James Inhofe (R-Okla.) to dismantle it in the defense authorization act.

The Navy's recent efforts have created some excitement about biofuels that's helped commercial efforts, said John Plaza, a former pilot and CEO at Imperium Renewables Inc., a Washington-based company working to scale up production of aviation biofuels.

"When you bring USDA, DOD and others to the table to create an agreement to work together, that creates a level of buzz, a level of interest," Plaza said. "Then, as people are flying around on an airline and raving about a biofuel test, it facilitates a broader awareness, which helps with industry development."

Regional initiatives

The military's ability to take great strides in a market where so far commercial airlines have had trouble getting off the ground, Holland said, stems from its national security motive.

"The reason the military can lead on this is that it's not purely economics that's driving it," he said.

The Navy, said Mona Dajani, partner at Baker & McKenzie and an expert in renewable energy, "is more concerned about war fighting and how to be prepared, having energy independence and not relying on foreign sources of energy, and volatile prices." Commercial airlines, on the other hand, are concerned about economics, carbon dioxide restrictions in places like the European Union and the perception of being sustainable, she said.

Put simply, if an airline fails to buy biofuels, it doesn't affect day-to-day operations, McAfee of Aemetis said. For the military, it's a different story.

"They run the risk of being dependent on our enemies for fuel in a fight," he said. "So they have a major operational strategic reason to adopt biofuels that's not going to go away."

The military also depends om Congress for funding to test and purchase biofuels, said John Heimlich, vice president and chief economist at Airlines for America, a consortium of 11 airlines that has entered a strategic alliance with the Navy to advance aviation biofuels.

"That's one thing that makes the military effective," Heimlich said. "It's not just their know-how and commitment. It's their balance sheet."

But although the Pentagon could guarantee a market for aviation biofuels, the effort could be toppled by Washington budget battles.

So far, though, news from Washington has been encouraging for biofuel promoters. President Obama signed a defense authorization act last month that included funding for the military's biofuel programs. And early this month, Obama signed a "fiscal cliff" package that extended tax incentives for the cellulosic biofuel and biodiesel industries.

To keep momentum going in the industry, Holland said, the military needs to be aggressive about putting those biofuel programs in place. The commercial aviation industry also needs to get off the ground, he said.

"I think the best way forward with biofuels would be for it to more than just a military thing, to get civil aviation to really get on board with this and get working on it," Holland said. "I always hear how they really want it, but it's all about getting them to actually have it."

Several airlines and Boeing are attempting to pull the market in the direction of commercial flight.

The commercial effort depends on regional initiatives that bring together airlines, plane manufacturers, biofuel producers and airports.

"What we're seeing in aviation biofuel, the airlines in the private sector are getting together and forming consortiums to fund aviation, to pay for orders, providing money to pay for a certain amount of biofuels, making these terminals right at the airports," said Baker & McKenzie's Dajani.

The Pacific Northwest, which consumes 865 million gallons of jet fuel each year for commercial and military planes, is home to one of the first regional initiatives. Launched in 2010, Sustainable Aviation Fuels Northwest (SAFN) includes Boeing, Alaska Airlines, the Port of Portland, the Port of Seattle, the Spokane International Airport and Washington State University.

The choice of the Pacific Northwest was a "natural progression," said Carol Sim, director of environmental affairs at Alaska Airlines. The region has a strong agricultural base, is home to Boeing's headquarters and has a strong Department of Defense presence.

In May 2011, the initiative released what is considered one of the seminal reports in aviation biofuels. It found that building up production of aviation biofuels to a scale in which the aviation industry could meet its goals would require using multiple feedstocks and technologies. The report identified financing as the major obstacles to getting to commercial production.

SAFN laid out a series of recommendations that included creating a strategic focus on aviation biofuels, targeting research on regional efforts and making sure renewable jet fuel is counted for credit under the nation's biofuel mandates.

Since the report, the state of Washington passed a bill streamlining the process for permitting aviation biofuel facilities and calling for the creation of a work group to study aviation biofuel. The work group, which includes many original SAFN members, submitted its first report to the state Legislature last month. It called for more coordination among the players in the industry.

"What we've found is through these regional assessments or road maps, you can come up with a collective set of ideas for how to fill the gaps in ways that individually many of the companies involved hadn't thought of," said Darrin Morgan, who directs Boeing's sustainable aviation fuels division.

On the back of SAFN's work, a regional initiative also popped up in Chicago last year. There, United Airlines, Boeing, UOP, the Chicago Department of Aviation and Clean Energy Trust are trying to make use of their proximity to the agricultural lands of the Midwest to create a hub for aviation biofuels.

"Our goals are to commercialize aviation biofuels in the Midwest, create jobs and growth in the economy, and have the Midwest seen as a biofuel focus for the nation and leverage existing incentives and programs," said Bob Sturtz, managing director of strategic sourcing of fuel at United Airlines.

Other regional initiatives are in Australia, Brazil and Mexico, and there are three or four more around the globe currently in planning stages.

Not all are convinced this is the best, or only, way to go.

Bottom-up approach

The Commercial Aviation Alternative Fuels Initiative is trying a different approach that focuses on smaller projects in about 25 states.

The initiative, formed in 2006, brings together trade groups in the airline, manufacturer and airport industries, as well as the Federal Aviation Administration, in a bid to get as many different technologies and feedstocks going quickly at a commercial scale.

Rich Altman, executive director emeritus of the group, said the initiative is working closely with the Department of Agriculture's "Farm to Fly" initiative, a program that draws from several sources of funding within USDA to scale up aviation biofuels.

"The big projects out in the Midwest and Pacific Northwest -- they're kind of top-down plans," said Altman, who has advised the Midwest initiative. "We take what's available, work with the local people, give them a representative, and they become our focal point, to which we bring a USDA contact."

In Vermont, the Commercial Aviation Alternative Fuels Initiative is working to help build up a facility that would use waste streams from a local beer brewery to make jet fuel in a process similar to what Solazyme Inc. is doing with algae at a pilot plant in California (Greenwire, Jan. 16). In Georgia, the initiative is advocating to add biofuel to the plans to create an energy park on 38 acres at the international airport in Atlanta.

Despite the pushes in the private sector and by the military, there is still a long way to go before there is enough biofuel supply in the market for cash-strapped airlines to fly planes on something other than petroleum-based fuel.

But those who watch the industry are optimistic about its success.

"I do believe that it's in its infancy," Dajani said, "but I do believe that it's the future."

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