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The Department of Energy says 5.4 billion gallons of ethanol were used in the U.S. last year. Proponents say using ethanol as fuel helps reduce pollution and dependence on foreign oil.

The vast majority of ethanol in the U.S. is made from corn. But it's not the most efficient kind. So for a while now, scientists have been trying to figure out a profitable way to mass produce something called cellulosic ethanol. It's made not from food but from inedible things we normally throw away. And they may have figured it out.

NPR's Kathleen Schalch reports.

KATHLEEN SCHALCH: Southern Georgia has vast pine forests and hundreds of lumber mills. Soon, it will also have the world's first commercial cellulosic ethanol plant. A company called Range Fuels will begin building it tomorrow.

CEO Mitch Mandich says it will make ethanol out of what the loggers and lumber mills leave behind.

MITCH MANDICH: We can use all parts of the tree including the bark on the tree and pine cones and pine needles, sawmill residues.

SCHALCH: Brewing ethanol from woody materials isn't easy. You first have to break down tough plant fibers to unlock the sugars inside. Dozens of companies are developing enzymes to do this. But Range Fuels has devised a different process. It starts by putting the woody material into a kind of pressure cooker.

MANDICH: We convert it to a gas.

SCHALCH: Then they mix it with a catalyst that turns it into ethanol. There's plenty of raw material. Georgia alone produces 18 million tons of unused trees and logging leftovers per year. And Mandich says his company's manufacturing process can also make ethanol from other types of municipal farm and plant waste found all over the country.

MANDICH: We can use everything from peanut shells to switch grass to olive pits and more. So the technologically is extraordinarily versatile. We think we have a huge competitive advantage in that regard.

SCHALCH: The company says the process is relatively affordable, too.

Vinod Khosla is the founder of Range Fuels. He expects this plant will cost about 50 percent more than a corn ethanol plant to build, but actually be cheaper to run. The goal is to manufacture cellulosic ethanol for $1.25 a gallon.

VINOD KHOSLA: At that price, we should be able to have $1.99 ethanol at every Wal-Mart in America. And that's my dream for this country.

SCHALCH: Khosla says cellulosic ethanol is the only fuel that could actually replace oil.

KHOSLA: It's the only alternative oil that's produceable in enough quantity and at a low enough cost to matter - matter not only in the West, but also in India and China, which will be driven by the lowest cost.

ANDY KARSNER: We are desperate to use it.

SCHALCH: That's Andy Karsner. He runs the Renewable Energy Program at the Department of Energy. DOE gave seed money to Range and five other companies that promised to open cellulosic ethanol plants.

KARSNER: Cellulosic ethanol is the most promising liquid fuels pathway for immediate greenhouse gas reduction in our transportation sector.

SCHALCH: How much could this potentially reduce greenhouse gas emissions from our transportation sector?

KARSNER: Up to 87 percent.

SCHALCH: Karsner says that's more than three times the savings you typically get with ethanol made from corn, mainly because simply growing corn takes a lot of energy. Besides, you can only wring so much energy from crops like corn without threatening the food supply.

Ben Senauer is a professor at the University of Minnesota.

BEN SENAUER: If you were to fill up the 25-gallon tank of, say, an SUV or a larger car with pure ethanol, it would take over 400 pounds of corn to produce that ethanol. That will be enough to keep a person alive for a year.

SCHALCH: Senauer says demand for ethanol is already driving up prices and sending shockwaves through the food system, especially in poor countries that rely on imports.

Despite the promise of cellulosic ethanol, replacing oil won't be easy. Ray Kopp of the think tank Resources for the Future says it will take a huge investment and it's not clear who will pay for it. No matter how you make ethanol, Kopp says, you still need pipelines, storage tanks, and pumps to reach consumers.

RAY KOPP: And it's kind of like chicken and egg. I mean, you - the gas station doesn't want to do that until it's pretty sure there's a demand for it and there may not be a demand for it until there's, you know, there's a supply of ethanol.

SCHALCH: But Range Fuels founder, Vinod Khosla, insists there will be, and faster than people think. He says the plant his company is building will prove that it's possible to save the planet and make money doing it.

Kathleen Schalch, NPR News, Washington.

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