Dallas Is Banking On Ethanol, But Is It The Fuel Of The Future Or A Barrel Of Pork?

Bob Josserand is bullish on bullshit. It's sexy, he says. As mayor of Hereford, Josserand should know. He lords over a town of some 16,000 people and more than 1 million cattle. Three and a half million chew their cuds within a 100-mile radius of his Panhandle home. "A million head of cattle produces a lot of manure over a day," he says. Josserand's AzTx Cattle Co. owns five feedlots with a capacity of 232,000 head in Texas, Colorado and Kansas. He pays anywhere from $150,000 to $200,000 a year to haul manure from his Hereford lot.

Named for the early herds of Hereford cattle, Hereford is often called the town without a toothache on account of its low incidence of tooth decay, the gift of high levels of natural fluoride in the municipal water supply. More often, Hereford is called the "Beef Capital of the World."

Yet corn is why Josserand is so bullish. In September, he kicked off the groundbreaking celebration for Dallas-based Panda Energy International's $186 million ethanol plant, which will churn out 105 million gallons of the alcohol fuel annually once it's fired up in late 2007. The refinery will be powered not by natural gas, as is common for these plants, but by cattle manure—some 70 tons per hour and more than 1 billion pounds per year.

Corn-based ethanol is "pure boondoggle," says Sterling Burnett of the Dallas-based National Center for Policy Analysis.
Mark Graham
Corn-based ethanol is "pure boondoggle," says Sterling Burnett of the Dallas-based National Center for Policy Analysis.
Digging for coe pies: Panda Energy Vice President Kyle 
Woodruff, CEO Todd Carter and COO Darol Lindloff break 
ground on Panda's manure-powered ethanol plant.
Digging for coe pies: Panda Energy Vice President Kyle Woodruff, CEO Todd Carter and COO Darol Lindloff break ground on Panda's manure-powered ethanol plant.
Kent and Leroy Pope of Energy Products of Idaho, the 
company that engineered Panda's manure gasification 
process, scoop dirt for the "poop-to-pump" plant.
Kent and Leroy Pope of Energy Products of Idaho, the company that engineered Panda's manure gasification process, scoop dirt for the "poop-to-pump" plant.
Jeff See of White Energy oversees construction in 
Hereford of what might be Texas' first ethanol plant
Jeff See of White Energy oversees construction in Hereford of what might be Texas' first ethanol plant
Hereford mayor Bob Josserand is bullish on bull.
Hereford mayor Bob Josserand is bullish on bull.
Dr. Chris Bachmann, an alternative fuels researcher at 
James Madison University in Harrisonburg, Virginia, is 
exploring an even more outlandish fuel source: biodiesel 
from algae that eat emissions spewed from coal-fired 
power plants.
Dr. Chris Bachmann, an alternative fuels researcher at James Madison University in Harrisonburg, Virginia, is exploring an even more outlandish fuel source: biodiesel from algae that eat emissions spewed from coal-fired power plants.

Refined from corn, ethanol is the hot new energy elixir. It enhances America's energy security by reducing reliance on imported oil. It reduces emissions and helps lower greenhouse gas accumulation. Thus, the Energy Policy Act of 2005 mandates that 7.5 billion gallons of renewable fuels such as ethanol be sluiced into the nation's gasoline supply by 2012, nearly double the 3.9 billion gallons produced in the United States last year. President Bush says he likes the idea of promoting a fuel that relies on farmers. Investors are throwing cash at it.

Enter Panda. Panda Chief Executive Officer Todd Carter likes to call Hereford the Saudi Arabia of manure, and his ethanol plant is the first known project on the globe to use the stuff to fuel an ethanol refinery. Josserand calls Hereford home to the sexiest environmental project in the world, one that will also produce cattle feed as a byproduct. "We're going to take a product that comes out of an ethanol plant called distiller's grain, and we're going to put it back in the mouth of that animal so that it can come out in the back," he says, explaining this revolutionary ecosystem.

Energy executives and Texas leaders such as state Senator Kel Seliger and Kathleen White, chair of the Texas Commission on Environmental Quality, filled the Panda shindig, which included a hoedown with music from country swing band Asleep at the Wheel and complimentary steak, beer and wine the night before. A producer for Geraldo At Large was stalking the refinery site prepping for a segment on the plant. (It ran September 22 on the Fox network.) This just may be the biggest thing Hereford has ever seen.

Still, Hereford resident Jeff See didn't have an invitation to the Panda celebration. He snuck into the hoedown, but his stealthy showing isn't a surprise, because while Panda is launching its "poop-to-pump" ethanol plant in a media glare, three miles away See is quietly overseeing the construction of a 100 million-gallon, $119 million ethanol plant for Dallas-based White Energy. In fact, Dallas energy firms are gambling big on ethanol and other renewable fuels such as soy and waste grease-based biodiesel all over the country, and it's not a bad gamble either, what with high oil prices and taxpayer subsidies and government mandates all but guaranteeing returns.

But are renewable fuels all they're cracked up to be? Maybe not. While they cut down on pollutants such as carbon monoxide, critics charge that ethanol as currently deployed in the nation's fuel supply actually boosts ozone-forming emissions such as hydrocarbons. Then there's the corn itself, a crop that requires intensive amounts of water, fertilizer, pesticides and transport, thus using plenty of fossil fuels in cultivation. While a few studies show that corn-based ethanol doesn't yield as much energy as it consumes to produce it, many more show that ethanol yields about 27 percent more energy than it takes to produce, though much of that comes not from burning the fuel itself but from adding in the value of the cattle feed the ethanol production process generates. Plus, ethanol doesn't pack as much energy as gasoline, so vehicles running on fuels high in ethanol suffer a 30 percent loss in fuel mileage. But none of this may matter.

"Politically, the ethanol program seems to be bulletproof," says Jerry Taylor, senior fellow at the Cato Institute, a Washington-based libertarian think tank. "The real purpose of ethanol is to fatten farmers' paychecks before elections."

Though he might not admit it, Kevin Kuykendall is in a race. As CEO of White Energy, he's essentially locking horns with Panda Energy to see who can complete Texas' first ethanol plant, and both companies are nothing if not ambitious. Panda, founded in 1982 as a builder of power generation plants, including one in China and a hydroelectric project in Nepal, just got the green light from the Colorado Department of Public Health and Environment to begin construction on a natural-gas-fueled, 100 million-gallon-per-year ethanol plant in Yuma, Colorado. That's in addition to the Hereford project and two additional manure-fueled, 100 million-gallon plants slated for Sherman and Haskell County, Kansas.

"You really almost can't build them fast enough," says Kuykendall, who's shooting to be one of the biggest—if not the biggest—ethanol players in Texas. Over the next few years, Kuykendall hopes White will grow to produce 500 million to 700 million gallons of ethanol annually with plants throughout Texas and along the East Coast.

A relief pitcher for the Cleveland Indians in the 1980s before he was benched by an injury, Kuykendall is a highly polished executive with a meticulously groomed beard—an unlikely candidate to hobnob with farmers and ranchers. But he has charm where it counts: on Wall Street and with capital markets. He sits in his spacious, ultra-modern office perched on the top floor of Two Galleria Tower explaining how over the last few months his company has raised nearly $500 million to develop a series of renewable fuel plants. Already operating a 45 million-gallon-per-year plant in Russell, Kansas, and with construction under way in Hereford, White plans to build or acquire three to five ethanol plants and two to three biodiesel plants over the next three years. His company is in the midst of buying another undisclosed 100 million-gallon facility in Texas.

For Kuykendall, who moved to Dallas from Maryland, where he ran a telecommunications company, Dallas is an ideal location to build an ethanol empire, and he and Panda's Todd Carter aren't the only ones plunging into the market. Americas Strategic Alliances, a Dallas-based merchant banking and investment firm, announced last month that its ASAlliances Biofuels Inc. arm filed for a $300 million initial public stock offering with plans to build three 100 million-gallon ethanol plants in Linden, Indiana; Albion, Nebraska; and Bloomingburg, Ohio. All three plants are scheduled for completion in 2007, right around the time the White and Panda plants go on line (ASAlliances Biofuels executives declined to comment for this story).

Kuykendall eschews the Midwest. Though it is where most of the nation's corn is grown, he says the Midwestern ethanol capacity is overbuilt. Putting ethanol plants in Texas makes more sense, since the state is the second-largest gasoline market after California. Locating capacity close to the Texas demand, currently estimated at 500 million to 700 million gallons of ethanol per year, is far more efficient because corn is cheaper to handle and ship than ethanol.

"There's also a lot of venture people here that make good money in oil," Kuykendall says. "So they're looking at 'How do I redistribute the profits that I made into the next big thing?' And renewables is big right now."

White's Hereford plant is being built adjacent to a 9.5 million-bushel grain elevator and 2.5-mile rail loop owned and operated by Decatur, Illinois-based Archer Daniels Midland Company (ADM), the nation's largest corn processor and ethanol producer. White will use ADM's elevator and rail line for its plant.

And White's plant, fueled by natural gas, is much further along in construction than Panda's manure-fueled plant, which accelerates the breakdown of manure into fuel gases such as methane by baking it. Jeff See, White Energy's vice president of construction and development, has been building these plants all over the country for nearly a quarter-century, cutting his teeth on corn-syrup-processing facilities. He says he built the nation's first two 100 million-gallon ethanol plants in South Dakota and Fort Dodge, Iowa.

"When I first started, it took more energy to make it than you got out of it," says See, who shouts over the blaring horns of locomotives that pull long trains—some 65 daily—just a few yards from his construction office trailer. In 1994, he says, his plants were squeezing 2.3 gallons of ethanol per bushel of corn (56 pounds of corn kernels). His new White plant will get 2.8 gallons per bushel thanks mainly to advancements in enzyme and fermentation technologies. He hopes to coax 3 gallons in a couple of years.

To get ethanol from corn, the starches in the kernels must be converted to sugar. Yeasts are added to eat the sugar, and they create carbon dioxide and alcohol as waste products. "It's just like making beer," See says. "We actually have a tank called a beer well."

Corn kernels are first ground into flour, which is mixed with water to form a mash. Enzymes are added to the mash to convert the starch to dextrose, a simple sugar. See pulls labeled samples of corn mixture from each stage of the refining process. Some of them have fluffy tufts of mold.

To control bacteria levels, the mash is processed in a high-temperature cooker before it's cooled and transferred to fermenters, where yeast is added to convert sugars into ethanol and carbon dioxide. The slurry is then transferred to distillation columns where the ethanol and water are separated—an energy-intensive process—and the alcohol is further dehydrated to roughly 200 proof.

Distiller's grain, the leftover solids, is dried and sold as a livestock feed. Ranchers buy it for less than the cost of corn, but it has all the nutritional value of corn plus some moisture. More important, it doesn't have the starch, which can't be digested by cattle. "Corn's already coming here," See says. "So the way ethanol producers see it, they're just processing the corn into a more nutritious, more easily digestible cattle feed. Ethanol is almost a bonus."

But with so many new plants coming on line across the nation, will there be a cattle feed glut? "At some point we're going to saturate the distiller's grain market," warns Nathanael Greene, biofuels expert for the National Resources Defense Council. "Then there won't be this energy credit."

Ethanol isn't the only renewable game played in Dallas. Biodiesel is hauling in capital too. In October 2005, Dallas-based Earth Biofuels became the first publicly traded biodiesel company selling shares on the NASDAQ stock exchange. "Texas is one of the best states for producing and selling biodiesel," says Rob Reed of Earth Biofuels. According to the National Biodiesel Board, Texas ranks second nationally in biodiesel production capacity (98.75 million gallons annually) behind Iowa. More than 75 million gallons of biodiesel were produced last year in the United States, and production is expected to more than double this year.

Refined from everything from soybeans, canola and palm oils, waste restaurant grease, and chicken fat and beef tallow, biodiesel is perhaps the sexiest fuel pumping into tanks, at least when measured by the cabal of celebrity mouthpieces Earth Biofuels has assembled. Earlier this year, the company unfurled a potent marketing campaign featuring Oscar-winning actor Morgan Freeman, one-time NASCAR champion Rusty Wallace, actress Julia Roberts and country music singer Willie Nelson. Nelson has even slapped his image on B20 biodiesel fuel pumps (a blend of 20 percent biodiesel and 80 percent petroleum diesel) sold under the BioWillie moniker, which Earth Biofuels markets and distributes exclusively. The company plans to pump the fuel as well as ethanol at its retail outlets nationwide through its newly formed American Earth Fuels Co. subsidiary.

Formed in 2004 as a Jackson, Mississippi-based refiner of waste restaurant grease, Earth Biofuels was acquired in 2005 by Apollo Resources International, a Dallas-based company specializing in natural gas and liquid natural gas production. It has since opened a 10 million-gallon-per-year biodiesel refinery in Durant, Oklahoma, and has invested in a 65 million-gallon-per-year ethanol refinery near New Orleans with plans to invest in another ethanol refinery in North Carolina through its subsidiary Earth Ethanol Inc. But for now, the company's thrust is biodiesel.

"Biodiesel makes sense," says Sterling Burnett, senior fellow for the National Center for Policy Analysis, a Dallas-based think tank. "It's not as expensive to distill [as ethanol], and it gives you more energy per unit of energy [consumed]. There's a debate as to whether you get more energy out of ethanol than it takes to produce it." Burnett says gasoline yields 83 percent more energy than is invested for its production.

But Dr. Dick Auld, chairman of the department of plant and soil sciences at Texas Tech University in Lubbock, is skeptical of such life cycle energy calculus. "If you did an energy budget on petroleum like [was done for ethanol], it'd be disastrous," he says. "Because you're looking at all of the steel pipes, the oil well and the trucks that take it out there."

According to a University of Minnesota study published last summer, soy-based biodiesel generates 93 percent more energy than it takes to produce and releases fewer air pollutants per net energy gain than ethanol, making it a substantially cleaner fuel than petroleum diesel. But like ethanol, biodiesel has drawbacks, primarily high production costs. Biodiesel costs roughly $1 more per gallon than petroleum diesel, and blends such as B20 can cost 10 to 25 cents more per gallon. To be competitive with petroleum, biodiesel must be heavily subsidized: a $1-per-gallon blending subsidy (50 cents for recycled restaurant grease) larded over with various state and local tax incentives.

"We have to face facts," Reed says. "If we want to optimize for cost, what makes sense is to just burn all of the fossil fuels we have. We've got plenty of them...It's a total myth that we're running out of any of the fossil fuels. The question is do we want to do that? If we didn't care about the carbon issue, we wouldn't really have an energy problem."

But biodiesel may have an environmental issue of its own: land. While an acre of corn can produce roughly 300 to 450 gallons of ethanol, an acre of soybeans can produce only an estimated 50 to 60 gallons of biodiesel. Attempting to replace a significant portion of U.S. petroleum diesel consumption with soy-based biofuels could potentially put huge swaths of acreage under the plow, enveloping both forests and wetlands. (The primary biodiesel base in the United States is soy oil while in Europe it is rapeseed oil, and Asia utilizes palm and palm kernel oil.) At optimum production levels, neither ethanol nor biodiesel can come close to making a significant dent in our annual consumption of 140 billion gallons of gasoline and 46.6 billion gallons of diesel fuel. According to the Minnesota study, full-throttle U.S. biofuels production can replace only a small fraction of U.S. motor fuel demand: 12 percent of gasoline and 6 percent of diesel, even with dedicating all U.S. corn and soybean production to fuel.

"Biofuels are not going to be the clichéd silver bullet," Reed says.

What biofuels might be is the clichéd pork barrel—a political hog gussied up in subsidies, mandates and rule-bending all draped in earth-friendly green. The cover story in the October issue of Consumer Reports, "Special Report, The Ethanol Myth," seemed to confirm this. Consumer Reports' analysts put a 2007 Chevrolet Tahoe flexible fuel vehicle—a vehicle that can burn gasoline or a blend of 85 percent ethanol and 15 percent gasoline dubbed E85—through its paces, testing fuel economy, acceleration and emissions.

Flex vehicles, it turns out, are sweet for U.S. automakers. They've manufactured more than 5 million of them since the late 1990s (6 million flex vehicles are currently rolling on U.S. roads, according to the National Ethanol Vehicle Coalition). The reason? Automakers collect fuel economy credits good toward calculating federal Corporate Average Fuel Economy (CAFE) fleet standards (27.5 mpg for cars, 21.6 mpg for light trucks). The flex fuel trucks are awarded a higher mileage rating so the automakers don't get penalized for heavily weighing their light truck fleet with large SUVs—the theory being that putting more ethanol vehicles on the road will be a good thing vis-à-vis oil consumption and the environment. (Automakers are penalized if the average fuel economy of vehicles they sell dips below the federal standards.) These credits roughly translate into a fuel economy rating 1 2/3 times the actual gasoline rating—a calculation based on the assumption a flex vehicle will run gasoline half the time with the remaining half run on E85. So, as Consumer Reportsnotes, a conventional Tahoe rated at 21 mpg is rated at 35 mpg for the flex vehicle, even though the vast majority of these vehicles will never burn a drop of E85. Essentially, automakers can manufacture a surplus of guzzling, high-profit SUVs and market them as fuel sippers.

Consumer Reports' findings were sobering. They discovered that while a vehicle fueled by E85 created fewer emissions than one running gasoline, it suffered dramatic losses in fuel economy: from 21 to 15 miles per gallon on the highway and from 9 to 7 miles per gallon in the city. The Tahoe's range dropped from 440 miles per tank of gasoline to 300 miles for E85.

While the flex fuel vehicle running on E85 didn't suffer significant losses in acceleration, it was more costly to operate because of the mileage losses. Consumer Reports calculated that the average August 2006 E85 pump price of $2.91 per gallon translated to $3.99 when compensating for the mileage loss—if you can find E85, that is. At the time of the report there were just 800 out of 176,000 gas stations nationwide selling the fuel (the National Ethanol Vehicle Coalition reports that number now exceeds 1,000) with most located in the upper Midwest close to where corn is grown and most ethanol is refined. According to the Renewable Fuels Association, there are 106 ethanol refineries with a total production capacity of 5.1 billion gallons, with another 45 plants and 3.5 billion gallons of capacity under construction. Plants like those being built by Panda Energy and White Energy could dramatically change the availability, but probably not the cost.

Simply put, ethanol is an expensive fuel to produce and distribute. To offset these costs, taxpayers kick in a 51-cent-per-gallon tax credit that, along with various state tax incentive programs, runs up a national tab of more than $2 billion per year, according to The Wall Street Journal. That's on top of the $3.6 billion per year taxpayers cough up to subsidize corn growers, who in 2005 unloaded 14.4 percent of their crop to ethanol refiners.

But White Energy's Kuykendall insists that corn-farming subsidies are meaningless to the ethanol equation. "The farmer is getting the subsidies whether he sells his corn to an ethanol plant or he sells his corn to somebody who's making food with it," he says. "So I think that's an irrelevant discussion. It has nothing to do with the ethanol industry...From our perspective, if you can produce something here in the U.S. that eliminates a need for foreign is an advantage to the U.S."

But there are other costs. Last June, The Wall Street Journal reported the ethanol boom was exerting upward pressure on corn prices, adding costs to everything from foods flavored with corn sweeteners to cattle, hogs and chickens fattened with corn feed.

Then there are the logistical challenges. It can cost gas stations up to $200,000 to install pumps and tanks to handle E85, though that is somewhat offset by a 30 percent tax credit up to $30,000 tucked in the Energy Policy Act of 2005. And because of its corrosiveness and affinity to water, ethanol can't be shipped through existing fuel pipelines to terminals. It must be shipped via rail, barge or truck and stored in separate tanks before it is "splash" blended directly into gasoline trucks, generally in a mix of 90 percent gasoline and 10 percent ethanol, or E10.

Such logistical challenges caused severe supply disruptions earlier this year when there was a switch in gasoline "oxygenates," fuel additives that reduce carbon monoxide emissions. For years Congress has required the use of oxygenates such as ethanol and methyl tert-butyl ether (MTBE)—a substance blended into gasoline at low levels since 1979 as an octane booster to replace tetra-ethyl lead. But since 1992, MTBE has been sloshed into gasoline in higher concentrations in some areas to economically fulfill mandated oxygenate requirements. Being in the thick of the Corn Belt, the Midwest has long relied on ethanol to fulfill this role, but because ethanol is expensive to handle and ship, areas such as the East Coast and Texas relied on MTBE, as it can be easily blended into gasoline and shipped through existing pipelines.

Then in 1995, traces of MTBE were discovered in tens of thousands of water wells across the country. Though MTBE is not classified as an environmental hazard or a human carcinogen and its health risks are debatable, it ruins the taste of water in low concentrations. As part of the Energy Policy Act of 2005, Congress imposed a huge new ethanol mandate while denying liability protection for MTBE producers; hence most oil companies abandoned the additive last May.

The switch squeezed ethanol producers dry, and fuel terminal operators scrambled to meet the mandate for summer blends, especially in places like Dallas and Houston, sending ethanol prices far beyond the cost of the MTBE additive it replaced. According to the Houston Chronicle, July ethanol futures were selling for $3.73 per gallon in June compared with $1.99 for MTBE, though ethanol prices have subsided considerably since then, trading at $1.89 for November futures as of this writing.

"When you're talking about these things, lay out the benefits, but lay out the costs as well," says the National Center for Policy Analysis' Sterling Burnett. "Not too many people know about the costs related to these clean fuels, these renewable fuels. You can't justify them on economic grounds, and I don't think you can justify them on environmental grounds...It's just a pure boondoggle."

The environmental attraction of biofuels is "carbon neutrality," meaning the carbon dioxide they add to atmosphere when burned is roughly equal to what the crops have absorbed through respiration. Thus, in theory, they don't add to greenhouse gas accumulation. Still, there are environmental costs, which reared their dirty heads during the unsuccessful re-election campaign of the first President Bush. In 1991, President George H.W. Bush proposed new clean air rules that slapped strict caps on fuel volatility, a measure designed to combat air quality problems in some of the nation's smoggiest cities. There was one problem: Ethanol didn't meet the cap. The new regulation would have barred ethanol splash-blended gasoline because the oxygen-rich fuel, though cleaner burning, evaporates more rapidly than gasoline, releasing more hydrocarbons, which cook in the atmosphere to form ozone. A year later, as the presidential election loomed, Bush found himself sagging in the polls.

"But now, seeking to woo farm voters in Illinois and other Midwestern states crucial to his re-election, Bush has ordered his staff to find a way to rewrite the regulation, reversing its effect so it would promote higher sales of the corn-derived fuel instead," reported the Chicago Tribune on September 9, 1992. Fat ethanol refiner profits were at stake. Archer Daniels Midland Co., whose then Chairman Dwayne Andreas flushed the Republican war chest with more than $1 million, stood to earn at least $125 million in additional annual profits per year if the rule was amended to permit unrestricted ethanol-gasoline blends. In early October, Bush vowed to rewrite environmental rules to provide for an ethanol exemption, essentially "passing out an election-year goodie intended to shore up support in Illinois and other Midwestern farm states," the Tribune said.

Granted, these air quality problems are almost nonexistent in fuels with high ethanol concentrations, such as with E85. But evaporative emissions peak at about 10 percent ethanol and 90 percent gasoline, the very ethanol fuel most in use. "The irony is painful," says the National Resources Defense Council's Nathanael Greene.

But that isn't the only adverse ethanol impact. In April 2002, the Environmental Protection Agency declared most ethanol plants were in violation of federal clean air rules, emitting unlawful amounts of carbon monoxide. That same year, 12 ethanol plants entered into a settlement with the Department of Justice, the state of Minnesota and the EPA over clean-air violations, and the Sierra Club sued two Midwestern plants for releasing potentially carcinogenic volatile organic compounds. In October of this year, The Associated Press reported that the Iowa Environmental Council and the Iowa Department of Natural Resources are concerned about the soil erosion large-scale corn cultivation causes and laments that ethanol plants are fairly large emitters of contaminants.

"It's not environmentally friendly at all," says Kevin Hassett, director of economic policies for the American Enterprise Institute, a Washington, D.C.-based public policy think tank. "So you're left wondering: Why have all of these subsidies? The answer is not because of the characteristics of ethanol; rather it's because of the characteristics of the senators who decide to [promote it]."

Despite the environmental, economic and practical challenges corn-based ethanol poses, many environmental organizations embrace the fuel. Ethanol and other renewables, they say, are integral to strategies designed to slash gasoline and diesel fuel consumption. "We need to use corn ethanol as a foundation, as a building block to get to where we want to go," says the defense council's Greene. "So we want to see it done as smart and as clean as possible, and we think it can get a heck of a lot smarter and cleaner than it is done today...But we can't wait."

Because corn-based ethanol does provide benefits, even if marginal, we need to start using it to reshuffle our transportation fuels portfolio in a way that is easier on the national economy and environment and doesn't exacerbate security risks, Greene insists. He sees corn-based ethanol as a starting point to more efficient and less land- and fossil-fuel-intensive cellulosic ethanol, or fuel derived from switchgrass and agricultural wastes such as cornstalks, rice hulls and wood chips. Though the process to convert cellulose into sugars and then fuel is barely in nascent stages, proponents see it as the most potent punch to finally put a sizable dent in U.S. oil consumption.

And the potential is stunning. While corn-based ethanol can yield 300 to 450 gallons per acre and soy generates just 50 to 60 gallons of fuel per acre, ethanol from switchgrass can potentially yield 1,000 gallons per acre or more, Greene says.

"Once you crack that code, then you can talk about an industry not producing 5 billion gallons a year but producing 50 billion gallons a year," says Matt Hartwig of the Renewable Fuels Association, an organization that promotes both corn and cellulosic ethanol. "It really blows the lid off the industry."

Hence the current Bush administration is throwing money—some $150 million tucked in the 2007 budget—at the technology to help fund the bio-refineries that will produce the fuel. The Energy Policy Act of 2005 mandates that 250 million gallons of cellulosic ethanol be added to the nation's fuel supplies by 2013 and provides for loan guarantees for cellulosic refineries.

But the challenges are daunting. The process requires massive research investment to discover and produce efficient enzymes that can break plant cellulose into sugar and organisms that will convert those sugars into ethanol. The enzymes are expensive, and the process is risky. Progress depends on oil prices hovering above $50 per barrel. "Cellulosic ethanol has never been manufactured on an industrial scale, and the technology to produce this type of ethanol is still being developed and is far from mature," says a National Resources Defense Council report titled "Ethanol: Energy Well Spent."

Yet other challenges may loom for the cellulosic golden goose. "The joker in that deck is when switchgrass and wood chips can be turned into cellulose ethanol, what happens to these guys who invested in the corn ethanol plants?" asks Dennis Avery at the Center for Global Food Issues at the Hudson Institute, a Washington, D.C., think tank. "The cellulose plants are going to be in different places. There will be an intense lobbying war, and the best fuel won't win. The best lobbying program will."

But the Renewable Fuels Association's Hartwig flatly dismisses warnings of erupting lobbying skirmishes over subsidies and tax preferences. "It won't replace corn," he says. "Many of the corn farmers today will still be involved in the cellulosic side because they'll use some of the leftover corn stalks."

Yet even the defense council's Greene concedes that renewable fuels won't come close to replacing projected transportation fuel demand. The reason: land. At current cellulosic crop yields, it would take 1.75 billion acres to meet projected 2050 light-duty gasoline demand. Total landmass in the contiguous 48 states is about 1.9 billion acres. Another looming question: What happens if the food value of a crop drops below its fuel value? "The world's demand for food and feed is going to double again," warns the Hudson Institute's Avery.

Malaysia, the leading producer and exporter of palm oil, a potent fuel crop, is rapidly expanding its biodiesel production with some 52 refineries in the works and plans to be the top global biodiesel producer. This has some environmentalists worried this will usher in a new round of rain forest destruction as the lush, humid lands in Southeast Asia are cleared for palm cultivation to feed these new refineries.

"There is a tendency among biofuels boosters to make it sound like we can do everything with biofuels, and critics tend to say you can't do everything with corn," Greene says. "There's a limit, even with advanced technologies that we are really excited about."

That's why Greene's strategy for slashing projected year 2050 transportation fuel consumption by two-thirds—from 30 million barrels of oil per day down to 10 million—doesn't rely primarily on biofuels. In a report titled "Growing Energy, How Biofuels Help End America's Oil Independence," Greene argues that most U.S. transportation fuel consumption must be reduced through dramatic engine and vehicle efficiency gains coupled with what he calls smart growth, or planned communities that curtail sprawl by offering walkable neighborhoods near jobs, services and public transportation to cut drive time. But while such communities may seem practical, even desirable, in theory, it's difficult to see how they could be workable, especially in metropolitan areas like Los Angeles, San Francisco, Chicago and New York, where extremely high housing and living costs shove low- to moderate-income workers to the outer suburbs. Walkable communities near public transit hubs are highly desirable—witness Mockingbird Station—and developers and merchants charge accordingly.

Even more illusory is the realization of significant energy consumption reductions via increased efficiency, if history is any guide. According to the Department of Energy, annual per capita energy consumption was actually slightly higher in 2005 than it was in 1970: 337 million Btu (British thermal units) versus 334 million Btu. The data show energy consumption levels have remained relatively constant over the past 35 years—this despite enormous efficiency gains in everything from power generation to vehicle engines to home appliances and electronics.

The reason? Consumers apparently leverage efficiency gains not toward energy savings, but toward higher standards of living. More efficient engines translate into heavier vehicles traveling more miles with more power and safety and convenience features. More efficient aircraft and jet engine designs mean more people fly more often to more places at greater distances while demanding fresh sushi in Chicago. More efficient AC power supplies batteries, and computer processors mean iPods, cell phones, digital cameras, massive televisions and computers proliferate in millions of homes—many plugged into the Internet, itself a vast network of computer server farms that, individually, gobble enough energy to feed a small city. In short, if we want to avert an alleged global warming cataclysm, we'll not only have to cut back on driving, we'll have to cut back on American Idol and blogging too.

The genius behind Panda Energy's "poop-to-pump" ethanol plant in Hereford is that it skirts many of the meager energy gains and environmental criticisms lodged against the ethanol production process. Because the plant is fueled not by a useful energy source but by what is essentially a nuisance waste, energy consumption levels in the refining process become irrelevant: Mostly useless manure becomes a valuable fuel. And because decaying manure yields emissions—namely methane—that are far more potent greenhouse gases than carbon dioxide, emissions from Panda's plant are benign in context. This is why Panda is replicating its manure blueprint in Sherman and Kansas.

"One of the problems with biomass is finding an area that has enough biomass fuel of any significance to make the project work," says Panda CEO Todd Carter. This is also why the usefulness of Panda's blueprint is extremely limited.

Yet the general concept isn't. Energy Products of Idaho (EPI), the company that designed the manure gasification component of Panda's ethanol plant, also builds power plants fueled by garbage. The benefits are stunning. Respiring landfills spew a host of noxious emissions into the atmosphere, including carbon monoxide and methane. Gasifying the garbage and using those gases as fuel to generate electricity or potentially power an ethanol refinery is not only environmentally beneficial, it's potentially lucrative: Municipalities pay people to take their garbage. Yet EPI's Kent Pope, whose company has built just four such power plants in the United States, says developers of such projects face fierce "NIMBY" (not in my back yard) opposition, tying up plant developers in court until they throw up their hands in surrender. His projects receive a far warmer reception in Europe, where landfill space is far tighter.

"You don't want to create an incentive to produce garbage," Greene argues. "Our production of garbage today is a function of our consumption patterns, which are themselves unsustainable."

"Wonderful," Pope counters. "Eliminate all you can. And then with the other 97 percent that you can't eliminate, let's produce energy. Let's not just throw it into the ground."

Dr. Chris Bachmann, an alternative fuels researcher at James Madison University in Harrisonburg, Virginia, is exploring an even more outlandish fuel source: algae. He says algae can potentially produce more than 30 times the biodiesel oil per acre of the most productive biodiesel crops such as canola and palm. Plus, once perfected, the leftover biomass can be converted into cellulosic ethanol for even more fuel gains. This means destructive algae blooms from fertilizer runoff polluting bays and other waterways might someday be profitably harvested as fuel.

"These micro algae are some of the fastest-growing plants on the planet if you give them the CO2 they need," Bachmann says. That's why he's exploring closed loop "bioreactors" that feed on nitrous oxide and carbon dioxide emissions from coal-fired power plants, essentially creating bio-scrubbers that generate motor fuels. With these systems, he says, fuel-producing algae can be harvested daily instead of the once or twice per year fuel crops are harvested on land.

But maximizing the process will require genetic engineering to accelerate algae growth rates and fuel output. He's also studying processes to transplant genes that produce the enzymes that break down cellulose from fungi into bacteria, which grow much faster. "There's going to be a lot of that," he says of genetically modified fuel organisms. Yet environmentalists, who heartily endorse renewable fuels, are almost universally opposed to genetic modification, which may prove the key to making these fuels feasible on a large scale.

The upshot? Fossil fuels will in all likelihood be our most significant fuel source by far for a long time, at least through the next century. No plausible combination of alternative fuels or efficiency gains can substitute in any significance for projected oil consumption growth in the foreseeable future—at least not without onerous taxes and police state tactics. The potential alternatives may be exciting and numerous, but the challenges and compromises they encumber are daunting.

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