C16 Biosciences and the Future of Palm Oil
C16 Biosciences is a three-year old startup working to create a sustainable, environmentally friendly alternative to conflict palm oil.
Product Promise: Create a sustainable, environmentally friendly alternative to conflict palm oil using innovative processes found in nature.
- C16 Biosciences is a three-year old startup that has developed proprietary technology to brew a sustainable alternative to palm oil from microbes.
- The company aims to replace all palm oil in the supply chain that is linked to deforestation — a volume that stands at about 3 million metric tons per year and could scale to roughly 11% of the total addressable market over the next five years.
- With a recent $20 million Series A led by Breakthrough Energy Ventures, announced March 2, 2020, the team is currently focused on hiring (R&D, process development, product development) and scaling production.
Palm oil production is a leading cause of increased carbon dioxide emissions, tropical deforestation, and habitat loss. Today, the palm oil industry emits half a billion tons of CO2 per year into the environment and spans 27 million hectares of carbon-rich tropical rainforest. Despite promises to certify sources from 250 global brands, less than 20% of the palm oil supply chain is currently certified as sustainable. Of the products that are sustainable, a product can earn a “certified sustainable” label even if 99% of the palm oil it includes came from freshly deforested land.
Oil palm trees grow best within five to 10 degrees of the equator — a region that is mostly tropical rainforest with temperatures projected to warm over the next 50 years. This warming effect will almost certainly impact the quality and consistency of production, which introduces additional risk for palm cultivators. To date, palm has accounted for 6.6% of cultivated land for oils and fats, while delivering 38.7% of the output. With a 4–10x yield over other oil crops, replacing it has never been an economically viable option. This combination (warming and limited options) foreshadows the need for alternative sources.
Brands in industries such as cosmetics, food, and biofuel can incorporate C16 Biosciences synthetic oils into their supply chains as a sustainable, economically viable alternative to traditional palm sources. The value proposition is that C16 produces a low-cost alternative to traditional palm sources and at domestic biorefineries. This has enticed brands that want a sustainable palm oil alternative but have struggled to find a reliable source.
C16 Biosciences produces a palm oil alternative by engineering oleaginous yeast. The team feeds a proprietary yeast with high-carbon content waste to produce an oil high in saturates analogousto palm oil. Traditionally, oils are produced from single cell cultures that are constrained due to limitations of individual microbes. For example, heterotrophic yeast cultures require sugar input (increasing unit costs) while phototrophic microbes such as algae result in low cell densities (keeping output low). C16 has patented a method of producing the lipids that give palm oil its signature characteristics.
This proprietary method “comprises co-culturing a photoautotrophic microorganism with a heterotrophic microorganism”. Unlike other oils produced from single cell cultures, the co-culture of multiple microorganisms achieves high process yield from minimal inputs. In other words, more lipids at a lower cost.
The global palm oil market is expected to reach a total value of $93 billion by 2021. Before Coronavirus the market volume from 2019–2025 was projected to reach 107.6 million tons and expand at a CAGR of 5.7%. C16 Biosciences plans to address a serviceable market of 12 million metric tonnes over the next five years or $2.1 billion. While this represents a fraction of the projected market volume (11.2%), there are forward looking opportunities that will inevitably increase demand. The recent disruptions to the supply of palm oil as a result of COVID-19 coupled with long term consequences of climate change forecast the need for sustainable, domestic, and bio-manufactured palm oil. More specifically, the disruption to the traditional supply chain signal the need for a synthetic alternative that is easily distributable to meet demand.
How the market has responded amidst global pandemic
Today, 87% of palm oil is harvested from Malaysia and Indonesia — a manufacturing bottleneck that will worsen as climates warm and tropical forests erode. In 2020 alone, Malaysian palm oil exports to China declined by nearly 17% while exports to India plummeted by as much as 91%. This occurred over a 2 month period due to a trade standoff. Finally, reports show that the recent pandemic could result in a monthly production loss of up to 20% of palm oil. This points to the fact that current palm oil supply and demand are incredibly vulnerable.
Market Strategy (hot take)
Initially, C16 Biosciences is planning to target the cosmetics industry. Law does not require FDA approval for cosmetic products and ingredients, other than color additives, which will shorten time to market for the team. Additionally, investors in C16 include Waldencast, founded by GP Michel Brousset (13 years at Procter & Gamble and 7 years at L’Oreal) and Hindi Sebti (11 years at Procter & Gamble and 6 years at L’Oreal). Their choice of investors points to a clear opportunity for powerful contacts in their first industry of interest.
Once C16 establishes itself as a premier palm oil alternative for cosmetics companies, my guess is the team will target biofuel. Biofuel is a logical next step, since there is less risk associated with replacing existing palm oil sources than food. Further, there is already political support from the EU: in December 2019, the EU made the decision to phase palm oil out of renewable transport fuels. Shortly thereafter, tariffs were placed on Indonesian biodiesel imports as a way to further curve deforestation rates associated with palm oil expansion.
- While cosmetics do not require FDA approval, using a palm oil alternative for food will. Understanding if/how the team is planning to leverage contacts at the FDA will be important to understand as they scale. With that said, this will not be a serious concern for several years.
- Setting up and operating a biorefinery to produce tonnes of product is an obvious unknown and huge capital investment. Some estimates $150–200 million in upfront capital needed to operate a biorefinery at the scale C16 is looking to target.
- As far as we can tell, the economic feasibility of the manufacturing process has yet to be tested at scale (particularly the use of waste or by-product feedstocks).
- With that said, one component that might reduce costs and increase scale is how the team is planning to use genetic modification in production. They could also potentially partner with a team like Xylome who are further along in manufacturing and with industrial customers.
- Given the low cost of palm oil, it is unlikely synthetic alternatives will replace wholesale consumption. While single cell oils derived from microbes like yeast are the only way to obtain a product completely analogous to palm oil, there is still uncertainty how these alternatives will be received and positioned in markets. Due to the robust manufacturing process, consumers are likely to pay a premium.
Shara Ticku, CEO: MBA, Harvard; Analyst, Goldman Sachs; Health Associate, Clinton Access Initiative; Product Manager, Progyny
Harry McNamara, CSO: MSc, Bioengineering, Trinity; Mphil, Nanotechnology, Cambridge; PhD, Health Sciences, MIT; PhD, Physics, Harvard
Chaogang Liu, Director of Bioprocess Development: Postdoc, Biomass Conversion Into Biofuels, Dartmouth; Sr. Research Scientist, Mascoma Corp; Sr. Fermentation Scientist, Novozymes
David Heller, CTO: B.S. Biological Engineering, MIT; YC Alum
Strategic Investors: DCVC (Ali Tamaseb), Breakthrough Energy Ventures (Peter Turner), Waldencast (Michel Brousset), Y Combinator, Sound Ventures, AME Cloud Ventures, and Liquid 2 Ventures
Question and Answer
Dr. Sophie Parsons, an Assistant Professor in Mechanical Engineering at the University of Bath, UK, shares her research on the environmental impact of palm oil production, the challenges alternatives face, and her thoughts on the future success of C16 Biosciences.
Can you walk us through your paper “The viability and desirability of replacing palm oil”?
The expansion of palm oil cultivation in recent decades has led to substantial increases in greenhouse gas emissions and biodiversity loss from carbon-rich tropical forest.
Our paper looks at the technical, economic, and environmental feasibility of replacing palm oil. In the paper we evaluate a number of options including: single cell oils from yeast and algae, crop oils like sunflower or grapeseed oil, and exotic oils like coconut oil.
Given the volume of palm oil consumed each year (~70 million metric tonnes), and its low cost comparative to other crop oils, it is a very challenging oil to replace. Our hope is, in the long term, alternative oils from yeast or algae can help stem increases in palm oil demand. We also hope for a much more sustainable palm oil industry which avoids all deforestation and cultivation on high carbon stock land.
Overall, we found that although single cell oils are best at replicating the fatty acid profile of palm oil, there is a significant amount of work needed to scale the technology. In the short to medium term, there should be more focus on improving the sustainability of existing palm oil production.
What are your biggest concerns about future sustainability efforts for the palm oil industry?
Our biggest concern is that any approach to replacing palm oil must consider the environmental impact of alternatives — we need a systems perspective to avoid merely shifting the environmental burden to an alternative source. There remains significant variation in the environmental impacts associated with palm oil depending on the type of land where the oil is cultivated and what happens to wastes during processing.
As far as alternatives to palm oil, there are environmental challenges for single cell oils too. These relate mainly to energy use during fermentation, upstream processing of the feedstock (for example, if you are using food waste or agricultural by-products rather than sugar), and then downstream processing of yeast or algae to obtain the oil. There is much variation and uncertainty here due to the lack of relevant industry data.
We certainly welcome any interest in alternatives, but most importantly, we believe that more must be done now to improve existing palm oil production. We’ve seen some great steps being made in the past year to strengthen mechanisms, like those used by Roundtable on Sustainable Palm Oil (RSPO). This is meaningful progress, but more industry engagement is needed.
What are your thoughts on C16 Biosciences? Can their work be a viable alternative to palm based oils?
In terms of finding an alternative, single cell oils derived from microbes like yeast are the only way to obtain a product which is completely analogous to palm oil. From a sustainability perspective, their use of waste or by-products over sugarcane also makes sense to avoid increased land use impacts. This technology needs industrial demonstration at scale, but we are excited about C16 Biosciences and the success they’ve demonstrated so far.
What do you think are the limitations of the synthetic oils that C16 is producing?
I see scaling them as the biggest hurdle. This includes productivity at scale, particularly using waste or by-product feedstocks, initial capital costs of equipment, as well as economic feasibility of the process as a whole. Ideally, you would set the process up as a biorefinery, where you are able to valorise all the components of the yeast, along with any other extracellular products being produced.
Given the low cost of palm oil, we see the economics as being a major challenge in this area. Also, as we are based in the UK, there is still uncertainty on the acceptability in the European market for products made using synthetic biology. Despite this, with investment in scale up and associated research needs, along with the right entry route to market, this technology has real potential.
If C16 is able to succeed, what do you anticipate as the broader impact on the palm oil industry at large?
We don’t see palm oil alternatives as something that could lead to a wholesale replacement of all palm oil consumption worldwide. Rather, alternatives would in the long term take the pressure off increasing demand for palm oil.
Given the breadth of applications for palm oil and its uniqueness in terms of its fatty acid profile, synthetic oils from C16 Biosciences have the potential to offer a solution that is guaranteed to be deforestation free. The biggest impact though to overall palm oil sustainability, particularly right now, would be to ensure existing certification schemes are up to scratch and that there are more robust measures in place to ensure supply chain transparency.
Thank you for reading! This story was authored independently from C16 Biosciences and their investors and represent my thoughts and opinions.