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Brian Appel, Changing World Technologies

Turning Garbage into Oil—and Cash

DAN FAGIN / Newsday 4apr04

[A Chemist's Comments on CWT]


Brian Appel will be the first one to tell you that selling chocolate, theater tickets and perfume was a lot simpler than saving the world by turning turkey parts into oil.

"When I first explain it to people, they think I'm nuts. I'm telling you, they think I'm nuts," said the 45-year-old West Hempstead entrepreneur whose latest venture is a local company that is getting nationwide attention with an astonishing technology that can transform almost anything -- from tires to turkeys -- into high-quality petroleum.

Newsday/Thomas Ferrara

Brian Appel, Changing World Technologies: Turning Garbage into Oil—and Cash DAN FAGIN / Newsday 4apr04

Appel and his financial backers have bet more than $66 million that the modern-day alchemy practiced by Changing World Technologies Inc. will revolutionize the way the world deals with its waste, reduce dependence on foreign oil, fight the spread of mad cow disease and even ease global warming.

Not bad for a 25-person company that Appel, who has no scientific training, runs from the top floor of a Hempstead Avenue china shop owned by his wife, Doreen.

The idea is, instead of having to pay someone to burn, bury or dump household garbage, medical waste, worn-out computers, animal parts, sewage sludge and all sorts of other carbon-based wastes, companies can use Changing World's patented process to convert their cast-offs into valuable fuels, industrial oils and fertilizer.

How? The same way Mother Nature does the job deep inside the Earth: with intense heat and pressure.

Speeding up Mother Nature

The difference is that it takes millions of years for the buried remains of plants, dinosaurs and other organic matter to break down into crude oil and natural gas.

Changing World Technologies gets it done in less than three hours and ends up with purer products.

Now the company's bold claim that it can turn a profit by turning garbage into oil is getting its first full-scale test in a small town at the edge of the Ozark Mountains.

In the last few weeks, a brand-new $31 million factory in Carthage, Mo., has begun taking in truckloads of bones, feathers, blood and guts from a nearby Butterball turkey-processing plant. The unique garbage-to-oil facility is a joint venture between Changing World and Omaha-based ConAgra foods, which owns Butterball.

At the experimental factory, which can handle up to 250 tons of animal waste per day, the turkey parts are mixed with leftover restaurant grease and with lots of water. The sticky, smelly mixture then runs a gauntlet of grinders, boilers, and separation tanks. Along the way, the mixture is heated up twice -- to about 500 and 1,000 degrees, respectively, and subjected to air pressures 50 times greater than what we feel on the Earth's surface.

The end results

For every ton of turkey slop that goes in, what comes out at the end are 640 pounds of clean-burning oils that are sold for use in fuels and manufacturing, 100 pounds of propane, butane and methane gases that are burned at the factory site to generate the electricity that powers the garbage-to-fuel process, and 60 pounds of solid minerals that are sold as fertilizer. Because each type of raw material -- tires, plastics or sewage, for example -- produces different grades and quantities of oil and gas, the company prefers to limit the process to one kind of garbage at a time.

Incredibly, the only "waste" that's left behind is distilled water. There are no smokestacks bellowing chemical-laden smoke, and no pipes discharging fetid wastewater. Plus, the plant produces more than enough fuel gases to power itself without using any additional energy.

"It's way too soon to know how successful they'll be, there's some real excitement out there" about the company, said Dan Reicher, who was in charge of renewable energy programs at the Department of Energy during the Clinton administration. He now runs a Massachusetts-based company that develops clean energy projects.

"This technology," Reicher added, "could be a real game-changer."

Changing World Technologies is just one of hundreds of small, start-up "biomass" companies all over the world experimenting with high-tech processes to extract energy from plants and animals. People have been getting energy from biomass ever since the first bonfire, and today biomass provides about 4 percent of the nation's energy, mostly through the burning of wood or garbage.

But many of the recent attempts to ratchet up the use of biomass through better technology haven't gotten off the drawing board because they're more expensive than conventional oil and gas production, or because they make fuel products no one wants.

'The next big thing'

Changing World, however, has managed to break out of the pack by building a commercial facility that is actually making quality fuel that can be sold at a profit, according to Appel.

It all sounds too good to be true. And that's exactly the problem Appel faces in selling the world on his company's "thermal conversion" technology.

Although Discover, Money and Scientific American magazines have all written wildly enthusiastic stories about the company recently -- Money called it "The Next Big Thing" -- competitors and independent researchers point out that Changing World Technologies has released very little information about the details of its patented process.

"You have to remember that people have been pressure-cooking different types of biomass for a long time now, and we really haven't seen these kinds of breakthroughs," said Ralph Overend, a leading authority in the bio-energy field and a research fellow at the National Renewable Energy Laboratory in Golden, Colo.

"People always stay skeptical until they can see the real data," added Overend, editor of the academic journal Biomass & Bioenergy.

Appel said the company's focus has been on building the Missouri plant, not on publishing scientific papers that he worries could tip off potential competitors.

Critics' questions

Skeptics also wonder about the project's profitability, and whether it can truly compete with traditional oil drillers and refiners.

Appel acknowledges that producing a barrel of oil through thermal conversion costs about 50 percent more than doing it by conventional refining. But he said costs are falling as the technology improves and that the Missouri plant is currently operating at a "small profit" because it's selling the oil and fertilizer it produces. If the price of oil keeps rising, he said, so will profits. Plus, he said, ConAgra no longer has to pay anyone to take away its turkey waste, which had been used as an ingredient in animal feed until the new waste-to-oil plant opened.

Some critics also question the company's assertion that thermal conversion works just as well with other types of wastes as it does with animal parts that are rich in fat. The company says its small-scale tests show it works efficiently with almost any carbon-based material, from plastics to hazardous waste, because they can all be broken down into the same essential components: oils, gases and minerals.

Big plans

In fact, according to Appel, the Carthage facility is working so well that Changing World is already in advanced negotiations with food-processing companies to build even larger plants in Colorado, Alabama, and Parma, Italy, to use slaughterhouse waste from cows, chickens and pigs, respectively, to make oil.

Longer-term plans including building a tire-processing facility in North Carolina or Pennsylvania, and building a factory in Philadelphia to process sewage sludge from humans.

In five years, Appel said, he expects to be operating 10 large plants.

And a decade from now? "There will be thousands."

Son of a handyman

The man behind Changing World Technologies is a gifted salesman who got rich -- he won't say how rich -- by capitalizing on a series of remarkable opportunities in his life, and who now says his mission is to "clean up the mess that the world is in ... I call myself God's janitor."

The son of a handyman, Appel lived in Huntington as a young boy. His parents divorced when he was 10 and his mother married a wealthy real-estate investor, moving to a five-acre estate in Old Brookville. Soon after, his biological father drowned in an accident and Brian Garvey, the spackler's son, became Brian Appel of the Gold Coast.

Appel never felt comfortable in affluent Old Brookville and he didn't get along with his stepfather. "It was a respectful relationship, but not close at all," he said. At times, Appel seemed so unhappy that his basketball coach at North Shore High School, Carm Girolamo, even considered inviting Appel to move in with Girolamo's family, the now-retired coach recalled.

Appel didn't move out, but spent his teenage years riding his bike to Planting Fields Arboretum to draw sketches of trees and playing pickup basketball with tougher kids from Glen Cove. A gifted shooter, the 6-foot-5 Appel averaged 31 points per game his senior year at North Shore -- which he says was the highest average in the state that year -- and received an athletic scholarship to Hofstra University, where as a freshman he played on the team that went 23-7 and qualified for the 1977 NCAA tournament.

Salesman of the year

Nagging injuries eventually hobbled his basketball career, but he remains a fervent booster, giving summer jobs to Hofstra players such as Speedy Claxton, who now plays in the NBA.

"He was always a smooth guy, but not a snob at all," said his former coach at Hofstra, Roger Gaeckler, who now works as an investment adviser and has been watching Appel's company with interest. "He could wind up being an immensely wealthy man if this works out, but I don't think it will affect him. He's just a very unique kind of guy."

After graduating with a B average and a liberal arts degree, Appel took a job as a sales representative for Russell Stover Candies, winning its Salesman of the Year Award in 1981. The following year, on a snowy night at LaGuardia Airport, Appel offered to drive home an older gentleman he had just met on a plane.

The man was show-business entrepreneur Joseph Z. Nederlander, and he was so impressed by the gesture -- and by Appel -- that Nederlander called him a few months later and offered him a job with a new Nederlander venture that was experimenting with the then-novel concept of using computers to sell tickets over the phone.

By the time that very successful company, Ticket World USA, merged with TicketMaster in 1985, Appel was its executive vice president. He left with a severance package and was on to a new venture suggested by a new patron: a Revlon Inc. executive who appreciated the theater and sports tickets that Appel would get for him.

"It's funny what happens when you get powerful people their tickets: They want to help you," Appel explained.

The executive, Napoleon Cerminara, suggested that there was money to be made in buying and selling perfumes and other duty-free merchandise based on fluctuations in European currencies.

Making a change

"It was perfume arbitrage, and it was a very nice business," Appel said. The trading company he started, Atlantis International, ended up buying the rights to several lines of luxury perfumes, and Appel prospered. He still owns the company.

By 1997, Appel was feeling an itch to try something new, "something that would make the world a better place." That's when a friend-of-a-friend introduced him to a quirky Illinois microbiologist who held a patent for a process that purported to transform almost anything into oil.

The inventor, Paul Baskis, had struggled for a decade to find someone to finance his idea, and at first Appel wasn't especially impressed by the small group of investors Baskis had assembled. "I was intrigued from the start, but I just didn't think they'd be able to pull it off," Appel said.

But after thinking about it some more, Appel decided to invest "a few hundred thousand dollars" in the fledging company called Changing World Technologies -- enough to make him the largest shareholder. Soon, however, he was clashing with Baskis over the finances of the tiny company, and they both describe a nasty falling-out.

A legal settlement eventually awarded Baskis a permanent share of future profits. In return, the departing inventor agreed not to try to develop a competing technology.

'Back to the drawing board'

For a while, though, there was little reason to think there would ever be any profits to share. Appel said the first oils produced by small-scale test devices that used Baskis' process were loaded with impurities, and thus had no value.

"We called them methyl ethyl death -- they were completely worthless," Appel said.

"So we went back to the drawing board and started adding more steps to the process, and we started to see progress," he said. Appel, the non-scientist, ended up immersing himself in the details of polymer chemistry; his name is listed first on three pending patents the company filed after Baskis left.

After two years of tinkering, the quality of the oils improved, and by 1999 Appel and his growing company were building a research-and-development plant at the Philadelphia Navy Yard to see whether thermal conversion would work on a larger scale.

It did, and in 2000 Changing World Technologies formed a joint venture with ConAgra called Renewable Environmental Solutions to commercialize the technology in its first targeted industry: animal waste. Construction of its first project, the Carthage plant, was completed earlier this year.

Baskis, a self-described "curmudgeon," still maintains that the post-1997 changes were minor. "It's my technology, with some sophisticated separation and distillation equipment added," he said in an telephone interview.

Appel "can be the big man if he wants, I really don't care," Baskis added. "He just better send me a check every month. That's all I care about it."

Small company, big names

The unlikely nerve center of "The Next Big Thing" is the upper floor of the China Connection figurine shop on Hempstead Avenue, across the street from the Melendez Beauty Salon and Li's Convenience & Deli.

The company's engineering team works in a converted barn behind the shop, and Appel's three school-age children sometimes wander into business meetings -- the family lives a block away.

"I don't care about appearances, I don't have to impress anybody," Appel explained. During a recent interview, he looked crisp in a cobalt-blue Polo dress shirt -- until he stood up to make a point and one of his shirt tails was hanging out.

His investors, too, are practically an extended family: Most of them are either business associates from his previous careers or old friends from Hofstra.

The chairman of the university's chemistry department, Rodney Finzel, is a consultant to the company as well as an investor. Ira Silver, who lived in the same dormitory as Appel and was later his personal accountant, has raised $16 million from family and friends. Another longtime friend, David Katz, convinced his business partners to kick in more than $5 million. Appel won't divulge his own "considerable investment" in Changing World Technologies.

But if the group is homespun, it's also high-powered. Katz is a partner in Sterling Equities, the real-estate firm that owns the New York Mets. Silver married into the family that owns Max Finkelstein Inc., the largest independent wholesaler of Goodyear tires in the nation.

Silver, Katz and other investors say that while they believe the waste-to-oil technology has tremendous potential, what they are really investing in is Appel. "Brian is charismatic, he's the kind of guy who people just love," said Silver. "He's been successful with anything he's touched. I call him the human can opener: If he needs to get to someone, he won't stop until he gets to them."

Appel's combination of charisma and persistence has also attracted big names to his company's staff. Changing World Technologies' president, Alan Libshutz, is a former top executive at Salomon Brothers, Merrill Lynch and Bear Stearns. Executive vice president Franklin D. Kramer is a former assistant secretary of defense. And the biggest name of all, former Central Intelligence Agency Director R. James Woolsey, is a special adviser to the company as well as an investor.

The association with ConAgra has brought in other powerful friends, including Howard Buffett, a ConAgra board member and son of the famed billionaire investor Warren Buffett.

Appel's well-connected team has helped him raise more than $36 million from private investors and $30 million from ConAgra, an agribusiness giant with $14.5 billion in annual sales.

Government help

Compared to other startup energy companies, Changing World has also shown a knack for landing grants from government agencies and industry institutes -- more than $15 million so far. A $3.5 million grant from the industry-funded Gas Research Institute built the company's research facility in the Philadelphia Navy Yard, and the federal Environmental Protection Agency kicked in $5 million toward the cost of the Carthage plant.

Thanks to the efforts of the company's Washington lobbyist, John Stinson, an early draft of the omnibus energy bill Congress debated last year would have provided a bigger bonanza: a tax credit worth about $5 million for each Carthage-sized plant the company builds. The final version, which passed the House of Representatives but narrowly failed in the Senate, included a subsidy of $150,000 per plant.

Appel and his wealthy backers don't apologize for seeking government help, saying they're only trying to compete fairly with much more heavily subsidized processes, especially ethanol fuels synthesized from corn.

"There's no reason why our government shouldn't be funding a technology which is going to help decrease our dependance on foreign oil," said Silver.

What Appel hasn't done is to issue stock and take the company public. Thanks to media coverage, he said, Changing World has received more than 25,000 unsolicited e-mails from people who have read about the technology, many of them seeking to invest. Appel has turned them all down, and says he plans to keep the company private for at least another two or three years, and perhaps much longer.

But that didn't prevent him from getting a phone call from an investigator at the federal Securities and Exchange Commission last summer, after the story appeared in Discovery magazine. The SEC, the investigator said, thought Appel might be exaggerating his company's prospects so he could take Changing World public and make a killing as its stock price soared.

"They thought we were hyping the market. I didn't even know what that term meant. I had a wonderful conversation with the investigator and that was the end of it," Appel said.

An SEC spokesman, John Heine, said the agency never discusses its investigative activities.

"People think there has to be a Machiavellian plot twist at the end of this movie that says they're going public, but we're not even considering it," Appel said. "We have all the money we need to do this the way it needs to be done. We're going to do this the right way, carefully, because if you build this too fast, I guarantee it's going to collapse. And we're not going to let that happen because this technology is too important."

To find the research and development offices for Changing World Technologies, you take a rutted road to a far corner of the old Philadelphia Navy Yard, which was sold by the government in 1995 and is now a sprawling industrial park of rusting ships and small, bleak factories.

From the outside, the company's metal-sided building blends right into the Rust Belt setting. But inside, it's a different story.

On a recent winter morning, Appel escorted a group of visitors through the plant, gesturing toward the huge labyrinth of boilers, pipes and wires that dominates the building. Now that the even larger Missouri plant is up and running, the company has shut down most of the equipment here, using the building for small-scale testing of new waste materials and to demonstrate the process to potential business partners.

A mad cow cure?

This day's visitors were long-range planners from the U.S. Navy who are intrigued at the idea of someday building waste-to-oil plants on naval bases and even on ships.

In another corner of the building, a worker was preparing to cut up a salmon and run the fish bits through a small apparatus bolted onto a table.

The "bench-top" model simulates the thermal conversion process on a very small scale, and the company uses it to test what kinds of petroleum various types of garbage will produce. The worker would later move on to test a ground-up mixture of plastic and glass from scrapped cars -- another potentially lucrative market for the company.

When the roar of a lawn mower engine caught Appel's attention, he motioned his visitors over to another part of the building used for demonstrations.

"It's running on turkey oil!" Appel shouted over the noise.

Selling the process to potential partners is easier than it used to be, according to Appel, because of ConAgra's $30 million investment and the recent media attention.

There's another reason why Appel has been entertaining more visitors at the Philadelphia plant: His technology, he says, can fight mad cow disease.

Mad cow is the common name for bovine spongiform encephalopathy, a disease that infects the brain tissue of cows and kills them. While experts are still unsure about the risk to humans, outbreaks in England, Washington state and elsewhere have shown that it can spread readily from animal to animal.

Exactly how it spreads is still a mystery, but a leading theory involves the same slaughterhouse waste that Appel's process can turn into oil.

Only about 50 percent of an animal carcass, the meatiest parts, are sold as food for humans. The rest, traditionally, has either been dumped in landfills or trucked to rendering plants.

There are more than 200 of these rendering plants in the United States, and they boil down billions of pounds of blood, bones and feathers every year, turning the animal parts into a dried protein-rich material that's used to make tallow, lard, cosmetics, and lubricants. The material's main use, though, is also the one most troubling to the spread of mad cow: it's a major ingredient in meat-and-bone meal fed to livestock and pets.

Concerned that some rendering practices could be spreading the disease to cattle that eat infected feed, the federal government has been imposing tough new restrictions that are prompting some meat-packing companies to look for alternative ways to get rid of their waste.

"It's an opportunity because our process completely destroys" the infected proteins that cause mad cow, Appel said.

Environmental benefits

Environmentalists, who have long decried pollution from "industrial farming", including slaughterhouses, are intrigued by Changing World's process but also concerned.

They're excited about the opportunity to control problems ranging from mad cow disease to water pollution. Yet they point out that to make a profit, companies that use Appel's technology will need easy access to huge volumes of waste, at centralized locations, because trucking waste for long distances is too expensive.

That means family farms and small slaughterhouses will be at an even bigger competitive disadvantage than they are already, because their waste is too widely distributed to be sold profitably, they said.

Environmentalists also aren't sure whether they should be cheering the technology's promise of much cleaner air, or worrying that it could delay a shift away from an oil-based economy to even cleaner sources of energy.

If it's made from garbage, petroleum suddenly becomes a "renewable" resource that can be produced without smokestack emissions that contribute to global warming, a chronic problem for oil refiners. And because the bio-fuel doesn't contain sulfur, ash or dioxin, it's much cleaner than most conventional fuels when burned in power plants or in engines.

Yet even though it's cleaner, bio-fuel still generates some pollution when it's burned. That bothers activists who think the United States should be moving away from the use of any petroleum and instead should be embracing even cleaner technologies such as wind and solar power.

"It's a complicated mess of interacting issues, and it's hard to draw a clear line through it. But the bottom line is that these animal waste-to-energy technologies have real promise and they need to be pursued," said Nathanael Greene, a senior policy analyst at the Natural Resources Defense Council, an environmental group.

Appel acknowledges that, for now, his process only makes financial sense for very large producers of waste. He said the next few plants Changing World builds will need to handle much more waste than the 250 tons per day treated in Missouri, in order to be as competitive as possible with conventional oil and gas.

Right now, he said, the Carthage facility produces petroleum at the equivalent price of $15 per barrel -- about $5 more than what it costs a small oil company to find, extract and refine petroleum the conventional way.

Appel said those costs will go down as the plants get larger and more efficient. He talks of a utopia in which technical breakthroughs will allow even very small waste-to-oil plants to be profitable, thus spreading the wealth to family farms.

The secret to the technology, he said, is that it doesn't have to be as cheap as traditional oil refining, it simply needs to make high-quality products at a reasonably competitive price. The biggest savings will come, he said, because companies won't have to pay high prices to bury their waste in landfills, burn it in incinerators, or pay renderers to truck it away.

The entire field of biomass energy research is predicated on the same idea, which is why entrepreneurs are rushing to find better ways to get energy from sources as diverse as discarded sugar cane stalks and waste from paper mills.

Horse race develops

Some ideas have already managed to find a niche. For instance, most large landfills now include piping systems that capture methane gas formed by decomposing garbage and burn it to generate electricity. Thanks to generous government subsidies, dozens of large factories that ferment corn into ethanol are springing up across the Midwest and supplying fuel to many parts of the country, including New York.

Most biomass schemes, however, have struggled to demonstrate that they can compete financially with traditional oil and gas exploration.

But experts say that may be changing, as the price of oil rises, the costs of waste disposal increase, and as governments begin doing more to subsidize alternative energy due to concerns about global warming.

"There's a real horse race going on with regard to the processing of organic materials into energy, and Changing World Technologies appears to have a very good horse in the race," said Reicher, the former Clinton administration official.

Appel and his colleagues fervently hope so.

William Lange, the company's director of engineering, remembers the days when the thermal conversion process was nothing but an idea in Paul Baskis' head. Initially a consultant to Baskis, Lange was the first man Appel hired when he took control of the company in 1997, and Appel later persuaded him to move from Illinois to Philadelphia when the navy yard facility was built in 1999.

"I always believed it would work, even way back in the beginning," said Lange. "I look at everything with rose-colored glasses, and not with a jaundiced eye. We're all big dreamers. Otherwise, we wouldn't be here."

source: http://www.newsday.com/ny-app0404,0,3347489,print.story 4apr04

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