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Friday, February 20, 2009

A glimmer of ethanol sanity

Political pandering to farm state politicians has caused the US government to waste taxpayer dollars on encouraging corn-based ethanol, which won’t survive without subsidies and has pushed up the price of food. I once had hope that the Obama administration would end the madness.

Fortunately, the market is going to solve the problem on its own, leading a shift to cellulosic ethanol that doesn’t consume food (or feedstocks).

BP (the former British Petroleum) has increased last year’s investment in Verenium Corp., creating a 50-50 joint venture to build a commercial-scale ethanol plant in Florida. The WSJ notes that their Louisiana pilot plant uses sugar cane stalks and the Florida plant uses inedible grasses. The announcement should have been good news, but Verenium stock has lost two-thirds of its value since the peak from the August BP investment.

For the industry, there is a question of how replicable the results will be. The WSJ environment blog notes this morning that reaching federal mandates for cellulosic ethanol would require $100 billion in capital investment and another 443 refineries the size of the BP-Verenium plant.

Still, the only way to find out whether cellulosic will succeed in the market is to try, so this week's news is a promising milestone.

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