Crown Capital Management

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The promise of cellulosic biofuels sounds like a fable out of the Brothers Grimm: turning straw into liquid gold. Or rather, switchgrass into gasoline. It’s not magic. The process has been around since the early 1800s, when the chemist Henri Braconnot figured out how to strip sugars from cellulose—the basic building block of all plant life—and refine them into a crude form of ethanol.

For almost 200 years cellulosic ethanol has had the potential to be one of the world’s greenest fuels. Unlike corn ethanol, cellulosic doesn’t rely on food crops. It can be made from corn stover (leaves and stalks), switchgrass, miscanthus, bagasse (sugar cane refuse), wood, even municipal waste. But each of these feedstocks presents its own technical and environmental challenges.

The trick is to make the ethanol sustainably, in bulk, and at a price that competes with crude oil. Cellulosic refineries enjoyed a brief heyday in the early 1900s—Henry Ford’s first models could run on pure ethanol—but were driven out of business by cheap petroleum. Years ago, I spoke with a cellulosic researcher during a visit to the National Renewable Energy Laboratory in Golden, Colorado. “The science works,” he told me. “The problem is economics.” Nobody could figure out how to produce it cheaply enough to turn a profit. So for nearly a century, cellulosic sat on the shelf.

The landscape changed in the mid-2000s. Faced with two wars and a spike in fuel prices, Congress and the Bush administration called for a radical increase in American biofuel production. The Renewable Fuel Standard (RFS), adopted in 2005, mandated a near doubling of the amount of biofuel blended into the nation’s fuel supply by 2012. It didn’t promise to break our addiction to foreign oil, but it was a first step.

That mandate led to an explosion of corn ethanol production. In early 2005, 81 ethanol refineries were producing 3.6 billion gallons per year. By 2007 an RFS-driven boom had contractors building 76 new plants capable of putting out an additional 5.6 billion gallons. So much corn was diverted into ethanol that a food-versus-fuel scare began rocking commodities markets. From 2005 to the middle of 2008 the world price for corn and soybeans more than doubled, causing food shortages and riots in many parts of Asia, Africa, and Latin America. Speculators fleeing th