The hay, actually crushedsugar-cane stalks, is feedstock for the first cellulosic ethanoldemonstration plant in the USA. The biorefinery cranked up this weekand, according to its backers, kicks off a new era of cleantransportation fuels that won't compete with the food supply.Corn-based ethanol, by contrast, has been blamed for driving up foodprices and doing little to reduce the global warming gases emitted bypetroleum-fueled vehicles.

Cellulosicethanol is made from plant waste - such as wood chips, corn cobs andstalks, wheat straw and sugar-cane bagasse (stems and leaves) - ormunicipal solid waste. Simply put, the nation will soon be running itscars, at least partly, on debris. Cellulosicmakers are quietly laying the foundation for a new industry even assome corn ethanol plants, facing supply shortages and low profitmargins, shut down, and some oil giants put off production projectsamid plummeting crude prices.

RangeFuels expects to complete the first commercial plant in Soperton, Ga.,late this year. The $120 million facility will churn out 10 milliongallons of ethanol a year.

Renewed interest

Thatcellulosic ethanol is this close to commercial production marks adramatic leap forward. Development in recent decades has been stymiedby high costs and difficulty transferring technology that works well inthe lab to mass production. Plus, every time oil prices tumbled,research funding evaporated.

"The oldjoke was that cellulosic ethanol was always just five years down theroad," says Andy Aden, a senior chemical engineer at the NationalRenewable Energy Laboratory. "Now, there's steel going in the ground."

Drivingthe renewed interest is growing concern about global warming and abelief that Congress eventually will limit carbon dioxide emissionsfrom petroleum-fueled vehicles. It didn't hurt that, in 2005, crudeprices shot up to $60 a barrel and hit a high of $147 in 2008 beforefalling below $50 in recent months.

Venture-capitalfirms have poured $682 million into cellulosic start-ups since 2006, upfrom $20 million the previous two years, according to research firm NewEnergy Finance. And the Department of Energy has provided nearly $850million for research and development.

"Allof a sudden, this went from dog to darling," says Lee Lynd, a pioneerin cellulosic research who co-founded Mascoma, a cellulosic start-upthat's still developing its technology.

Producersstill face hurdles, including a credit crisis that's delaying severalcommercial plants. But in 2007, President Bush signed a bill mandatingthat biofuels make up 36 billion gallons, or 16%, of motor fuel by2022, with 16 billion gallons coming from cellulosic ethanol. Cornethanol consumption, which totaled 9 billion gallons, or 7% of thegasoline market, last year, is capped at 15 billion gallons.

Abig advantage for cellulosic fuel is that refineries can be tailored toa region's leading crop, reducing delivery costs: wheat straw and cornresidue in the Midwest; sugar cane in the South; and wood in thePacific Northwest and Southeast. Corn ethanol refineries are largelyconfined to the Midwest.

Anotherselling point is that cellulosic ethanol can cut greenhouse gasemissions by 86% compared with gasoline, while grain ethanol trimsemissions just 20%, DOE says. That's because diverting corn to fuelmeans razing forests or plowing grasslands to plant substitute corncrops, according to the Natural Resources Defense Council. Thatreleases CO{-2} into the air.

Special enzymes

Butit's a lot harder to make ethanol from farm waste than corn. Corn hasstarches that enzymes can easily break down into sugars; yeast fermentsthe sugars to produce ethanol. By contrast, stalks and leaves containcarbohydrates that are tougher to unravel because they're tightly boundwith other compounds that make plants firm so they can stand and resistwind.

Manufacturers must create specialenzymes to unlock the carbohydrates. At about 10 cents a gallon ofethanol, they're twice as costly as those used for corn ethanol. Theyalso must genetically engineer bacteria to ferment the sugars intoethanol.

Recent advances have resulted inmore efficient enzymes that substantially cut costs, Aden says. Still,he says, cellulosic wholesale costs are $2 to $3 a gallon, vs. $1.56for corn ethanol. But since feedstock costs about half as much, Adensays prices should drop to $1.33 by 2012.

Thereare other challenges. Producers must scavenge enough agriculturalresidue to supply a factory that will churn out as much as 100 milliongallons of ethanol a year. They typically must round up the scrapswithin a 75-mile radius to avoid high transportation costs that canerase profits.

At its Jennings plant,Verenium gets its bagasse from a sugar mill that's supplied by areasugar-cane farms. To ensure a steady supply, it's also growing "energycane," a crop that has too little sugar for mills but much thickerstalks.

Other companies plan to raisesimilar energy crops, such as switch grass, that theoretically can begrown on land degraded by farming. But environmental groups such asNRDC worry that if the crops are grown on regular soil, they'll posethe same food supply and CO{-2} concerns as corn.

Vereniumis also experiencing some growing pains as it shifts a chemical processinvolving delicate microbes from a pristine lab to a bustling,three-story factory. In tests several months ago, a strainer did notremove all the rocks and clay from the sugar bagasse, jamming machines.Manager Mark Eichenseer purchased a $90,000 grinder to more finely chopthe bagasse before feeding it to the conveyor.

Anothermachine that uses heat, pressure and acid to separate glucose andnon-glucose sugars was not finishing the job. Eichenseer raised thetemperature and acid dosage. Eichenseer is hiring a pump expert toimprove the flow of the cellulose, which becomes a sticky mush andsometimes clogs equipment. He's also careful to keep tanks and pumpsfrom getting infected with foreign bacteria, which can reduce ethanolyields. "That's the most difficult challenge," he says.

Fungithat produce enzymes are grown in three stages over eight days.Fermentation takes an additional two to three days. Ensuring continuousoutput can be tricky. In tests last month, most of the plant wasabruptly shut down to prevent backups on the conveyor. Corn ethanol isprocessed in two to four days.

To makecellulose cost-competitive with corn, Eichenseer is working to scaleback the nutrients he feeds the bacteria and the energy to run therefinery without sacrificing ethanol yields. The company also may chopand store energy cane at the farm to trim handling costs.

Different approaches

Somecompetitors are working on technology they say could slash costsfurther. Mascoma is developing a bug that does double-duty: It makesenzymes to produce sugars and ferments the sugars into ethanol. Costsshould be under $1 a gallon, Lynd says.

Others are taking different approaches by tapping:

•Corn cobs.Poet, the world's largest ethanol producer, has tested two types ofcombines that allow both corn and cobs to be gathered at the same timeto slash labor expenses. The company expects to produce 27% moreethanol per acre of corn. Poet plans toexpand a 50 million-gallon-a-year corn ethanol plant in Emmetsburg,Iowa, to produce 100 million gallons of corn ethanol and 25 milliongallons of cellulosic fuel by 2011. "It's going to take both (grain andcellulosic ethanol) to replace oil from dangerous parts of the world," Poet CEO Jeff Broin said.

•Wood chips.Range Fuels plans to buy wood waste from paper mills and loggers forthe plant it's building in Soperton, a heavily forested area. Insteadof using enzymes, Range says it has a less-expensive process thatemploys heat and pressure to convert wood into a synthetic gas. It thenruns the gas over a catalyst to make ethanol. RangeCEO David Aldous says the plant eventually will make 100 milliongallons of ethanol a year, requiring a delivery of 12.5 dry tons ofwood scraps every seven minutes. But a second phase of the facilitythat was to be done by early 2012 is delayed six months becausefinancing isn't available.

•Municipal solid waste.BlueFire Ethanol will use trash to feed a 3 million-gallon-a-yeardemonstration plant it's planning in Lancaster, Calif. Its secretsauce: a low-cost acid that breaks a variety of materials into sugars,rather than an enzyme that's optimized for a certain type of plant. Bytaking tree remains, lawn clippings and construction debris from thecity, BlueFire will gets its feedstock for free while Lancaster avoidspaying landfill fees, says company Chief Financial Officer ChristopherScott. Because it doesn't have to use farm residue, BlueFire can buildplants near big cities on the East or West coasts, avoiding high coststo truck ethanol long distances. Butconstruction of the $30 million Lancaster plant, scheduled to startlast month, has been pushed back because the credit crisis has dried upfunding.

The delays have raiseduncertainty over whether the industry will meet the productionmandates. The Bush administration is providing tax incentives of $1.01a gallon for cellulosic ethanol as well as loan guarantees. AnalystLaurence Alexander of Jefferies & Co. says much more federal aid isrequired. At least some additional funding is likely, he says, citingPresident-elect Barack Obama's support for biofuels. And start-upCoskata raised $40 million in private equity in October despite thebrutal climate.

Yet how much cellulosic ethanol will motorists actually use?

MostU.S. gas pumps now contain 10% ethanol blends, and the government istesting blends up to 20%. In two decades, more flex-fuel cars that canaccept blends of up to 85% ethanol are expected to be on the road. Bythen, cellulosic ethanol realistically could replace a quarter of thenation's gasoline - which would dramatically reduce both oil prices andglobal warming emissions, says David Friedman of the Union of ConcernedScientists. DOE says there's enough feedstock to supplant 30% ofgasoline consumption. Of course, electric cars and hybrids are alsoexpected to play a big role.

There areskeptics. David Pimentel, an agricultural science professor at CornellUniversity, calls the DOE estimate "imaginary." Removing too much plantwaste from fields will erode soil, he says, while growing energy cropswill jeopardize the food supply.

VinodKhosla of Khosla Ventures, the top backer of cellulosic start-ups,remains upbeat. By 2050, he says, "You should be able to replace most(gasoline)" with cellulosic ethanol.