February 11

ESG Investing Failure and Major Setback: Exxon Retreats From Major Climate Effort to Make Biofuels From Algae –

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​After advertising its efforts to produce environmentally friendly fuels from algae for over a decade, Exxon Mobil Corp. is now quietly walking away from its most heavily publicized climate solution.  Exxon has slashed its support for Viridos Inc., a biotech company based in La Jolla, California, that operated as the oil giant’s key technical partner since it began its algae push in 2009. With Exxon funding drying up and difficulty finding other backers, the biotech firm laid off 60% of its staff on Dec. 27, according to Viridos executives. The biotech company said it is still moving forward with algae research.

Exxon, meanwhile, has also halted funding for a multi-million-dollar algae project at the Colorado School of Mines at the end of last year, after supporting the work for eight years. Another Exxon-backed venture with the National Renewable Energy Laboratory is set to end within weeks.

Exxon confirmed that it’s pulling back on funding for algae in favor of other technologies now being worked on by its Low Carbon Solutions division. “At this point we have other programs that are ready for deployment,” said Vijay Swarup, Exxon’s senior director of technology who ran algae research. “We need to get on the deployment curve for carbon capture, for hydrogen, for biofuels. Algae still needs some more work.”

It’s a remarkable shift for Exxon. The allure of biofuels made from algae is that they would potentially generate less than half the emissions of petroleum. The production and use of Exxon’s oil and gas ultimately generates about 630 million tons of heat-trapping gases each year, nearly equal to the carbon footprint of Canada. The green goop has for years been prominently featured as a climate-friendly possibility in television ads and investor presentations.

Exxon is retreating from algae despite a smashing financial performance last year, in which it posted a record-breaking $59 billion in profits. And it comes just as the algae research has shown significant progress: Viridos and Exxon achieved significant improvements in recent years, including a seven-fold increase in the productivity of algae grown in outdoor ponds, according to Viridos Chief Executive Officer Oliver Fetzer.

Algae has long played an intriguing role at Exxon. The company, more than any other, has received criticism for being the most recalcitrant on climate change, becoming the subject of lawsuits, protests and years of political scrutiny over its long-term commitment to fossil fuels even as global warming gathers pace. As criticism poured in, Exxon frequently held up its algae efforts as one significant piece of evidence that it was serious about climate change and discovering cleaner forms of energy. “They’ve been trying to create the impression that they’re part of the solution, when they’re certainly not,” said Robert Brulle, a visiting professor at Brown University who has studied the promotional activities of the fossil fuels industry.

Exxon’s Baytown refinery was an initial site of its algae work. Photographer: Benjamin Lowy/Getty Images

In an interview, Exxon officials rejected the suggestion that algae was some sort of greenwashing attempt. “The progress we’ve made to this point is remarkable,” Swarup said, adding that algae still has enormous future potential. “Where we are with the algae today is further along than, quite frankly, anyone has ever been with algae, in terms of productivity, in terms of the ability to replicate the results outdoors.”

All told, the company spent more than $350 million dollars trying to develop biofuels from algae, which was more than double what the company spent on algae advertising, spokesman Casey Norton said.

While recent progress with Viridos was significant, Exxon is prioritizing other low-carbon solutions — including spending billions of dollars on carbon capture and storage — because it remains extremely challenging to produce large quantities of algae biofuels at a profit. Exxon will invest $17 billion over the next five years on initiatives that will lower emissions and help achieve its goal of eliminating emissions from its operations by 2050. “Our objective is to commercialize technologies,” said Swarup. “We still have a healthy portfolio of R&D programs in the lower-carbon space.”

Exxon’s flight from algae marks yet another blow in a decades-long quest to generate cleaner fuels from the aquatic organisms. The potential has long enchanted everyone from scientists to venture capitalists to oil majors. Algae is extremely efficient at turning sunlight and carbon dioxide into lipids, which can then be extracted and processed into biofuels. Since it grows in brackish water and doesn’t require arable land, algae doesn’t compete with food crops, unlike corn grown for ethanol.

“If you just look at the rate that algae converts photons and CO2 into stuff that you can burn, they crush anything else on the planet,” said Stephen Mayfield, director of an algae biotechnology lab at University of California San Diego.

But cultivating huge quantities of algae in a way that can compete economically with fossil fuels is incredibly daunting. Dozens of companies have tried and failed. Shell, for instance, launched an algae biofuels joint venture in 2007 and then  sold its stake four years later. Efforts by Chevron and BP didn’t yield big breakthroughs. Meanwhile, numerous startups, including Algenol and Sapphire Energy, pivoted away from biofuels to focus on turning algae into specialty products like cosmetics and pet-food additives. Viridos has become one of the only companies remaining.

“It’s still too expensive to grow for fuel,” said John McGowen, director of operations at the Arizona Center for Algae Technology and Innovation at Arizona State University.

When Exxon barreled headlong into the still-crowded field of algae hopefuls more than a decade ago, it announced it would spend $600 million to produce biofuels from the aquatic feedstock. Up to half of that total would flow into a partnership with Viridos (which was then called Synthetic Genomics), a startup that had been co-founded a few years earlier by Craig Venter, a scientist famous for helping to decode the human genome.

Despite its deep pockets, Exxon suffered a rocky start like most other algae-biofuel aspirants. Just months into the work, it began building a 4.5-acre pilot project at its Baytown refinery on the outskirts of Houston. Exxon constructed several ponds, ranging from the size of a bathtub to a one-acre cylindrical pond with a paddle wheel to circulate the water. The project cost an estimated $15 million, according to an internal document describing the proposed buildout, which was seen by Bloomberg Green.

While it showed that algae biofuels could be produced outdoors, the Baytown facility could never hit their critical milestone of producing one gallon of algae oil in a day, according to former insiders from Exxon and Viridos. Algae that performed well in the lab struggled outside, where temperature and lighting were less predictable and invasive organisms could devour the algae. By mid-2012, the project was shut down and Exxon’s algae ponds were later backfilled with dirt.

Viridos, with Exxon’s backing, went back to the lab and continued tinkering with various algae strains. In 2017, the companies trumpeted a big breakthrough: They figured out how to double the lipid content — the stuff that is eventually turned into biofuels — in a particular strain of algae. The companies began testing its strains in outdoor ponds that Viridos built in the California desert near the Salton Sea.

Emboldened by the progress, Exxon declared in 2018 that it would target commercial production with the ability to produce 10,000 barrels a day of algae biofuels by 2025. An Exxon press release from this period quoted Swarup heralding the push into “lower-emission technologies to help reduce the risk of climate change.” That year, Swarup appeared at the South by Southwest festival in Austin to publicize the algae program.

Exxon’s marketing machine kicked into high gear. In one ad that appeared on national television, a guitar bangs out a gritty version of “Farmer in the Dell,” as the sun peaks up over massive ponds full of green liquid sloshed along by paddlewheels. The words “more energy and fewer emissions” splash across the screen. The ad concludes with an Exxon scientist saying with a confident grin, “Someday, you might be calling me an energy farmer.”

In its most intense stretch of advertising, Exxon spent $60 million airing three of its algae commercials on national television over a 2.5-year period from 2017 to 2019, including spots during the World Series and NBA championships, according to iSpot, a TV ad measurement company. The company also flooded Facebook, Twitter and online news outlets with algae ads. “Becoming #UnexpectedEnergy for transportation could someday be algae’s claim to fame,” declared one Facebook ad depicting white-coated Exxon scientists toiling with beakers full of green fluid.

Critics have long blasted the algae ads as greenwashing. While 10,000 barrels a day would be a smashing success for algae biofuels, it also amounts to less than 0.3% of Exxon’s production of oil and gas. “This focus on advertising unproven technologies that may not scale for decades, if at all, suggests that these advertisements served to distract the public from Exxon’s continued fossil fuel business,” wrote Congressional investigators in a scathing September report following a year-long probe of fossil-fuel industry disinformation by the House Committee on Oversight and Reform. (Exxon’s Norton told Bloomberg Green that the company’s algae advertising reflected its “interest and enthusiasm” for the initiatives and “accurately described our research.”)

Unbeknownst to the public, however, the results in the California desert began to improve significantly. Exxon and Viridos have long tracked the performance of their algae by measuring the grams of lipids it produces per square meter per day. The best naturally occurring algae strains can produce slightly more than one gram in the wild, while the companies say algae becomes a strong competitor to fossil fuels at 15 grams.

After struggling for years to crack two grams in the outdoor ponds, they began testing a genetically modified organism, known inside the companies as “Strain 15.” Between this new supercharged specimen and ongoing improvements in the ponds’ engineering, they jumped from producing a max of 5 grams of lipids in 2020 to 6.8 grams in 2021 to 9.1 grams last year, according to slides provided to Bloomberg by Oliver Fetzer of Viridos. Such numbers were massive improvements over the effort at Exxon’s Baytown facility a decade earlier.

Interviews with more than a half-dozen former Viridos insiders, who requested anonymity because they had signed non-disclosure agreements or feared repercussions for speaking publicly, revealed struggles to replicate those high numbers on a consistent basis even as the average numbers had jumped significantly in recent years. “Our microalgae were seven times more productive than when we began the outdoor work in 2018,” said Fetzer.

As the numbers started to improve, Exxon began to pull back. In 2021, the oil company told Viridos that it would need to look for other sources of funding. Viridos struggled to find new backers: “The market just dried up for anything that was risky, anything that was tech,” said Fetzer.

Viridos warned employees in October that it was running out of money, and two months later it laid off 75 of its 130 employees without severance. The company shut down the outdoor ponds in the California desert and downscaled to a smaller lab crew. Fetzer said he’s still hopeful they can hit the target of 15 grams within a couple of years, and that he’s talking to a wide range of potential funders.

Viridos CEO Oliver Fetzer Photographer: F. Carter Smith/Bloomberg

Fetzer declined to speculate on why Exxon pulled back its funding just as the algae results were improving, but he was quick to praise the oil giant for bankrolling Viridos for so many years. “Exxon was here for us when everyone else had lost patience with algal biofuels,” he said. “We wouldn’t be here today without that support.”

Many former Viridos employees are less magnanimous. Internal documents, including a pitch deck to potential investors, indicate that a commercial-scale algae facility capable of generating 10,000 barrels a day would require about 50-square miles of land and cost around $5 billion to build. While Exxon loved to showcase its support for algae biofuels, former employees said they doubted the oil company was ever serious enough to commit that level of funding. (Exxon officials counter that they were very serious about algae, but it’s not ready for commercial deployment.)

For the scientists still working to figure out algae biofuels, they fear what Exxon’s vanishing funds could mean for their endeavors. Very few companies are still working to solve this critical challenge, said McGowen of the Arizona State University algae center. “So the idea of Viridos not moving forward and being successful is something we don’t like to see,” he said. “It takes a lot of the wind out of the sails.”

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