Poisonous carbon monoxide gas emitted by steel mills and other industrial sources can be turned into useful things. Soon a New Zealand company with an unusual approach to this idea plans to use the gas to make ethanol and chemical precursors for a wide variety of plastics and solvents.

The company, LanzaTech, is using genetically engineered microorganisms that eat the gas. While it’s common for companies to use microorganisms such as yeast and bacteria to make ethanol and other products, the microorganisms generally feed on some form of sugar, such as glucose derived from corn starch. Rather than using food sources, LanzaTech feeds its microorganisms carbon monoxide. “It’s basically eating a gas stream,” says the company’s CEO, Jennifer Holmgren.

LanzaTech recently announced agreements to build commercial plants at a steel mill and a coal-fueled power plant in China. Emissions from steel plants worldwide would be enough to make about 30 billion gallons of fuel every year, Holmgren says. That’s equivalent to about 15 percent of the gasoline consumed in the United States.

The organisms can also survive on a mixture of carbon monoxide and hydrogen gas called syngas, which can be made by heating–under certain conditions–just about anything made largely of hydrogen and carbon, including plastics, wood chips, and coal. Usually syngas is converted into useful products through thermochemical processes that use inorganic catalysts. But these catalytic approaches also make waste products that have to be disposed of.

That explains another advantage of engineered microorganisms: they can be made to produce much higher yields of a desired product, says Andy Aden, a researcher at the National Renewable Energy Laboratory in Golden, Colorado. He also says that the cost of microorganisms and nutrients can be less than the cost of precious-metal catalysts typically used in thermochemical processes. And organisms can often tolerate impurities that would deactivate catalysts, Aden adds.

The LanzaTech process has the further advantage of not requiring hydrogen. As a result, it can work directly on the flue streams from steel plants, which often don’t include hydrogen. If hydrogen is present in a flue gas stream, it can either be fed to the organisms or separated and sold–it’s a valuable commodity.

Holmgren isn’t disclosing the specific organism the company uses, but says it is a version of an organism that can naturally produce ethanol from carbon monoxide. The company modified it to produce the fuel at “commercially interesting rates,” she says. LanzaTech also recently announced that it had engineered a microorganism that can produce 2,3-butanediol, a chemical precursor that can be used to make the solvent methyl ethyl ketone (MEK), which is used in dry erase markers and in the manufacture of plastics and textiles. The same chemical can produce butanes and butadiene, which can then be used to make a variety of plastics and hydrocarbon fuels.

Only a few companies are taking a similar approach. Among them are the Illinois companies Ineos Bio, based in Lisle, and Coskata, based in Warrenville. Both use bacteria to make fuel or chemicals from a combination of both carbon monoxide and hydrogen. LanzaTech is targeting steel mills because they produce flue gases that typically contain carbon monoxide but no hydrogen. It has demonstrated ethanol production at a steel mill; the pilot plant at the mill can produce 15,000 gallons of the fuel per year.

This summer, LanzaTech announced it had signed a letter of intent with Baosteel, a large Chinese steel maker. The companies intend to build a demonstration plant next year capable of producing approximately 100,000 gallons of fuel, and then add to that plant to make a full-scale commercial plant that can generate more than 50 million gallons a year. LanzaTech also has a deal with the Henan Coal and Chemical Industries Corporation in China to produce fuel and chemicals at a plant that will run on gasified coal.

Since it was founded in 2005, LanzaTech has raised $30 million in venture capital and $10 million from the New Zealand government. Holmgren says her company’s price for making ethanol is “quite competitive: in fact, we’re close to being able to make ethanol without subsidies.” She says that while the chemical market is smaller than the fuel market, it can be more profitable, since chemicals such as MEK sell for more than twice the price of ethanol.

Aden says the company will face several challenges when scaling up the technology. Among them: ensuring that the gases can be dissolved for the bugs’ consumption in large reactors, not just the small ones used in pilot plants.