Ethanol: Behind the Buzz

Trade on Technological Innovation

Ethanol's future lies in cellulose. Although improvements in traditional inputs and technology will continue to garner public support and yield modest efficiency gains, the breakthrough opportunities lie in developing industrial-scale cellulosic ethanol production. Alternative energy start-ups across the world are breeding varieties of trees and prairie grasses that grow faster and yield more energy per acre than native plants. Moreover, new technologies and production methods aim to more than double current corn and sugar ethanol yields by converting their agricultural waste into cellulosic ethanol and energy. This would permit "closed loop" biorefineries in which all of the energy needed for production is generated during the process.

Most cellulosic ethanol companies, such as Iogen and Genencor, are private or wholly owned subsidiaries of larger agribusiness companies, but investors should watch for them to turn to public markets to finance expansion or harvest cash. Some are already public, however, and one of the best may be Novozymes, a leading Danish biotech company focused on the industrial applications of enzymes and microorganisms.

Novozymes has been at the international forefront of cellulosic ethanol innovation, and the U.S. Department of Energy selected it to pursue government-funded research that significantly reduced the price of cellulose enzymes. Although slowdowns in other product areas have dampened analysts' enthusiasm for the company in the near term, Novozymes' cellulosic ethanol development continues apace and is anticipated to lead future growth.

To catch Cramer's and Lieberthal's discussion about ethanol transport plays click here.