Not complicated enough? Consider that there's still a question of whether Intrexon's natural-gas-to-isobutanol will even be considered a renewable fuel. Although it will be manufactured by living organisms, the ultimate feedstock (what the U.S. Environmental Protection Agency ultimately cares about) for commercial production facilities will be a fossil fuel. If the company were instead utilizing methane in industrial flue gas or from landfills, then its isobutanol would qualify as a renewable fuel. However, production volumes would be significantly lower due to limited availability, so focusing on fossil fuel feedstocks is wise from a commercial perspective.
Ideally, Intrexon and Dominion Resources will push to have their isobutanol considered a renewable fuel under RFS, which will be critical for incentivizing use of the blendstock over ethanol. Despite it being sourced from fossil fuels, there may be a way to work out a compromise by exploiting the EPA's desires to move away from first-generation renewable feedstocks that depend on food sources and toward next-generation cellulosic feedstocks that use inedible waste biomass. Natural gas certainly isn't edible, so the EPA may be willing to create a special waiver, however unlikely.
It may also be possible for Intrexon and Dominion Resources to team up with refiners tired of subsidizing renewable ethanol and pressure the EPA to allow a special waiver for a better fuel blendstock, such as isobutanol, although that's a battle investors might rather avoid.
A better way forward might seek to exploit another desire of the EPA: to encourage the use of fuels that do not list gasoline as the dominant ingredient. While the technology exists to power cars with fuel blends of 85% ethanol and 15% gasoline, or E85, the market has shown little interest. This is due to several compounding factors, including consumer lack of interest stemming from ethanol's poor energy density -- resulting in much lower fuel economy compared to gasoline -- and a lack of infrastructure investment into special fuel pumps required to handle high ethanol content. Not so for the next-generation blendstock. Fuels containing 85% isobutanol, or Bu85, may be more appealing to consumers worried about giving up fuel economy compared to gasoline and could conceivably be distributed from existing fuel pumps at your local gas station.
However, the carbon footprint of Intrexon's platform -- which temporarily sequesters carbon from natural gas into fuel, only to release it again as carbon dioxide when the fuel is combusted -- may ultimately make it difficult for the EPA to consider slapping "renewable" in front of the fuel's name. In the end, failure to make the company's isobutanol eligible for federal credits would severely limit both the adoption of the fuel and the economics of commercial production and sales.
What does it mean for investors?
Intrexon and Dominion Resources have a vast opportunity in front of them if they can commercialize their isobutanol manufacturing platform and make money doing so, but there are significant regulatory hurdles standing in the way. These can be overcome -- and it may be possible to exploit certain regulatory opportunities -- but investors should be aware of the complexity and difficulty in moving a product from laboratory R&D to the real world. As it turns out, significant technical hurdles remain that could stop Intrexon from ever realizing its goal. I'll cover those hurdles in a future article.
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