[Mb-civic] Ethanol ..........

[Harold Sifton]

The Economist
February 11, 2006

Life after subsidies; Ethanol

A much-maligned alternative to oil comes of age

IT MUST rank as one of history's unlikelier conversions. President Bush is an oil man from Texas, and a reformed heavy drinker. But in his recent State-of-the-Union speech, the president declared that America is "addicted to oil", and trumpeted the virtues of ethanol-an alcohol-based fuel. The virtue of ethanol is that it can power "flex-fuel" cars that can run on either petrol or alcohol. Mr Bush says he wants a vast expansion of the country's tiny ethanol industry. In particular, he wants "cellulosic ethanol", prepared using an advanced technology, to become commercial within six years.

Will it happen? Ethanol will not replace oil anytime soon, but Mr Bush nevertheless has put his finger on something big. This once-sickly, over-subsidised industry is brimming with optimism.

America has traditionally made ethanol from corn. Alas, this is much less efficient than Brazil's sugar-cane ethanol or that using the cellulosic method. But the farm lobby's power means that America doles out billions in subsidies to corn ethanol-and imposes tariffs on imports of the greener, cheaper Brazilian variety.

High oil prices, government support and the promise of new technology have led to a veritable boom in production of American-style ethanol. Several billion dollars of investment led by agribusiness giants such as Cargill and Archer Daniels Midland are going into new production plants for corn ethanol. Daniel Kammen of the University of California at Berkeley argues that corn ethanol is not as bad as it seems: using it releases less greenhouse gas than burning petrol, he calculates, and its spread helps develop infrastructure for the much greener ethanol that should come onto the market in a few years' time.

But the biofuel to watch is cellulosic ethanol. It is made efficiently using powerful catalysts and enzymes to speed up natural processes. And it does not rely on valuable crops: it can use waste products such as straw, corn stalks or agricultural debris. Royal Dutch Shell has a joint venture with Canada's Iogen which plans to open a commercial plant by 2009. DuPont and Genencor, a biotechnology firm, are also busy developing better catalysts.

The best reason for optimism is the arrival of entrepreneurial capital. Paul Allen and Bill Gates, co-founders of Microsoft, have both made recent (but unrelated) investments in ethanol firms. Richard Branson, a British airline boss, has jumped into the fray with Virgin Fuels, a new firm that vows to invest $300m-400m in ethanol over three years. Vinod Khosla, a venture capitalist at Kleiner Perkins, has also put his own money into start-up firms developing cellulosic ethanol and speaks with the zeal of a convert: "Bush is too cautious, it can take off much sooner than six years!" Perhaps. But will that mean an end to subsidies? Don't count on it.
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