GREEN MEANS GO: GREAT INVESTMENT OPPORTUNITIES IN 2010 FOR

INVESTORS AND ENTREPRENEURS IN CLEAN & GREEN BIOFUELS

By: Nathan Cole

December 15, 2009

Introduction..............................................................................................................1

Background..............................................................................................................2

Legal Issues .............................................................................................................8

Intellectual Property.............................................................................................9

Regulatory..........................................................................................................12

Conclusion .............................................................................................................15


INTRODUCTION

The biofuels market has taken off—in some ways, literally. Just last month the

first commercial jet flight was completed, powered by biofuels.1 And this flight won’t be

the last: both the US Navy and Air Force are currently testing biofuels in aircraft, and

plan to expand testing as aggressively as supply will allow.2 All the core technology is in

place, the political will is there to drive the necessary regulatory changes, and the market

is expanding rapidly. This paper will analyze the evolving biofuel economy, and discuss

the technological and regulatory challenges that are being currently addressed.

1
“KLM Claims First Biofuel Airline Passenger Flight,” Wired News, Online Edition.
<http://www.wired.com/autopia/2009/11/klm-claims-first-biofuel-airline-passenger-flight.> Retrieved
11/30/09.
2
“Navy Green: Military Investigates Biofuels to Power its Ships and Planes.” Scientific American.
<http://www.scientificamerican.com/article.cfm?id=navy-investigates-biofuels-to-power-ships-airplanes.>
Retrieved 11/11/09.

1
BACKGROUND

One of the United States (“US”) top strategic objectives is to develop a new

energy infrastructure that makes the US safer from both dependence on foreign oil and

from damage of climate change.3 The Obama Administration plans to invest over $100

billion over ten years in clean energy,4 with additional funds coming from the over half-

trillion dollar stimulus package.5 A full discussion of this revolution in energy

production and distribution is far beyond the scope this paper, but the investment

community has taken to calling this sector Cleantech6 or greentech. Greentech involves

everything from solar panels to hydrogen fuel cells, and even upgrades to existing

technology like nuclear power and energy distribution and storage. The scope of change

in the way we make and use energy is so vast it’s impossible to understand without

breaking it down into more manageable sectors. The transportation fuels sector is

probably the most rapidly advancing part of the greentech revolution, and the most

important alternative energy in transportation is biofuel.

3
The White House website lists among the guiding principles for the Obama Administration’s Energy &
Environment policy “To take this country in a new direction, the President is working with Congress to
pass comprehensive legislation to protect our nation from the serious economic and strategic risks
associated with our reliance on foreign oil and the destabilizing effects of a changing climate.”
<http://www.whitehouse.gov/issues/energy-and-environment.> Retrieved 12/2/09.
4
Id.
5
The official website of the Federal Stimulus Program is Recovery.gov. “A provision in the American
Recovery and Reinvestment Act of 2009 calls for establishing ‘a website on the Internet to be named
Recovery.gov, to foster greater accountability and transparency in the use of funds made available in this
Act.’ Recovery.gov went live shortly after President Obama signed the Recovery Act into law on Feb. 17,
2009. Given its primary mandate – to allow taxpayers to see precisely what entities receive Recovery
money in addition to how and where the money is spent – the site displays easy-to-understand, user-
friendly graphs, charts, and maps.” <http://www.recovery.gov/About/Pages/About.aspx.>
6
Cleantech is actually a Trademarked name of an investment group (Cleantech Group, LLC), but is
nevertheless used as a shorthand to refer to the collection of emerging industries that produce and distribute
clean energy.

2
 A biofuel is a combustible fuel (just like a fossil fuel), with its source material

plant matter.7 Biofuels are thus renewable, and therefore are very well-suited to

gradually replace fossil fuels. Biofuels are attractive for this purpose because they

address most of the energy concerns regarding transportation fuels. First, fossil fuels are

a finite resource, with many reasonable estimates suggesting that oil supplies have

peaked. Second, fossil fuels, when burned, release carbon into the atmosphere which is

thought to accelerate climate change. Biofuels represent a renewable alternative to fossil

fuels, and have a minimal carbon footprint relative to fossil fuels. While biofuels are still

inefficient compared to a (still theoretical) hydrogen economy, many biofuels are ready

today and they can be largely made to work with the existing fossil fuel infrastructure.8

First-generation biofuels, such as E85 ethanol9 have been on the market for

several years. But this has resulted in only a small deployment of flexible-fuel vehicles

7
“Broadly speaking, biofuels are any fuels derived from recently formed organic material. Biofuels can be
distinguished from fossil fuels simply by the time needed for them to reach their usable state and by the
years required to replenish them by natural growth. Biofuel feedstock sources fall into four major
categories--forestry, farming, livestock management, and human activity. They can be converted
(economically or not) by physical, chemical, or biological processes into solid, gaseous, or liquid fuels.
These fuels can then be used in a wide array of systems to provide useful energy for the production of heat,
electricity, and transportation services.” A REVIEW OF BARRIERS TO BIOFUEL MARKET
DEVELOPMENT IN T HE UNITED STATES 2 Envt'l & Energy L. & Pol'y J. 211, 212 -213
(.Spring2008).
8
“Biofuels have the exciting potential of mitigating the grave threats of global warming, reducing the
world's dependence on imported oil from insecure sources and of reducing the skyrocketing costs of oil that
are threatening to undermine the world's economies and devastating the people in non-oil producing,
developing countries. For the people in these countries, biofuel offer a promising road to enhance
development since they use local materials, can provide local jobs, and do not require the import of
expensive equipment and expertise. Brazil has been the pioneer in the use of biofuel, allowing it to
eliminate its oil imports, becoming completely energy independent, and demonstrating to the world the
potential benefits of substitution of biofuels for fossil fuels. Indeed, inspired by Brazil's example, the
United States in recent years has developed a strong biofuel industry, albeit from the disadvantageous
feedstock of corn. The United States has just created an alliance with Brazil to make major purchases of its
biofuels. The European Union and countries around the world are rapidly developing their own biofuel
potentials.” BIOFUELS - POTENTIAL, PROBLEMS & SOLUTIONS 19 Fordham Envtl L. Rev. 253,
253 -254 (.2009).
9
A blended fuel containing up to 85% ethanol, mixed with gasoline, for use in motor vehicles. The most
common raw material for the ethanol is corn.

3
and fueling stations equipped to provide ethanol. Much of the problem with first-

generation biofuels is that their feedstocks (e.g. corn) are directly from or interact with

the food chain. This new supply for agricultural products disrupted prices and

destabilized markets, prompting governments and industry to back away from supporting

these feedstocks. Consequently, only about 2,000 fueling stations have been equipped to

dispense ethanol nationwide.10 However, transportation fuel suppliers and retailers are

already poised to distribute second-generation fuel supplies. The US Department of

Energy (“DOE”) defines categories of biofuels, and provides updated lists of stations

sourcing alternative and advanced motorfuels of all kinds.11 Within the next decade, a

wide variety of fuel sources, produced by various means, will compete to make way to

the millions of stations across the US and world.

Biofuel sources can generally be drawn into two categories: grown feedstocks, of

which there are land-based and water-based (or “solid” and “aqueous”), and recycled

feedstocks, such as recycled pulp.12 For non-algae sources, which are generally all solid

or semi-solid, there needs to be a standardized format to transform these materials and

ready them for shipping and processing. A recent report published by the DOE

10
http://www.e85prices.com/. Retrieved 11/11/09.
11
http://www.afdc.energy.gov/afdc/fuels/index.html. Retrieved 11/30/09.
12
“The routes outlined so far process sugars from biomass. In contrast, pyrolytic methods convert woody
biomass, including the lignin fraction, in a spontaneous high-temperature reaction into an intermediate
called bio-oil. Traditional versions of pyrolysis simply heated the biomass in the absence of air; the
immediate product is very acidic, unstable, and too low in energy content to be a viable fuel. The bio-oil
therefore has to be stabilized and upgraded in a subsequent catalytic step. An updated pyrolysis approach
developed by Huber and co-workers uses catalysts to convert biomass into high-octane gasoline-range
aromatics in a single, simple, inexpensive step (12, 13). These chemical methods produce heat and water,
which preserves resources and helps lower cost.” National Renewable Energy Laboratories, “Algal Biofuel
Technologies.” <http://www1.eere.energy.gov/biomass/pdfs/darzins_20081106.pdf> Retrieved 11/11/09.

4
concludes that the existing commodity transportation infrastructure is well-suited to move

biofuel feedstocks, but that a new transportation standard unit must be developed.13

There are numerous developers racing to get to market at the moment. Most are

competing not directly against each other, but are in a race against time. The

technological and regulatory challenges mean there are opportunities for the first-to-

market to shape the industry sector in their own image. These business risks and analysis

are beyond the scope of this paper, but forthcoming will be a discussion of the issues that

will inform those strategic decisions. It is reasonable to conclude that the higher

efficiencies of biofuels, combined with potentially lower production costs could lead to

lower overall fuel costs and net gain for the world economy. However, many foreseeable

risks remain, and probably some unforeseeable risks as well.

The biggest news in biofuels 2009 was Synthetic Genomics (“SGI”) announcing a

partnership with ExxonMobil. The new partnership will attempt scale-up engineering

and production development of SGI’s proprietary algae-based biofuel technology.14 This

deal represents a potential investment of up to $600 million by ExxonMobil into SGI’s

biofuel. The partnership’s goal is to properly handoff the lab-scale SGI process to

13
Department of Energy.
<https://inlportal.inl.gov/portal/server.pt/gateway/PTARGS_0_1829_37189_0_0_18/Executive_Summary_
Final_w_cover.pdf>. Retrieved 11/10/09.
14
“SGI and ExxonMobil Research and Engineering Company (EMRE) have established a multi-year
research and development strategic alliance focused on exploring the most efficient and cost effective ways
to produce next generation biofuels using photosynthetic algae. Using our scientific expertise, SGI will
continue its work to discover and develop superior strains of algae using leading edge genomic
technologies. ExxonMobil's engineering and scientific expertise will be utilized throughout the program,
from the development of systems to increase the scale of algae production through to the manufacturing of
finished fuels.” <http://www.syntheticgenomics.com/what/renewablefuels.html> Retrieved 11/2/09.

5
ExxonMobil, who will use its refining expertise and distribution channels to quickly

bring production-scale quantities of biofuel to market.15

SGI was founded by J. Craig Venter, one of the worlds’ foremost geneticists.

SGI’s technology is very advanced, and is the result of the better part of the last decade’s

basic research.16 Venter has an enormous taxonomy of microbial marine life which SGI

has drawn upon to engineer its algae. SGI’s biofuel process consists of genetically

engineering algae to produce hydrocarbons, which will then be separated out and refined

to produce a liquid fuel compatible with petroleum-based fuels.

The efficiency of this process is potentially very significant. If the engineered

algae is able to produce fuel at its expected levels, it will be converting sunlight into a

liquid combustible fuel at the most efficient rate yet seen on earth.17 From an engineering

15
“SGI and ExxonMobil Research and Engineering Company (EMRE) have established a multi-year
research and development strategic alliance focused on exploring the most efficient and cost effective ways
to produce next generation biofuels using photosynthetic algae. Using our scientific expertise, SGI will
continue its work to discover and develop superior strains of algae using leading edge genomic
technologies. ExxonMobil's engineering and scientific expertise will be utilized throughout the program,
from the development of systems to increase the scale of algae production through to the manufacturing of
finished fuels.” <http://www.syntheticgenomics.com/what/renewablefuels.html> Retrieved 11/2/09.
16
J. Craig Venter announced in June 2005 that he was launching a company (his second) with Nobel Prize
winter and longtime friend and colleague Hamilton O. Smith, called Synthetic Genomics to “engineer life”.
Venter’s first company, Celera Genomics, failed to commercialize successfully Venter’s work in
sequencing the human genome. Tricia Bishop, “Creating a Company Intended to Create Life; Venter: The
Scientist Who Announced the Mapping of the Human Genome Takes on a New Task.” The Baltimore Sun,
June 30, 2005.
17
“*Algae can be grown using land and water unsuitable for plant or food production, unlike some other
first- and second-generation biofuel feedstocks. *Select species of algae produce bio-oils through the
natural process of photosynthesis — requiring only sunlight, water and carbon dioxide. *Growing algae
consume carbon dioxide; this provides greenhouse gas mitigation benefits. *Bio-oil produced by
photosynthetic algae and the resultant biofuel will have molecular structures that are similar to the
petroleum and refined products we use today. *Algae have the potential to yield greater volumes of
biofuel per acre of production than other biofuel sources. Algae could yield more than 2000 gallons of fuel
per acre per year of production. Approximate yields for other fuel sources are far lower: - Palm — 650
gallons per acre per year; - Sugar cane — 450 gallons per acre per year; - Corn — 250 gallons per acre per
year; - Soy — 50 gallons per acre per year; *Algae used to produce biofuels are highly productive. As a
result, large quantities of algae can be grown quickly, and the process of testing different strains of algae
for their fuel-making potential can proceed more rapidly than for other crops with longer life cycles. *If
successful, bio-oils from photosynthetic algae could be used to manufacture a full range of fuels including

6
perspective, algae biofuels have the potential to be the highest-yielding, highest

performing of all biofuels.18

However the significant challenge of algal biofuels is engineering: the full-scale

process doesn’t exist yet. But the constraints of this engineering problem are legal and

societal. For example, this process will require significant water consumption. If a

process that utilizes saltwater inputs can be developed, the plants can be located near

seawater supplies, and thus avoid taxing scarce and heavily-regulated freshwater sources.

Also training a workforce to work with new equipment on new processes could create a

mixed-bag of regulatory issues, relating to liability, insurance, transport and logistics, and

safety. However, most other emerging biofuel developers hope to fit a biofuel supply

chain into the existing fossil fuel infrastructure. This should eliminate some of the

regulatory challenges, and difficulties in training and equipping the workforce.

Virent has a proprietary process it calls BioForming, which uses carbohydrates

(sugars) from grasses and other plants as a process input.19 Its proprietary technology is

called Aqueous Phase Reforming and is apparently flexible with various feedstocks, and

scales down to residential use.20 Several companies, including Envergent, and others are

gasoline, diesel fuel and jet fuel that meet the same specifications as today’s products.”
<http://www.exxonmobil.com/Corporate/energy_climate_con_vehicle_algae.aspx> Retrieved 11/2/09.
18
“Advanced Biofuels” are generally those not produced directly from primary sources, such as corn and
other cellulosic feedstocks. Algae, for example, yields 1,000-10,000 times more oil (diesel / jet fuel) per
unit mass. <http://www1.eere.energy.gov/biomass/pdfs/darzins_20081106.pdf.>
19
Virent website. <http://www.virent.com/> Retrieved 11/30/09.
20
“Dissolved sugars can also be converted into hydrocarbons through routes that resemble petroleum
processing more than fermentation. Dumesic and co-workers have developed several routes in which
dissolved sugars react in the presence of solid-phase catalysts under carefully controlled conditions that
avoid unwanted by-products. They can convert carbohydrates into targeted ranges of hydrocarbons for use
as fuels or chemical feedstocks. Virent Energy Systems has developed a process known as Bioforming that
converts water-soluble sugars into green gasoline, diesel, and jet fuel. In partnership with Royal Dutch
Shell, Virent claims to be 5 to 7 years away from commercial production of hydrocarbon fuels at a capacity
of 100 million gallons/year, at a price competitive with petroleum at $60/barrel.” National Renewable

7
developing processes that can convert feedstocks into fuels using existing petrochemical

processing equipment, or substantially similar equipment.21 Others similarly competing

include Sapphire Energy, Solazyme, and Aurora Biofuels.

LEGAL ISSUES

The legal issues relating to the emergence of the biofuels industry are complex

and defy any comprehensive assessment. Each individual company will have to chart its

own course into the future, across uncharted territory. This complexity is multiplied by

the fact that others are also exploring the same territory at the same time, and thus

managers will operate in a very challenging, dynamic environment. A key theme of this

environment is convergence: the skill sets required to understand biofuels cut across

multiple disciplines: biology, genetics, chemical engineering, environmental science,

intellectual property law, energy law, and others this paper discusses are just the

beginning. A common theme among these issues is that they must be solved in unison.

Careful coordination of interdisciplinary teams will be required. Critical to managers of

biofuel workforces is the convergence of technologies and legal schemes that will create

Energy Laboratories, “Algal Biofuel Technologies.”

<http://www1.eere.energy.gov/biomass/pdfs/darzins_20081106.pdf> Retrieved 11/11/09.
21
“One pyrolysis effort is being spearheaded by two companies: UOP, which has a long history in
petroleum refining, and Ensyn, which has expertise in producing bio-oil for use as heating oil. The joint
venture, Envergent, has stated its intention to "commercialize viable solutions for converting biomass to
drop-in transportation fuels" by 2011, also at a capacity of about 100 million gallons/year.
Another company, KiOR, is currently developing the "biomass catalytic cracking" process (BCC), which is
analogous to fluidized catalytic cracking used in petroleum refineries to convert large hydrocarbons into
smaller ones. KiOR intends to commercialize BCC for the production of diesel and gasoline components
from forestry or agricultural waste by 2011. The scale of operation is roughly the same as that of the UOP
and Virent processes.” Id.

8
entirely new corporate cultures.22 Attorneys counseling these clients should understand

the nature of this convergence and be able to address the legal issues that will arise.

Intellectual Property

Regardless of biofuels, the rise of intangible assets is a fundamental movement

that is reshaping all areas of commerce. The aspects of this shift are well detailed

elsewhere, and include such concepts as the primary value of companies being composed

of intangible assets, the primary function of employees being providing services, and the

primary producers of patents being very small companies.23 This situation creates new

challenges for everyone to contend with, and particular challenges to industries that rely

on cutting-edge technologies like biofuels.

The current IP base is widely distributed in the biofuels sector. The largest

recipients—ExxonMobil, Chevron, etc.—have received only a small percentage of the

22
“We learned that the technologies were changing in ways that made traditional distinctions between
disciplines and areas of science decreasingly relevant. Biotechnologists regularly describe nano-scale
develoments. Nanotechnologists apply insights from genome sequencing. Research is spread, enhanced,
and stolen with cyber tools. Research will lead to carbon-free or carbon-neutral technologies that disrupt
industries and policies. The blurring of boundaries between sciences are creating convergences.
Breakthroughs across disciplines are stimulating accelerating insights and applications.” Toffler and
Associates, Technology and Innovation 2025. <http://www.toffler.com/images/Toffler_TechAndInnRep1-
09.pdf.> Retrieved 11/3/09.
23
See generally Raymond Millien. A Survey of Established & Emerging IP Business Models, Secona
Conference Journal, Fall, 2008. In particular, “Over the last three decades, there has been a shift from a
labor-driven economy to a knowledge-based economy. Illustrative of this fact is that, for the first time since
the industrial revolution, the percentage of American workers employed in manufacturing has fallen below
10% and may be as little as 5%. Consequently, intangible assets produced by a more highly-skilled and
services-oriented workforce have emerged as the most powerful asset class, overtaking traditional capital
assets such as real property, plant and equipment. Independent research has demonstrated that nearly 80%
of the value of a U.S. publicly-traded company now comes from intangible assets. This is an inversion from
30 years ago when only 20% of a company's value came from intangible assets, and is significant because
the largest component (or subset) of intangibles is intellectual property. Further, data showing that small
businesses generate 13-14 more patents per employee than large firms would empirically suggest that this
80% figure applies, if not more so, to smaller (and private) companies as well.” 9 Sedona Conf. J. 77, 77
(.2008).

9
issued patents.24 This suggests that a vast amount of issued patents are held by those not

immediately able to capitalize on it. Thus there are opportunities for significant

transactions in patents, or failing that, infringement litigation. Additionally, a substantial

increase in biofuel patent applications is taking place, and will likely closely track the

increased investment in research in this area, which continues to this day.25 Thus due

diligence will be required of the leading players to minimize their risk of infringement.

However, the risk of an injunction is less significant if the patentee is not a direct

competitor.26 From a policy perspective, many observers are concerned that the mass of

entangled intellectual property rights might present an impasse to needed innovation in

24
“Over the past decade, 13.4 percent of the issued patents in the biofuels/synfuels segment did not identify
an assignee. The largest recipient of patents, Chevron U.S.A. Inc. (primarily synfuels), received a mere 1.0
percent. Other companies that have been active over the years include ExxonMobil Research and
Engineering Company (primarily synfuels), Energy BioSystems Corp. (biofuels), The Lubrizol Corp.
(synfuels), The Regents of the University of California (synfuels, some involving nanoparticles), BASF
Aktiengesellschaft (biofuels), Institut Français du Pétrole (biomass), Metabolix, Inc. (biomass), and
Midwest Research Institute (biomass).” PATENT TRENDS IN THE CLEANTECH INDUSTRY 20 NO.
7 Intell. Prop. & Tech. L.J. 1, 3).
25
“In the next decade, expect to see a greater increase in patent prosecution activity in the cleantech arena.
With some 1,500 cleantech startups operating worldwide and the $2.4 billion investors poured into them in
2006 alone, a great amount of research and development will be generated, and this research and
development will in turn be patented. … As more products enter the marketplace, many cleantech sectors,
especially those with vertical applications, will experience a wave of mergers and acquisitions, with larger
corporations taking over startups and their intellectual property. Anticipate more patents and trade secrets
to be amassed by corporations via public auction. This relatively new mechanism for publicizing and
trading intellectual property may be particularly useful here as the data show that individuals own many
cleantech patents.” PATENT TRENDS IN THE CLEANTECH INDUSTRY 20 NO. 7 Intell. Prop. &
Tech. L.J. 1, 6).
26
“Given the number of patents held by individuals, it is also expected that some of these lawsuits will be
filed by nonpracticing, patent-holding entities against established manufacturers, such as those in the car
industry. However, in eBay Inc. v. MercExchange, L.L.C., the Supreme Court put an end to the "general
rule" that a permanent injunction should follow a finding of infringement of a valid patent. Whether an
injunction should issue is now within the trial court's discretion, and it will be much more difficult for a
non-rival to obtain an injunction. Due to the latter reason alone, more ITC investigations should be filed as
these quick proceedings offer an exclusion order as the primary remedy. With energy costs and climate
change high on the list of public and governmental concerns, cleantech is a priority on the research and
development agenda of many global corporations. Continuing investments and competition in the cleantech
industry will drive growth in patent prosecution and litigation for many years to come.” PATENT
TRENDS IN THE CLEANTECH INDUSTRY 20 NO. 7 Intell. Prop. & Tech. L.J. 1, 7).

10
the biofuels market.27 From an IP portfolio management perspective, this web of patents

is likely to present greater challenges to managers of these assets than ever before. Many

more scenarios will have to be explored by IP asset managers in order to leverage what

will become an increasingly crowded, tightly-regulated competive environment.28

Additional sensitivities by the public to the potential dangers of engineered organisms, as

well as the ethics of ownership of life can complicate the public relations mission of

biofuel manufacturers.29

27
“A debate has begun in the biotechnology, pharmaceutical, semiconductor, and software industries over
the role of intellectual property in innovation, but such a controversy has all but been ignored by the energy
policy literature. In the rare instances when intellectual property concerns are discussed, they are done so
either as a technique for measuring the success of a given research and development (R&D) laboratory or
institution, or as a needed mechanism to induce technological innovation.” PLACING A GLOVE ON THE
INVISIBLE HAND: HOW INTELLECTUAL PROPERTY RIGHTS MAY IMPEDE INNOVATION IN
ENERGY RESEAR CH AND DEVELOPMENT (R&D) 18 Alb. L.J. Sci. & Tech. 381, 384 (.2008).
28
“While there is no one-size-fits-all approach when it comes to clean tech IP, there are nonetheless some
general attributes of many clean tech efforts that should be considered when assessing possible IP
strategies. We have identified the most salient of these attributes and explored how they should inform an
approach to IP protection. To summarize the key recommendations of this article: • Appreciate the
importance of understanding all technology dimensions involved; technology convergence creates potential
for enhanced IP protection. • In academic and corporate research settings, technology convergence
contributing to many clean tech solutions may provide rich possibilities for invention mining and creative
bundling for commercial exploitation. • IP directed to integration with existing
production/delivery/distribution infrastructure (IP on the plug) can in some cases transcend core
technologies and be of key importance. • Legacy technology does not mean unprotectable technology. •
Incremental/ narrow innovations can be commercially very valuable; don't rule out protection if broad
scope appears to be unavailable. • For clean tech ventures with long time to market and long technology
lifespan, increase patent enforcement life via strategic filing approaches. • International IP protection
considerations for clean tech should include sensitivity to the dynamics of international policies (e.g.,
regulations, incentives) and jurisdiction-specific enforcement issues. • Consider elevated importance of
public perception on branding, but beware of green gridlock when considering trademark protection.”
ENERGY, CLEAN TECH, AND IP: MANAGING TECHNOLOGY CONVERG ENCE AND
PROTECTING INNOVATION 21 NO. 4 Intell. Prop. & Tech. L.J. 8, 10).
29
“Keen observers of the energy/clean tech space note various attributes that appear to be common themes
for many clean tech ventures. First, [C]lean tech typically requires a significant interdisciplinary knowledge
of scientific and engineering principles, including chemistry, materials science, mechanical and electrical
engineering, biology and biotech, environmental sciences, and/or IT and CS. Second, clean tech endeavors
often require a longer time frame to get to market, in some instances greater than 10 years, requiring
persistence, patience, and long-range business strategies. Third, there may be limited possible routes to
market, such as an existing hierarchy that controls some infrastructure (e.g., utility companies that
constitute virtual monopolies or government agencies at various levels). Other considerations include the
durability of the existing infrastructure, the tremendous cost and time required to significantly change it,
and the reluctance of at least some constituency of consumers to adjust behavior when it comes to energy
consumption. Those in clean tech, therefore, need to position their innovation with sensitivity as to how it
interfaces with or plugs in to the existing framework. In addition, clean tech is often capital intensive,

11
Regulatory

Regulatory agencies often have to use both carrots and sticks to achieve their

mission: they set the rules of industry participation, but they also encourage industry

growth through investment of public funds. The biofuels industry is no exception, and

since it seems to be regulated by every agency simultaneously, will require unique

coordination to take advantage of the funding opportunities and comply with regulations.

The biofuels market is still in its infancy, and so depends substantially on government

support as described above. At an even more fundamental level, the basic research to

create the industry has been government funded for decades. Until such time as the

industry can produce compliant biofuels at competitive prices, public support will still be

necessary. As this process unfolds, both legal and technological problems must be solved

at the same time.30 Current technology can produce biofuel at around $8/gallon

(compared to $3-4 for diesel).31 The federal legislative and regulatory framework is

structured to lower barriers to industry developing and competing, which should

eventually produce biofuels at lower cost than fossil fuels.

involving a bigger financial scope and scale than other tech sectors and can be significantly affected by
government regulations and public perception.” ENERGY, CLEAN TECH, AND IP: MANAGING
TECHNOLOGY CONVERG ENCE AND PROTECTING INNOVATION 21 NO. 4 Intell. Prop. & Tech.
L.J. 8, 8 -9 ().
30
“Biofuel production has experienced rapid growth; however, this growth has depended heavily on federal
and state programs and incentives. Rising fossil fuel prices improve bio fuels' market competitiveness.
However, significant improvement of existing technology or the development of new technology is needed
for current biofuel production strategies to be economically competitive with existing fossil fuels in the
absence of government support. Attorneys should advise clients of the risks in the biofuels market. In
particular, the economics of a prospective investment project should not rely on an assumed "general"
market. The details of each project must be carefully analyzed. Finally, investors and operators must be
cognizant of the "disconnect" between agricultural inputs and energy market pricing in a subsidy-driven
market. Until state and local governments mandate biofuelblending, product pricing will track petroleum
prices without a pure, independent market value because there is no fixed demand.” FEEL THE HEAT:
BIOFUELS ARE A HOT INVESTMENT, BUT DON'T GET BURNED ... 44-FEB Hous. Law. 22, 28
(.2007).
31
Department of Energy. <http://www1.eere.energy.gov/biomass/pdfs/algalbiofuels.pdf.> Retrieved
11/11/09.

12
 The story of biofuel regulation begins in the 1980s with the emergence of

genetically-modified pharmaceuticals and agricultural products. The Coordinated

Framework for the Regulation of Biotechnology (“Coordinated Framework”) is an

executive policy that originated in the Reagan Administration and has been followed by

successive administrations, and regulates genetically modified and engineered organisms

using a collaboration between existing agencies such as the EPA, Food and Drug

Administration (“FDA”) and numerous others. The Coordinated Framework is a

statutory scheme for allowing agencies to work together to regulate biotechnology. The

approach is to regulate by product, rather than process. The result is that most products

are regulated by multiple agencies, depending on the specific nature of the product or

process. The Coordinated Framework facilitates communication between the various

agencies to remove barriers to innovation without compromising public safety, as

determined by the collective agency expertise. As regulators began to take notice of the

emerging biofuel industry, it became clear that even more agency coordination would be

required.

Just this year, the nation’s first comprehensive program for managing biofuel

development was created, called the Biofuels Interagency Working Group.32 This group

is primarily focused on coordinating the near $1 billion in recovery funds that are

directed specifically at biofuel investment channeled through the Department of Energy

(“DOE”) and Environmental Protection Agency (“EPA”). A substantial portion of those

funds will be used to accelerate commercialization of advanced biofuels. But additional

benefits of this Group will step from inter-agency coordination that will facilitate the

32
<http://apps1.eere.energy.gov/news/news_detail.cfm/news_id=12489.> Retrieved 11/11/09.

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energy infrastructure improvements, as will be discussed in a following section.

Importantly, this interagency coordination mirrors the stucture of the Coordinated

Framework. The Working Group then utilizes the expertise of the Coordinated

Framework as well as the energy-specific regulatory concerns managed by the EPA and

DOE. Clearly, just describing the regulatory structure is complicated enough, and

working out the details of biofuel regulatory policy will be no exception to that

complexity. Nevertheless, each agency generally sets rules relating to the agency’s

expertise that apply to biofuel companies.

For example, the EPA regulates fuel standards in the US, and with respect to

biofuels they administer the federal Renewable Fuel Standard (RFS). As part of the

Energy Indepdenece and Security Act of 2007 (EISA) the national supply of renewable

fuels is targeted to reach 36 billion gallons by 2022. According to this program,

“advanced biofuels” (those other than corn-based ethanol with low greenhouse gas

emissions) will be required in over 21 billion gallons by 2022. However the EPA will

have discretion by require greater volumes after 2012 (possibly up to 4 billion more

gallons). In order to implement these standards, the EPA is currently engaged in a

rulemaking process.33 Biofuel companies will need to be active participants in agency

rulemaking to assist regulators in crafting appropriate rules.

States are also involved in biotechnology regulation. States addresses local

concerns, such as those having to do with the local means of production and

transportation. And in our federalist system, the states also act as policy labs,

experimenting with various regulatory schemes to attract new business and create jobs.

33
http://www.growthenergy.org/2009/news/showItem.asp?id=24. Retrieved 11/11/09. Also see the
Federal Register notice at http://edocket.access.gpo.gov/2009/E9-9115.htm.

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But this can make it more complicated for business, and requires businesses to shop

around their means of production, and also raises preemption issues.

CONCLUSION

Biofuels are an important part of our national energy policy, making the US

stronger economically, militarily, and making our world cleaner ecologically. Great

opportunities exist for investors and entrepreneurs in 2010 and beyond in biofuels. Due

diligence of the legal and technical issues will allow interested parties to properly assess

the risks and opportunities. Many new challenges remain to be overcome for managers,

investors, and the attorneys who provide their counsel. The complexity of intellectual

property management will increase sharply, with more changes likely to the patent laws.

A unique regulatory framework must continue to keep pace with industry. State and

Federal laws relating to energy infrastructure will have to evolve to facilitate commerce

and keep the public safe. A new workforce must rise to the challenge of converging

technologies as the mature biofuels industry takes shape.

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