President Bush's proposal to cut gasoline use 20 percent by greatly expanding the use of alternative fuels is likely to accelerate an ethanol gold rush on Wall Street, even as some industry leaders and environmentalists question whether the benefits are achievable.
The president's plan calls for improved automobile fuel economy coupled with a roughly five-fold increase in the use of ethanol and other alternative fuels in 10 years.
Energy experts say the proposal hinges on a major technological breakthrough in the production of plant-based ethanol, which can be made from wood chips, switch grass and other materials. Most ethanol produced in the U.S. is made from corn, but achieving the president's goal would more than consume all of the nation's corn production.
Environmentalists also criticized the plan laid out in yesterday's State of the Union address for relying on a largely voluntary approach to curbing so-called "greenhouse" gases and for not setting firm requirements for automakers to boost the fuel economy of their new cars.
Bush's plan assumes a 4 percent annual increase in fleet fuel standards but seeks to give the Transportation Department more flexibility in setting those standards.
The nation currently consumes about 140 billion gallons of gasoline per year, according to the Energy Information Administration. The president proposes to reduce the nation's dependence of foreign oil by requiring the use of 35 billion gallons of alternative fuels - mostly ethanol - by 2017. Ethanol plants in the U.S. are capable of producing about 5 billion gallons, though that number is increasing rapidly as energy companies rush to invest.
"It's a real stretch to [reduce gasoline consumption] with biofuels alone," said Daniel Lashof, science director for the Natural Resources Defense Counsel in Washington.
It's unclear, he said, whether the president is leaving the door open to reaching the goal using other alternative fuels, such as liquified coal, which are more polluting and would do little to curb greenhouse gas emissions.
"Even in the best-case scenario, with the [fuel economy] improvements and the alternative fuel standard that he's proposing, overall global-warming emissions across the board in the U.S. would still go up 10 percent or more," Lashof said.
Moreover, critics note that stepped-up ethanol production already is driving up corn prices and forcing a debate over food versus fuel. And questions remain about the fuel's benefits to air quality and consumption. A gallon of ethanol contains only about two-thirds the energy of a gallon of gasoline, which means more must be burned to travel the same distance.
"I think we've seen corn prices have gone through the roof, which has all sorts of implications on the economy," said Lester Lave, an economist and energy expert at Carnegie Mellon University. "That's crazy. We'd sooner rather than later have to switch over to cellulosic ethanol."
Ethanol has been the darling of Wall Street since the Energy Policy Act of 2005 mandated that its use more than double to 7.5 billion gallons by 2012.
Three of the seven largest venture capital investments in the United States last year were made in alternative energy companies, according to PricewaterhouseCoopers and the National Venture Capital Association. The largest of those was $209.4 million in Goshen, Calif.-based Cilion Inc., an operator of ethanol plants. Another ethanol plant developer, Biofuel Energy Corp. of Denver, received $102.8 million, and Bloom Energy Inc. of Sunnyvale, Calif. received $101.9 million to develop fuel cell technology.
Bush's speech will spark the development of even more renewable energy investment funds, said Vincent DeVito, a Pepper Hamilton attorney in New York and former Energy Department policy adviser in the Bush administration.
"If you have the mandate, it will get the investment community behind it and they make things happen," he said.
Energy experts say producing enough ethanol from wood chips and plant fibers is achievable, but the question remains whether it can be done economically. Carnegie Mellon researchers calculate that 35 billion to 55 billion gallons of cellulosic ethanol production is achievable without using any land currently being cultivated for food crops. But producing ethanol from switch grass and other stock costs more than double corn-based ethanol. That could improve with time and more investment, proponents say.