A yeast-like bacteria can cut carbon emissions while creating sustainable aviation fuel and sneakers

In Chicago, biotechnology firm LanzaTech says it can take carbon emissions and turn them into ethanol—a chemical that can be used to make sustainable fuels as well as plastics—using the bacteria Clostridium autoethanogenum.

But if this sounds like a game changer in the quest for clean-tech solutions, there is a problem. Despite the company’s technology showing promise, the business isn’t making any money, it is falling short of its earnings predictions and its stock has crashed.

LanzaTech was set up in New Zealand in 2005 by then out-of-work biologists Sean Simpson and the late Richard Forster, who had the goal of creating a new source of biofuel. A condition the pair imposed on themselves was that the feedstock for producing the fuel couldn’t also be a source of food, such as sugar or corn, to avoid creating competition for supplies that are typical of ethanol-based fuels. Being biologists, they turned to bacteria and found that one particular organism could hold the key.

Clostridium autoethanogenum has been known about since the 1990s, and was first isolated in the feces of rabbits. It is similar to yeast, which eats sugar to make ethanol—a process that has been used for thousands of years to make beer and bread—except this bacteria eats carbon in the form of gas to produce ethanol.

The company’s founders asked themselves if the process could be scaled. If it could, they had the means of generating potentially a large source of ethanol while also cutting carbon emissions from some of the world’s dirtiest industries.

“You can find carbon dioxide from almost every steel mill and refinery. You can even make it from trash," LanzaTech Chief Executive Jennifer Holmgren said.

LanzaTech’s approach is to take waste carbon emissions from an industrial site and inject them into a bioreactor with the bacteria. From there, the bacteria digest the gas to produce ethanol and a protein coproduct.

If the ethanol is used to make sustainable aviation fuel, LanzaTech said a greenhouse gas reduction of up to 85% can be achieved, with cuts in particulate emissions of more than 95%, when compared with traditional jet fuels. For a steel plant, a 30% drop in carbon emissions is achievable, according to the company. Given the industry alone accounts for 11% of global emissions, that could prove significant.

So far, the company has commercial operations in four steel plants in China, as well as an oil refinery in India and ArcelorMittal’s steel plant in Ghent, Belgium.

Irina Gorbounova, vice president of mergers and acquisitions and head of Xcarb Innovation Fund at ArcelorMittal, said the technology potentially can help to decarbonize the company’s operations and “in producing valuable products from our carbon bearing gases which can help the decarbonization of other sectors."

In March, LanzaTech secured a major government win with $200 million in funding from the U.S. Department of Energy. The company and its partner Technip Energies will be trialing the technology to produce low-carbon ethylene.

Other major brands testing LanzaTech’s technology include Lululemon, which has already started incorporating ethylene into some of its clothing, and Unilever, which is using ethanol in some of the company’s detergents.

LanzaTech’s most prized asset, however, may be its sustainable aviation fuel project. In 2020, it spun out a separate company called LanzaJet, to produce SAF from low-carbon ethanol. LanzaTech owns 25% of the subsidiary, with other major shareholders including Suncor Energy and British Airways owner International Airlines Group. Bill Gates-backed Breakthrough Energy Ventures and Microsoft’s Climate Innovation Fund are also among its supporters.

“We are a hard-to-decarbonize sector so we need all solutions," said Jonathon Counsell, group head of sustainability at IAG. “In terms of sustainable aviation fuel it’s the only real solution to reduce emissions in the near term and in terms of solutions for long haul it is the only real solution."

LanzaJet also counts Southwest Airlines as one of its customers. The airline invested $30 million to get a new alcohol-to-jet fuel facility in Soperton, Ga., up and running. The facility is due to open in the next month and is expected to produce 10 million gallons of ethanol a year.

However, despite the company’s successes so far and the backing from household names, the stock market so far hasn’t taken to LanzaTech.

The company went public via a special-purpose acquisition company in February 2023 and in just over a year of public trading on the Nasdaq, the company’s share price has fallen 70% to roughly $3. As is often the case with startups, the company has not so far turned a profit. And its annual guidance warned that it may never.

Holmgren said the fall is down to a market dislike of companies that go public via SPACs, as well as a mistrust of new clean energy technologies. Missing its revenue target also didn’t help. LanzaTech had expected its 2023 revenue to be in the range of $80 million and $100 million, but it fell short at $62.6 million. The company is seeking to boost revenue by scaling up through more sites, investing in key partnerships such as Technip and upping its share of LanzaJet.

Sentiment around clean tech is also struggling in the wake of high interest rates, given the industry requires large amounts of capital, with profits unlikely to flow for several years. Last fall, NextEra Energy, considered a bellwether for clean tech stocks, cut its annual growth expectations, leading its stock to slip by more than 25%. This led to a drop in share price for several other companies as investors backed away from the sector. LanzaTech’s stock halved during the selloff and has yet to recover to the $8 a share it was trading at before then.

Analysts also say one of the pitfalls of LanzaTech’s revenue model is that it is heavily reliant on a few heavyweight companies like ArcelorMittal. How fast or slow the steel giant decides to add the company’s process to its existing refinery directly impacts Lanzatech’s bottom line, with any delay lowering quarterly revenues.

Nevertheless, analysts expect the stock to improve. “It’s undervalued from an equity standpoint. Their projects are scalable," said Thomas Meric, director of energy transition research at Janney Montgomery Scott, a wealth-management firm.

Meric in particular highlighted the importance of the DOE funding, saying that working with Technip could lead to LanzaTech’s technology being employed across the globe because of how prevalent Technip’s crackers are in oil and gas refineries.

However, he did warn that high interest rates could stop customers investing in projects like LanzaTech due to high costs. “I think the pushback or the thing to watch is the pace of projects that are in the final investment decision and that depends on the appetite of industrial customers to invest time and capital into their assets," Meric said.

Jeffrey Campbell, senior analyst at Seaport Research Partners, echoed the sentiment that those backing the company were likely in it for the long-haul. “This is a long horizon company. It will be the kind of investor that wants to invest in what you think is an important technology but it’s not going to be an overnight success," he said. “It’s going to be incremental, project by project."

Write to Yusuf Khan at yusuf.khan@wsj.com