Cellulosic ethanol—ethanol made from feedstocks like switchgrass, corn stover, and sugarcane bagasse—may promise to solve the world’s fuel woes, but making it is still difficult. Current technologies amount to “coming at the problem with the equivalent of a tack and a sledgehammer,” says Blake Simmons, a chemical engineer and principal member of the technical staff at Sandia National Labs.

Transforming cellulosic biomass to ethanol requires breaking down the fibrous cell walls in plants into simple sugars. In pretreatment, the biomass is milled, digested, and broken down with acid or enzymes (a process called hydrolysis) so it can be fermented. A host of startups are leading the charge to make the hydrolysis process cheaper and more efficient.

Many are genetically engineering new types of enzymes. San Diego-based Diversa, for example, has created so-called “extremophiles,” or bacteria that thrive in heat or acidity and in the guts of termites. The company is jointly developing enzymes with DuPont to digest corn biomass. Meanwhile, Dyadic uses a fungus called C1 to make hydrolysis more efficient by using less energy. And Cambridge, Massachusetts-based Mascoma is working on a new bacteria that could break down feedstocks and ferment them at the same time—eliminating the need to purchase separate enzymes and different types of equipment.

Enzyme startups face daunting competition from major enzyme players like Novozymes and Genencor International (now called Danisco). In 2001, Danisco and Novozymes collaborated with the National Renewable Energy Laboratory to cut the cost of enzymes used to produce ethanol down to between $0.10 and $0.18 a gallon, a 30-fold reduction in cost compared to 2001, when enzymes cost $5 a gallon.

Companies like GreenFuel Technologies and Israeli partner Algatech are taking yet another approach. They are working on using algae, rather than enzymes in fungi or bacteria, to turn pollution and waste into ethanol and other fuels.

And instead of adding enzymes to biomass, some companies are trying to cut costs by genetically engineering ethanol crops with built-in enzymes. Cambridge, Massachusetts-based startup Agrivida optimizes corn for ethanol, so the stalks and corn can both be broken down into sugars, with no additional enzymes needed.

Global agri-giant Syngenta is collaborating with San Diego-based enzyme producer Diversa to develop transgenic corn that produces high levels of alpha amylase, a heat-tolerant enzyme. This new type of corn is expected to launch in 2008. Meanwhile, Thousand Oaks, California-based Ceres, and Hayward, California-based agricultural biotech company Mendel Biotechnology are developing switchgrass, miscanthus, and poplar varieties for ethanol production.

Facing Resistance

The first wave of energy crops will be high-yielding conventional varieties, but Mendel President Neal Gutterson predicts that in about 10 years, the next generation will incorporate transgenic traits for various stress tolerances, improved yield, and biomass conversion efficiency. But genetically modified crops face resistance from some environmentalists, who believe they could spread and alter the characteristics of food crops.

While ethanol is viable now with gasoline prices above $3 a gallon in the United States, it becomes less attractive if gas prices fall. Using their own pretreatment methods and organisms, companies like Mascoma, BioEnergy, and MeanGreen Biofuels hope to make ethanol more profitable by churning out higher-value byproducts alongside it. These firms are building biorefineries that could convert sugars into multiple products, some more valuable than ethanol, including plastics, lactic acid, and even biodiesel.

“If you make sugar for $0.10 a pound and can make 10 products with it instead of two, the economics will invariably be better,” says Stephen Gatto, CEO of Norwell, Massachusetts-based BioEnergy.

In a somewhat ironic twist, it takes a huge amount of energy and water to create “environmentally friendly” ethanol fuel. Aside from the water needed to grow crops, ethanol plants are currently heavy water consumers, using a lot of steam, says Chris Shaddix, a mechanical engineer and principal member of Sandia’s technical staff.

To address these problems, some researchers are developing improvements to plant processes that will reduce overall water and energy consumption, says Mr. Shaddix. But that day is a long way off.

“There are going to be significant breakthroughs that we don’t have today,” he says. “We’re still in discovery mode.”

Contact the writer:JKho@RedHerring.com

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