Cellulosic Ethanol

Corn ethanol does nothing but bring the bushel price to an all-time high, vaguely put a dent into our energy demand, pollute lands with pesticides and drink up a limited water supply… Bottom line is, corn is a food, not a fuel.

Well there’s a new ethanol in town and by the looks of it, it’s here to stay…cellulosic ethanol.

This technology will ultimately help environmental problems, diminish the U.S.’s dependency on oil, boost the economy, increase food supply and even put an end to controversial wars…

Cellulosic ethanol, made from cellulose — the most common organic compound on earth — is potentially produced from your lawn trimmings, switchgrass, wood chops, paper sludge, corn stalk, stems and even manure and sewage.

Cellulosic ethanol differs from corn-based in so many ways. It’s by far much better in every aspect. The fact that it will be cheaper, more efficient, more abundant and environmentally cleaner than corn-based is enough to raise an eyebrow.

A Solution for America’s Oil Dependency

Studies have shown that the maximum amount of corn ethanol the U.S. could possibly produce without completely taking over the food supply is 15 billion gallons a year. That’s less than 10 percent of the crude oil America will use today.

The U.S. Departments of Agriculture and Energy did a joint study showing that the U.S. could grow 1.3 billion dry/tons of biomass while keeping forestry and agricultural lands sustainable. That could produce over 150 billion gallons of cellulosic ethanol, which has the energy equivalency to over 100 billion gallons of gasoline. That could drop total U.S. oil imports by over 80 percent.

With fuel-efficient cars and energy conscious attitudes, we can completely do away with all oil imports. We won’t have to worry about OPEC jacking up prices and protests in Venezuela anymore.

Cleaner Than Corn

For the 21st century, it appears “green” is the way to go. It just so happens that cellulosic ethanol is environmentally sound.

Cellulosic ethanol emits 85 percent less CO2 than gasoline while corn-based only emits 30 percent less than gasoline. It has actually proven to have net negative emissions because the plants would absorb more carbon than they emit when used as fuel. It also emits less sulfur.

The leading candidate for cellulosic ethanol, switchgrass, needs 75 percent less water, 70 percent less fertilizers and pesticides than corn. On top of that, switchgrass is a cheaper and more abundant resource.

Switchgrass yields twice as much ethanol per/acre than corn, has a short growth time and requires a lot less maintenance while lessening erosion. It also easily adapts to its environment and is very resistant to droughts and disease.

Switchgrass already has amazing benefits… It’s hard to imagine the capabilities of this plant will have once scientist start genetically altering the crop…

Following the Big Money

Switching to cellulosic ethanol will create thousands of domestic jobs and keep billions of dollars from jumping overseas for oil imports.

Currently, many U.S. farmers are struggling and relying on government subsidies for survival.  Cellulosic production would increase rural incomes by 200 percent.

One economist estimated that cellulosic ethanol could increase the U.S. GDP (Gross Domestic Product) by $1.7 trillion from 2008-2022. With a majority of that money staying within the U.S., imagine the economic boom that we would witness…

The only draw back to cellulosic ethanol is that it’s not commercially mass-produced yet.  Cellulosic ethanol is still in its developing stage…

To make the fuel, you first extract the cellulose through a heating process. Then, you break the cellulose down into sugar using enzymes. After that, you ferment the sugar into alcohol. Last, distill the alcohol into fuel. On paper, the process sounds simple, but there are some important screws that still need be tightening…

Scientists have yet to find the most efficient and least expensive way to produce the fuel. The biggest problem is developing enzymes that could break down the cellulose rapidly on a large scale.

Currently, cellulosic ethanol can be made around $1.50-$2.50 per gallon depending on the process and type of material. There’s estimates that ethanol will be able to be mass-produced at less than $1 dollar a gallon.

There are several pilot-plants running and proving to be successful. Range Fuels is currently constructing the first commercial plant estimated to produce 20 million gallons/year.

The U.S. Government is also getting highly involved. The Energy Independence and Security Act of 2007 mandates heavy increases of ethanol. Some states are requiring ethanol-mixed gasoline.

The Renewable Fuel Standard Program headed by the U.S. government is requiring the production of 36 billion gallons per year of biofuels by 2022. Even if the U.S. reaches the maximum corn ethanol prodcution of 15 billion gallons, the majority of the quota will come from celluloic ethanol.

The European Union, and countries like Venezuala, Brazil, Columbia, India and China are all instituting similar programs…

Profiting from the Cellulosic Revolution

Unfortunately, the cellulosic industry is way too premature to predict the biggest gainers.

Whoever discovers the most efficient way to produce ethanol or whichever chemical/biochemical company finds the best enzymes will be a winner.

Venture capitalists own a majority of the current cellulosic companies…but at the magnitude and potential of the cellulosic industry, it’s likely we will see many of these companies go public. Those that already have are still small-caps. Here are a few out there right now:

While these would provide you with a slight interest in cellulosic ethanol, we wouldn’t recommend any of them. This technology is still too premature.

Beyond these emerging ethanol companies, keep an eye on agriculture companies, chemical companies, equipment suppliers, transportation companies and even automobile companies that will be producing flex-engine cars that can run on ethanol.

Even industries such as cattle, meats, animal feed and various packaged food companies will all benefit because of much larger grain supplies.

When something has the potential to impact the world’s governments, environments and economies…it’s worth a look at…

Mark Louie
June 17, 2008

The Daily Reckoning