LanzaTech CEO Jennifer Holmgren with Richard Branson and the then CEO of Virgin Atlantic, Steve Ridgway, in front of Battersea Power Station in London in 2011 when LanzaTech and Virgin Atlantic announced their partnership.

LanzaTech's first step: Producing ethanol to go in cars

Before LanzaTech's technology was used to fuel planes, it was used to fuel cars. Almost every gallon of gasoline sold in the United States today is 10 percent ethanol, according to the Renewable Fuels Association. But ethanol still has environmental implications. For example, there's the food versus fuel debate. Ethanol is typically made from corn, sugar cane or grasses, which take a lot of land to grow, acreage that some argue is needed to grow food. “The world uses 50 million barrels per day of fossil fuels (that’s for cars, planes, boats). If we want to try to substitute a significant portion of that using sugars ... we would end up using all our landmass to make fuels versus growing crops to feed people,” Jennifer Holmgren, CEO of LanzaTech tells CNBC Make It. "While there are many sustainable sources of sugar-derived ethanol ... it’s not enough to substitute for all the fuel we use today," says Holmgren. "Enter gas fermentation." Holmgren is referring to the revolutionary process of producing ethanol developed by the start-up. The method uses the rabbit-gut bacteria to ferment waste gas from factories — the exhaust you can see billowing out of their smoke stacks — which then generates ethanol. So gas fermentation to produce ethanol can not only help solve the land issue, according to LanzaTech, it also tackles another problem: pollution. The process is "a lot like making beer, except that instead of converting sugar to ethanol we convert pollution to ethanol,” Holmgren says. “We are reducing waste gas emissions at the same time, preventing these from becoming pollution." The resulting ethanol can currently be mixed with gasoline for use in cars, or catalytically converted into the jet blending component to blend with conventional airplane fuel. ("You can't blend ethanol into jet fuel. So we need to convert it before we blend it in," Holmgren tells CNBC Make It.) Beyond fuel for cars and jets, ethanol can also be converted into ethylene and then polyethylene to make plastic products, an area that LanzaTech hopes to explore in the future. “Longer term, we’re going to do other things ... make chemicals that will eventually will make your yoga pants someday using recycled carbon emissions," Holmgren tells CNBC Make It. "That's what we're trying to do, but we had to start somewhere, and the easiest thing that could make money was ethanol." "Someday I guarantee you, you'll be wearing yoga pants that we made with recycled carbon.” Holmgren says LanzaTech wants to create "carbon-smart consumers.” “We want you to be able to go into a store and choose — just like you choose fair-trade coffee — I want you to choose the carpet that comes from recycled carbon versus the carpet that comes from the fresh fossil carbon," she says. "We want all of you to ask for these products. I don't want these [products] to come from fresh fossil, and that's what we're really trying to do.”

The LanzaTech story

The story of LanzaTech started in 2005 in New Zealand. Dr. Sean Simpson and the late Dr. Richard Forster (who has since died of cancer) were working at a biofuel company there called AgriGenesis BioSciences. (Biofuel is energy produced from organic material.) But the company closed down, and the scientists were left unemployed. “They didn’t have a job, and they had no idea what to do,” Freya Burton, chief sustainability officer at LanzaTech, tells CNBC Make It. So the scientists started to brainstorm different ways to make biofuels, which typically come from fermenting plant sugars or starches. "Coming from a company that was focused on using biomass (plants) to make fuels, they thought that it was a better idea to use [something] that had no impact on land or food production." They also wanted to find something that was low cost in large quantities, Burton tells CNBC Make It. Simpson and Forster came across an academic paper that showed it was possible for bacteria to consume carbon monoxide and produce ethanol, "so they thought that it could be possible to use this biology at large scale to consume waste emissions," Burton explains. While researching gas fermentation processes, Simpson and Foster came across the rabbit gut bacteria at the heart of LanzaTech, clostridium autoethanogenum. They found the bacteria — or "bug," as it's casually referred to in the industry — at a microbial library called DSMZ in Germany. “Nobody had considered using waste gases before because they are relatively dirty," Burton tells CNBC Make It, and the processes to work with the dirty waste gases were very expensive. "When [Simpson] first got the bacteria and tried to get it to make ethanol from carbon monoxide, it was pretty useless. So he didn’t know how it would perform at first, but he took a risk," Burton tells CNBC Make It.

The entire LanzaTech team in late 2007. Co-founder and chief scientific officer Dr. Sean Simpson is in the back row with curly red hair. Co-founder Dr. Richard Forster (who has since passed of cancer) is in the back row to the left of Simpson. Freya Burton, the chief sustainability officer, is in the front row second from the right. Photo courtesy LanzaTech

Simpson and Forster had no money and they had no lab space to develop and test the process. So they "begged, borrowed and pleaded with friends to let them borrow some lab space and equipment,” Burton says. They even scavenged a discarded fridge from a 7-11 that was closing, removing the cooling systems and repurposing it as an incubator for their experiments, Burton says. Though they were short on cash, the scientists were confident. They registered the company in 2005 with the name LanzaTech. "Lanza" means "spear" in Spanish, and their first motto was "spearheading new technology." "[Simpson and Forster] had a firm belief that their idea was possible," Burton tells CNBC Make It. In the lab space they cobbled together, the scientists worked with the bacteria to see if they could get it to make ethanol from carbon monoxide in a cost-effective way. They spent two years evolving the bacteria, developing the populations of microbes that could withstand the dirty gases without expensive chemicals and vitamins and that could produce high amounts of ethanol, Burton says. In 2006, the scientists had enough data to get $100,000 from New Zealand-based company Biodiscovery and permission to use Biodiscovery's lab space in Auckland. From there, further advances allowed the scientists to find larger investors in New Zealand and then the United States, raising $275 million in total. LanzaTech demonstrated the technology worked in factories in New Zealand, China and Taiwan (and a similar technology in Japan) and won 398 patents (it has another 377 pending). LanzaTech brought on Holmgren as CEO (from UOP, a subsidiary of Honeywell) in June 2010 and moved its headquarters to Chicago (a more central location from which to do business and ship chemicals) in the summer of 2014. LanzaTech now has 140 employees as well as additional offices in Shanghai, New Delhi and London. Today, Simpson is the chief scientific officer of LanzaTech.

LanzaTech team in Chicago. Photo courtesy LanzaTech

The biotech company operates with a licensing model, licensing its intellectual property and selling its engineering services and the materials to accomplish fermentation — a bacteria and dry mix combo to which customers just add water. Customers pay LanzaTech to install the facilities needed for fermentation and for LanzaTech to store the ethanol produced (which the factories own). LanzaTech also gets royalties from the sale of the ethanol by the factories. "We use this model because a company like ours can’t raise enough capital to build many production facilities. So if we really want to have a big impact by capturing a lot of gas from a lot of sources, we have to have a business model that supports that, which means we have to give up some rights to the ethanol in order to motivate others to raise the cash or use their cash to build a plant," Holmgren tells CNBC Make It. As of May 3, LanzaTech’s gas fermentation technology is operating at commercial scale: A portion of the waste emissions from the Shougang Group’s Jingtang Steel Mill outside Beijing in Caofeidian, China, is being used to produce ethanol in what is being called the Shougang-LanzaTech Joint Venture. The facility will produce 16 million gallons of ethanol a year. The reduced emissions coming from the plant as a result of LanzaTech's technology is the equivalent of taking 80,000 cars off the road every year. Though a significant step for the company, that's a relatively tiny impact. The United States alone used 14.4 billion gallons of ethanol in 2017, the U.S. Environmental Protection Agency tells CNBC Make It. And in 2016 (the most recent year data is available for), almost 269 million total vehicles were registered just in the United States, according to the U.S. Department of Transportation.

The Shougang Group’s Jingtang Steel Mill outside Beijing in Caofeidian, China, where LanzaTech's gas fermentation technology is operating at scale for the first time. Photo courtesy LanzaTech

LanzaTech has plans for its technology to be implemented at four other commercial plants in coming years: the Indian Oil Company at the Panipat Refinery in Haryana, India, in 2019 (forecast to produce 11 million gallons of ethanol per year and displace emissions equivalent of taking 50,000 cars off the road each year); Aemetis biotechnology company's Riverbank, California, location in 2019 (forecast to produce 12 million gallons of ethanol per year and displace emissions equivalent of taking just over 50,000 cars off the road each year); Swayana energy project developer in the Mpumalanga province of South Africa in 2019 (forecast to produce 17 million gallons of ethanol per year and displace emissions equivalent of taking just over 80,000 cars off the road each year) and ArcelorMittal steel and mining company in Ghent, Belgium, in 2020 (forecast to produce 21 million gallons of ethanol per year and displace emissions equivalent of taking 100,000 cars off the road each year).

LanzaTech CEO Jennifer Holmgren with the Minister of Oil and Gas for India in the summer 2017 at the World Petroleum Congress where LanzaTech signed a letter of intent with IndianOil. Photo courtesy LanzaTech.



So far, LanzaTech's revenue is relatively limited, since it just recently opened its first facility deploying the technology at commercial scale. In 2017, LanzaTech had revenues of $4.5 million, and in 2016, revenues were $4.1 million, Ben Blackburn, vice president of corporate development, tells CNBC Make It. “We are still unprofitable at this point, but we expect this to change in the next few years as our near-term commercial plants come online,” Blackburn says. Revenues prior to the first plant opening came from payments for engineering services, research and development services and government grants, Blackburn says. But already, LanzaTech has made significant progress getting to the point of having its first commercial-scale facility. "In our field we call building the first commercial [facility] 'crossing The Valley of Death,'" Holmgren tells CNBC Make It.

The ethanol debate