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How Farm Waste May Make Biofuels Matter Again

Paul Eekhoff | Photographer's Choice | Getty Images

Imagine a world where leftover corn, wheat and wood chips can be used to power your car.

That's the aim of cellulosic ethanol, a budding sector of the renewable fuel industry that finds itself struggling to reassert itself in a world of renewed popularity for oil and gas. The process aims to transform agriculture waste, most of which would normally be discarded, into a renewable source of fuel.

The process is heralded by ethanol advocates as a way to revive interest in a sector whose profile has declined recently. With the U.S. producing more natural gas and shale—and with critics questioning the wisdom of using food to power cars—enthusiasm for biofuels has fallen.

Still, the world's largest economy produced about 13.3 billion gallons of ethanol, according to data from the Renewable Fuels Association. The size of the market – and the fact that ethanol fuel is projected to grow 40 percent over the next decade, according to USDA data –means there's still scope to sell the market's virtues.

The debate is an increasingly lively one, especially as the conversation has tilted away from alternative fuels, in favor of shale and natural gas becoming the holy grail of low-cost energy.

The renewable fuel sector "is maturing," said Peder Holk Nielsen, CEO of biotech company Novozymes, an active player in the biofuels industry. In an interview, Nielsen touted estimates that indicate that less than 20 percent of agricultural waste can satisfy half of the world's gasoline demand by the year 2030.

"This is not phantom technology, it does exist," Nielsen said, dismissing a common concern that the process is detrimental to farming. "We're taking about a fifth of the agriculture waste that is left to rot in nature anyhow. American farmers can do this in two years' time, it's just a question of building the plants."

Still, that's a tough proposition in a country in the throes of a fossil fuel renaissance. The U.S. ethanol market – the largest in the world – saw a drop in production last year, amid a broad-based revival of oil and gas production, and a searing drought that sent crops reeling across the country.

"In the U.S., natgas is a big thing," said Claire Curry, a London-based biofuels analyst at Bloomberg New Energy Finance.

Given the reliance on gasoline and heavier fuels like diesel, "ethanol is more a difficult sell. If fossil fuel prices continue to drop, you will find it more difficult for biofuels to compete," Curry said, adding that the future was in culling ethanol from residual use, which in theory is less disruptive to the food chain.

Yet the ethanol market has come under sharp criticism from food producers and others. They have attacked the idea that corn and wheat can be used for dual purposes—especially in the face of unpredictable weather that creates food shortages.

In its 2013 annual report, the RFA—an advocacy group that has lobbied aggressively for ethanol mandates—cited productivity and technology advances that "are ensuring that ample supplies of grain are available for domestic and international use as food, feed and fuel." American farmers grew nearly 11 billion bushels of corn, the organization said – its eight largest crop on record.

Novozymes' Nielsen said that the value proposition for agriculture waste "is quite simply a cheaper fuel"—one that is being explored by other countries around the world.

Even as the U.S. moves to produce more energy domestically, Nielsen argued that there is still room for biofuels in the conversation. "Renewables are part of becoming more energy independent," he added.