While corn-based ethanol is cheaper to make and has a big head start, a breed of ethanol made from nonfood crops and agricultural waste is gaining momentum as a promising long-term alternative to gasoline.
Indeed, a series of recent events signal that cellulosic ethanol has moved from being just a big idea to something that investors, government officials and energy companies are starting to take seriously.
On Wednesday, the Energy Department announced $385 million in grants to help build six facilities to produce the fuel, one of which will use Houston-based Waste Management as a supplier. Weeks earlier, a Massachusetts firm broke ground on the nation's first cellulosic ethanol "demonstration" plant in Jennings, La. And several oil companies and universities have recently announced initiatives to develop better ways of making the fuel.
The efforts highlight growing interest on many fronts in alternative fuels, which have been touted as a way to help curb U.S. dependence on foreign oil, reinvigorate American farming and reduce carbon emissions.
As part of President Bush's goal to reduce U.S. gasoline consumption 20 percent by 2017, the nation will need to use 35 billion gallons a year of ethanol and other alternative fuels — or about five times the current output.
But cellulosic ethanol still faces challenges that could keep it from being rolled out on a wide scale for many more years. Chief among them: production costs that are roughly double those of corn-based ethanol.
"You're talking about a commodity that needs to sell for $1 a gallon," said George Douglas, spokesman for the National Renewable Energy Laboratory in Golden, Colo.
Cellulosic ethanol costs roughly $2.25 a gallon to produce, compared with $1.07 for corn-based ethanol, he said.
Pulling the cost down
Until the equation is more clear, Jeffrey Harris, managing director of Warburg Pincus, a New York private equity investment firm with $16 billion of assets under management, says his firm will remain interested but cautious.
"We're aggressively looking at opportunities in this area, and are encouraged by some of the progress made. But the industry has not yet proved all the components necessary for commercial success," he said.
The Energy Department grants announced last week will fund about one-third of the $1.2 billion the agency estimates will be needed to build the six cellulosic ethanol plants. The rest will come from private investors and other project stakeholders.
Under the 2005 Energy Bill, the agency had been authorized to invest $160 million in grants but doubled the amount in order to expedite a Bush administration initiative introduced in January's State of the Union address, which includes the gasoline usage-cutting goal and a provision to raise auto fuel economy standards.
Tree limbs, grass clippings
"Landfills are the next oil reserves," said Arnold Klann, head of the Irvine, Calif.-based firm, which intends to break ground next year.
Waste Management is taking a wait-and-see approach.
"Right now, it's a pilot to see if this technology can be commercialized," company spokeswoman Lynn Brown said. "We won't know if it's feasible until the project is complete."
Using a different refining process than BlueFire, most cellulosic ethanol producers will use agricultural waste such as corn cobs, switchgrass and rice straw, which they say is in abundant supply and could help drive down costs of producing the fuel over time.
Its backers say using nonfood crops and agricultural waste is a better long-term solution for ethanol production than using corn. Rising corn-based ethanol production has led to sky-high corn prices, competes with food supplies and takes more energy to make, they say.
Yet the new Energy Department grants will only provide a small step in getting the cellulosic ethanol industry off the ground, said John Howe, spokesman for Cambridge, Mass.-based Celunol, the firm building the demonstration plant in Louisiana.
"I would say the view in the industry is, while they are helpful, they are not sufficient to get the industry where it needs to be," said Howe, whose firm did not apply for one of the grants.
Pushing a loan program
The U.S., which has 114 ethanol plans in operation and 78 under construction, produced about 4.9 billion gallons of ethanol last year, according to the Renewable Fuels Association, an industry trade group in Washington, D.C.
By comparison, the country consumes roughly 140 billion gallons of gasoline per year.
When fully operational, the six new Energy Department-backed refineries are expected to produce about 130 million gallons of cellulosic ethanol per year — a small dent in the nation's gas needs.
But Matt Hartwig, a Renewable Fuels Association spokesman, said that will surely grow as the industry finds its footing.
"These aren't the big 100 million-gallon-a year plants you see with corn-based ethanol. But corn-based ethanol didn't start with 100 million-gallon plants, either."
Senators seek answers on petroleum reserve expansion
Leaders of the Senate Energy and Natural Resources Committee say President Bush must show why Congress should expand the nation's 727 million-barrel emergency oil reserve.
The energy committee must "look closely at the need for a larger reserve, its cost, its impact on world markets and its effect on oil and gasoline prices," Sens. Jeff Bingaman and Pete Domenici said in a letter last week to the Senate Budget Committee. Bingaman, D-N.M., chairs the committee. Domenici, also of New Mexico, is its ranking Republican.
The letter was sent to budget committee Chairman Kent Conrad, D-N.D. The reserve, in Texas and Louisiana, held 689 million barrels as of Feb. 23.
The letter also says Congress is unlikely to approve oil and gas drilling in Alaska's Arctic National Wildlife Refuge. Chron
Bush seeking ethanol alliance with BrazilIn only a few years, Brazil has turned itself into the planet's undisputed renewable energy leader, and the highlight of Bush's visit is expected to be a new ethanol "alliance" he will forge with Brazilian President Luiz Inacio Lula da Silva.
The deal is still being negotiated, but the two leaders are expected to sign an accord Friday to develop standards to help turn ethanol into an internationally traded commodity, and to promote sugar cane-based ethanol production in Central America and the Caribbean to meet rising international demand.
Across Latin America's largest nation, Brazilian media are billing the Bush-Silva meeting as a bid to create a two-nation "OPEC of Ethanol," despite efforts by Brazilian and American officials to downplay the label amid concerns that whatever emerges would be viewed as a price-fixing cartel.
Meanwhile, political and energy analysts warn that any agreements reached between Brazil and the United States are unlikely to have short-term effects. And the deal itself could end up largely symbolic because of reluctance by Washington to address a key point of friction: A 53 cent-per-gallon U.S. tariff on Brazilian ethanol imports.
"For the Brazilians, the tariff has utmost priority," said Cristoph Berg, an ethanol analyst with Germany's F.O. Licht, a commodities research firm. "They will agree with developing biofuel economies around the world, but the first thing they will say is 'We want to do away with that tariff.'"
No one is expecting Bush to give ground on the tariff. The politically sensitive issue essentially subsidizes American corn growers who are rapidly ramping up ethanol production amid Washington's encouragement of renewable biofuels to ease U.S. dependence on imported petroleum.
But the visit will help Bush and Silva join forces to promote the politically popular issue of renewable energy simply by gathering in a place where ethanol is king.
At every gas station in this city of 18 million, drivers can fill up with gasoline or ethanol. Ethanol came courtesy of a 1970s decision by Brazil's former military dictators to subsidize production and require distribution at the pumps.
A 1980s Brazilian fad with cars that ran only on ethanol petered out when oil prices fell in the early 1990s. But the fuel came back into vogue in 2003 when automakers started rolling out cars "flex-fuel" cars that run on gasoline, ethanol or any combination of the two.
With international oil prices reaching record highs, Brazilian drivers turned to the cars; most choose ethanol, because it costs about half the price of gas.
The ethanol industry is now making profits like never before amid heavy foreign investment. Just last week, Brazil's state-run oil firm, Japan's Mitsui & Co. and a Brazilian construction firm signed a memorandum of interest to study the construction of a pipeline in Brazil that would be used to help export ethanol to Japan.
Brazil is the world's top exporter, though U.S. ethanol production still surpasses Brazil. But Brazil has an edge over the United States for future production because ethanol can be produced more cheaply with sugar cane than the corn used by U.S. farmers to make ethanol.
And increased use of corn for ethanol is prompting international corn price increases, prompting Silva to tell reporters last week he would tell Bush, "Why make ethanol out of corn? Why don't we feed the corn to the chickens."
Bush has set a goal of 35 billion gallons a year of ethanol and other alternative fuels, such as soybean-based biodiesel, by 2017 — a fivefold increase over current requirements.
But production of ethanol from U.S. corn is expected to fall far short of meeting such an increase, and experts doubt even land-rich Brazil would be able to fill the gap along with help from Central America and the Caribbean. So Bush envisions a major speedup of research into production of "cellulosic" ethanol made from wood chips, switchgrass and other feedstocks.
Ethanol proponents hope Bush and Silva will nonetheless come up with a framework to sharply boost ethanol production in the nations between Brazil and the United States, encouraging more foreign investment.
And coming up with technical standards to define quality levels for ethanol is key to turn it into a commodity that could be traded like oil.
"I think its Brazilian know how and American know how, there's a lot of cross fertilization that can take place," said Brian Dean, executive director of the Interamerican Ethanol Commission.
The commission counts among its directors Florida Gov. Jeb Bush, the president's brother, as well as former Brazilian agriculture minister Roberto Rodrigues and Luiz Moreno, president of the Inter-American Development Bank.
Increasing ethanol production in the region is also expected to be a major topic in Guatemala later this month when the bank holds its annual meeting, Latin America's top yearly economic gathering.
"We see a marketplace in ethanol that can create an enormous amount of economic growth and prosperity in the United States and the rest of the world," Dean said.
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