A.E. (After Ethanol)

So, now what?

As the law of unintended consequences comes into play, the bloom is officially coming off of corn ethanol. A quick recap of some of the big reasons why:

1. Food Riots: Food prices are through the roof all over the world. Food riots in Egypt, Mexico, Haiti, Indonesia, and elsewhere are becoming a regular occurrence. In the US, inflation for food is at its highest rate since the Nixon administration. As a result, diverting a significant portion of the food supply from mouths to fuel tanks is becoming less a philosophical question than an economic one.

2. Net Energy Benefit: Or lack thereof. A growing body of work disputes the net energy benefit of ethanol. Never mind that it can't measure up to gasoline in terms of energy potential. Take into account that it must be trucked (can't distribute it through existing pipelines), and resulting output drops even further.

3. Environmental Disaster: Corn in particular requires intensive amounts of water and pesticides. Record corn prices have driven farmers to plant land that had been set aside for conservation efforts. Any GHG benefit is hotly debated.

4. Political Season Ending: The interminable US primary and presidential election will be drawing to a close in short order, meaning that the naked pandering for corn-belt special interest votes will lessen (though never go away...)

Again: so now what? After all, with the cost of a barrel of oil currently standing at over $118(4/23/08), the need to find alternative sources of energy isn't dissipating. If we assume that corn ethanol is really teetering toward its inevitable collapse, what are the the next options? Who/what are the winners? And losers?

Some initial thoughts:

1. Cellulosic Ethanol Specialists: While still a long way from being practical/affordable, cellulosic ethanol at least removes the corn part of the equation by focusing on sources like waste wood or non-food crops. It's also got some political heft to it, ever since the President's switchgrass reverie. There's also considerable investment capital being spent in this area. Companies to consider: Range Fuels, Verenium, and Iogen.

2. Big Agriculture: Multinationals like ADM and Monsanto are financially positioned to weather the coming corn-ethanol storms, and leverage their growing investments in alternatives like cellulosic ethanol. Buying sprees are probably inevitable.

3. Batteries. Most people agree that the next iteration of the car will not necessarily rely on any one technology (as in gasoline) to power it. There is no silver bullet. One possible exception here is advanced batteries. Each of the fueling sources are enhanced through effective 'range extension devices' (as burdensome a way of saying batteries as can be though of.) Applicability of lithium-ion, advanced lead acid, and other TBD battery technologies will most likely have near universal applicability. Some companies to consider: A123 Systems, EnerDel, Firefly, and Mobius Power (maybe...)

4. Hydrogen: I'm certainly no big fan of hydrogen. But, like it or not, investment $$$ still heads in this direction. It's not likely that this stream of money will expand greatly in the near term (given other priorities), but it will continue.