Ken Silverstein EnergyBiz Insider Editor-in-Chief

Dan Kammen and Alex Farrell of the Energy and Resources Group at the UC Berkeley published their research in the journal Science. Their findings: earlier studies saying that the energy to produce ethanol is greater than the actual energy content of ethanol are wrong. Researchers also noted that most ethanol today is produced through corn and as such, the subsequent greenhouse gas emissions thought to cause global warming are only marginally cut. That will change, however, when such underlying fuel sources as switchgrass and trees mature. Those so-called cellulosic technologies are too expensive now but could become part of the mainstream in five years.

"The long-standing debate over whether ethanol is good or bad on an energy basis ... we believe that 20-year-old argument is now solved," Kammen wrote. "You can get more energy out. What we don't know is, is that good for the planet?" Roel Hammerschlag, president of the Institute for Lifecycle Environmental Assessment agrees their findings.

Fuel additives such as ethanol once got short shrift. But now that President Bush has vowed to put more muscle behind alternative fuels, those additives stand to win big.

The UC Berkeley study examined several earlier assumptions and then corrected for errors and outdated information as it relates to how much energy it takes to grow corn and then make ethanol. The school's research says that studies thumbing down ethanol production are incorrect. One example: farm machinery has vastly improved and operational efficiencies are much better. Still, corn production is associated with fertilizers and pesticides -- things that are not exactly earth-friendly.

Despite that, the study says that ethanol produced from corn creates 10-15 percent fewer greenhouse gas emissions than burning gasoline. Similarly, a study from the International Energy Agency in Paris agrees, saying that while grain-based ethanol requires substantial amounts of fossil fuel inputs, that fuel additive is still responsible for creating 20 percent fewer greenhouse gas emissions than conventional fuels.

The promise lies with cellulosic technologies, which come from woody substances and farm waste and which there is an almost unlimited supply. That's why such venture capitalists as Microsoft Chair Bill Gates and Sun Microsystems co-founder Vinod Khosla are making investments in this area. Canada-based Iogen, for example, says that its cellulose technology could cut greenhouse gas emissions by 90 percent.

Powerful Commitments

Ethanol supporters say that the immediate goal is to use more fuel additives and less gasoline -- even if it comes from corn. Some new rules set by the U.S. Environmental Protection Agency set out to do just that by requiring 3 percent of all gas sold in 2006 to come from alternative fuels -- and amount that would double by 2012. At present, ethanol blended gasoline makes up 2 percent of all fuel sold in the United States.

Today, the fuel that powers cars is about 90 percent gas and 10 percent ethanol, although manufacturers can produce cars that are able to run on 85 percent ethanol and about 5 million such autos are in operation today. All told, 1.5 billion gallons of ethanol are consumed annually compared to 130 billion gallons of gasoline.

Ethanol has been experiencing positive growth. That's because the 2005 energy law did away with the oxygenate requisite called MTBE, which is an octane booster but which has been shown to pollute groundwater. Ethanol has been chosen to replace MTBE, which California, Connecticut and New York are mandating. Ethanol producers, meantime, are benefiting from low corn prices and high gasoline prices.

Finally, the fuel additive has received lucrative tax subsidies. Ethanol is now the recipient of a federal tax subsidy of about 52 cents per gallon, and will continue to get that benefit until 2010 unless it is extended -- which seems likely, given the powerful agricultural lobby.

"Ethanol gets a lot of government subsidy money in the form of a tax credit and less aggressive enforcement of pollution standards at production facilities," says Anne Keller, with the Jacobs Consultancy in Houston. "It's because of politics and not because the science shows it's by far the better solution."

Big oil and major auto makers are in fact working on new solutions to make ethanol-blended gasoline more attractive. Scientists and the Imperial College of London and the Oak Ridge National Laboratory want to make ethanol from trees and woody substances called biomass. Volkswagen, Shell Oil and Canadian ethanol firm Iogen are also looking into producing ethanol from those cellulose-based materials and may build a plant in Germany. BP, meantime, is on record saying that bio-fuels could provide 30 percent of the global energy demand over time and do so without harming food supplies.

"We are strongly committed to reducing dependence on fossil fuels and are looking for the most effective approach to substitute these fuels [with] innovative bio-fuels," says Bernd Pischetsrieder, Chair of the Germany-based Volkswagen, in a prepared statement. "That is the only way we can cost effectively satisfy people's individual mobility needs in the long term."

All the attention now being heaped on renewable energy sources has helped put ethanol in the spotlight. And while the current methods to blend grain-based fuel sources with gasoline are controversial, newer and more environmentally-friendly solutions are near. If they bear fruit, then the global economy could begin to break its compulsion with oil.

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