In December, President Bush signed the Energy Independence and Security Act of 2007, which calls for U.S. production of renewable fuels to reach 36 billion gallons a year—nearly five times current levels—by 2022. Of that total, cellulosic biofuels derived from sources such as agricultural waste, wood chips, and prairie grasses are supposed to account for 16 billion gallons. If the mandates are met, gasoline consumption should decline significantly, reducing both greenhouse-gas emissions and imports of foreign oil.

The ambitious plan faces a significant hurdle, however: no one has yet demonstrated a cost-competitive industrial process for making cellulosic biofuels. Today, nearly all the ethanol produced in the United States is made from the starch in corn kernels, which is easily broken down into the sugars that are fermented to make fuel. Making ethanol from cheaper sources will require an efficient way to free sugar molecules packed together to form crystalline chains of cellulose, the key structural component of plants. That’s “the most expensive limiting step right now for the large- scale commercialization of [cellulosic] biofuels,” says protein engineer Frances Arnold, a professor of chemical engineering and biochemistry at Caltech.

The key to more efficiently and cheaply breaking down cellulose, Arnold and many others believe, is better enzymes. And Arnold, who has spent the last two decades designing enzymes for use in everything from drugs to stain removers, is confident that she’s well on her way to finding them.

Cellulosic biofuels have many advantages over both gasoline and corn ethanol. Burning cellulosic ethanol rather than gasoline, for instance, could cut cars’ greenhouse-gas emissions by 87 percent; corn ethanol achieves reductions of just 18 to 28 percent. And cellulose is the most abundant organic material on earth.

But whereas converting cornstarch into sugar requires a single enzyme, breaking down cellulose involves a complex array of enzymes, called cellulases, that work together. In the past, cellulases found in fungi have been recruited to do the job, but they have proved too slow and unstable. Efforts to improve their performance by combining them in new ways or tweaking their constituent amino acids have been only moderately successful. Researchers have reduced the cost of industrial cellulolytic enzymes to 20 to 50 cents per gallon of ethanol produced. But the cost will have to fall to three or four cents per gallon for cellulosic ethanol to compete with corn ethanol.

Ultimately, Arnold wants to do more than just make cheaper, more efficient enzymes for breaking down cellulose. She wants to design cellulases that can be produced by the same microörganisms that ferment sugars into biofuel. Long a goal of researchers, “superbugs” that can both metabolize cellulose and create fuel could greatly lower the cost of producing cellulosic biofuels. “If you consolidate these two steps, then you get synergies that lower the cost of the overall process,” Arnold says.

Consolidating those steps will require cellulases that work in the robust organ- isms used in industrial fermentation processes—such as yeast and bacteria. The cellulases will need to be stable and highly active, and they’ll have to tolerate high sugar levels and function in the presence of contaminants. Moreover, researchers will have to be able to produce the organisms in sufficient quantities. This might seem like a tall order, but over the years, Arnold has developed a number of new tools for making novel proteins. She pioneered a technique, called directed evolution, that involves creating many variations of genes that code for specific proteins. The mutated genes are inserted into microörganisms that churn out the new proteins, which are then screened for particular characteristics.

Her latest strategy is a computational approach that can rapidly identify thousands of new protein sequences for screening. This approach generates many more sequence variants than other methods do, greatly increasing the chances of creating functional molecules with useful new properties.

Arnold is using the technique to build libraries containing thousands of new cellulase genes. She and her colleagues will then screen the cellulases to see how they act as part of a mixture of enzymes.

“If you test them simply by themselves, you really don’t know how they work as a group,” she says.

To fulfill her ultimate goal of a superbug able to feed on cellulose and produce biofuels, Arnold is working with James Liao, a professor of chemical engineering at the University of California, Los Angeles. Liao recently engineered E. coli that can efficiently convert sugar into butanol, a higher-energy biofuel than ethanol. Arnold hopes to be able to incorporate her new enzymes into Liao’s butanol-producing microbes. Gevo, a startup cofounded by Arnold and based in Denver, CO, has licensed Liao’s technology for use in the large-scale production of advanced biofuels, including butanol.

Overcoming cellulose’s natural resistance to being broken down is “one of the most challenging protein-engineering problems around,” says Arnold. Solving it will help determine whether low- emission biofuels will ever be a viable substitute for fossil fuels.