VentureBeat

Drawing a sharp contrast with his Democratic rival, John McCain today assailed government subsidies for ethanol production and unveiled a set of proposals aimed at encouraging the development and mass adoption of electric vehicle technologies.

McCain would provide a $5,000 tax credit to consumers who buy zero-emissions vehicles and proportionately smaller tax credits for low-emissions vehicles, like hybrids. In addition, he said he would award a $300 million bounty for a car battery that can “leapfrog” existing technologies.

Turning to biofuel production, he said the federal government should eliminate subsidies for domestic corn-based ethanol and the tariffs placed on Brazilian sugarcane-based ethanol to level the playing field. Obama, who has surrounded himself with advisers with ties to the ethanol industry, supports the continuation of government subsidies and tariffs, arguing that both are necessary to help the U.S. become energy independent.

According to energy experts, sugarcane is a much more efficient source of ethanol. Not only does it create more than 8 units of energy for every unit used to produce it — corn ethanol, by contrast, creates less than 2 units for 1 unit of production — it is also grown in tropical countries where land prices are much cheaper. Like corn ethanol, however, it has also received its fair share of criticism for contributing to deforestation in the Amazon.

Obama is also a strong advocate of second generation biofuels, like cellulosic ethanol, and wants to invest $150 billion in clean energy R&D to develop advanced biofuels and other low-emissions technologies — including, presumably, electric cars. McCain’s energy plan is not nearly as ambitious in its scope and, unlike Obama’s, would not provide tax incentives for renewable energy.

While they may be more desirable than hybrids, electric cars are still much too expensive for most consumers and will likely remain so for a few years (we all wish we could afford Teslas). Also, the fact that most electric cars have a shorter range and low top speed could detract from their appeal. For now, plug-in hybrids seem like the more promising option, with major automakers like GM and Toyota set to roll out their own models within the next 2 years and firms like V2Green, Epyon and Delphi developing technologies to improve their performance.

And though corn ethanol is on its way to becoming universally loathed, in large part due to accusations that it raises food prices, the ethanol industry will continue to expand thanks to the raft of subsidies enacted by the 2008 farm bill and rising demand for flex-fuel vehicles.

Cellulosic ethanol and other second generation biofuels, which are being developed by a rapidly growing field of well-capitalized start-ups (Coskata, Range Fuels and Mascoma, to name a few), probably won’t become major players until a few years from now and, even then, likely won’t account for a significant share of the energy market.

With oil past $120 a barrel and possibly headed to $200, cellulosic ethanol companies are looking like a smarter investment choice every day. Following the increase of Range Fuels’ second funding to $166 million, its competitor Mascoma has pulled the wraps off an $81 million funding of its own, with $10 million coming a major oil and gas producer, Marathon Oil Corporation.

Range, Mascoma, Coskata and others are all racing to raise huge amounts in an attempt to bring the world’s first full-scale cellulosic plant online. The stakes are high: If the process proves to be cheap enough, investors will be eager to pour money into new plants. On the other hand, waiting to see if competitors fail won’t be particularly helpful — each company has its own proprietary process.

Mascoma will begin production this year at a demonstration plant in Rome, New York, but is also planning facilities in Michigan and Tennessee. By comparison, its two largest competitors will build a single, big plant each, a bet that could presumably result in a more spectacular success, or failure.

Backing each company is a network of high-profile investors, some of whom overlap. General Motors has investments in both Coskata and Mascoma. Morgan Stanley is with Range Fuels, which also counts Khosla Ventures as an investor — and Khosla has invested in Mascoma, as well. Taking venture fundings and government grants together, Range Fuels is the most heavily funded, Mascoma coming second with just over $200 million now, and Coskata third.

It’s possibility none of the three emerge with a competitively priced product — something that also hinges on whether oil prices continue to climb, or fall back to somewhat saner levels. If all three find their methods too expensive, there is still a constellation of smaller cellulosic startups waiting for their own turn in the spotlight, like Zeachem.

Other investors in the round included Khosla, Flagship Ventures, Atlas Ventures, General Catalyst Partners, Kleiner Perkins Caufield & Byers, Pinnacle Ventures and Vantage Point Venture Partners. Out of the total amount, $20 million was venture debt provided by Pinnacle.

No other energy crop has been as closely associated with second generation biofuels as switchgrass. The subject of much fawning coverage in the popular press — though it has yet to be successfully converted into cellulosic ethanol — switchgrass will soon have the chance to provide its renewably energy bonafides in Oklahoma.

The Oklahoma Bioenergy Center (OBC), a partnership between Oklahoma University, Oklahoma State University and the Samuel Roberts Noble Foundation of Ardmore, will plant the world’s first production-scale switchgrass demonstration field near Guymon within the next 45 days. The Center also plans on planting production-scale fields for sorghum, another cellulosic energy crop.

Switchgrass is a perennial, or year-long, grass that can be grown on marginal lands and that is naturally drought-resistant; it is also a self-seeding crop, which means it doesn’t need to be re-seeded or planted after being harvested, and requires little to no fertilizer. Most importantly, it won’t produce the backlash that other crops, such as corn and soybeans, have done by displacing valuable agrarian land.

Initial tests conducted by the Department of Energy have demonstrated that its energy output is 20 times better than that of corn. It also found that a metric ton of switchgrass could produce the equivalent of 100 gallons of ethanol. Research done by scientists at Auburn University largely corroborated the DOE’s results, showing that an acre of switchgrass could yield up to 1,500 gallons of ethanol every year. The crop was highlighted for its alternative energy potential in President George W. Bush’s 2006 State of the Union address.

The demonstration fields will allow companies and scientists to experiment with new production and harvesting techniques and to compare switchgrass’ properties as a renewable fuel to those of feedstock biofuels. Officials from the OBC hope the findings from this experiment directly carry over into commercial-scale production of the energy crop.

Abengoa Bioenergy, a Spanish renewable fuels company, will use switchgrass from these fields in its Hugoton, Kansas, biorefinery, which is expected to be up and running in 2010. Companies like Mascoma, Range Fuels and Coskata have been capitalizing on the enthusiasm for cellulosic ethanol, raising record sums and forming partnerships with some industry heavyweights, like GM.

Another hardy energy crop that has been making waves is jatropha, a wild plant whose seeds are being used by several countries in Asia, including the Philippines and India, and Africa to produce biodiesel. It’s not hard to see why: Like switchgrass, the plant is drought-resistant, requires little fertilizer and can be grown practically anywhere — in deserts, on rock piles and even on trash. Its seeds, which contain up to 40% oil, are crushed and processed to produce the biodiesel; the residue can be processed into a form of biomass suitable to power electricity plants.

Seed yield estimates range from 1,500 to 2,000 kilograms per hectare — the equivalent of 540 to 680 liters of extractable oil per hectare. A recent Goldman Sachs analysis cited the crop as one of the most promising candidates for future biodiesel production. Last June BP announced it would invest $90 million in a joint venture with D1 Oils, a British firm, that specializes in jatropha.

Some questions still remain about jatropha’s viability as a long-term source of biodiesel, however: Because none of the jatropha species have yet been successfully domesticated, their oil output tends to be very unpredictable and — more often than not — much lower than expected. And even though it can be grown without water, it typically does much better with it — potentially negating some of its cost benefits. The worry among some analysts and academics is that farms could lose a bundle on jatropha plantations if their crop yields turn out flat.

Furthermore, jatropha takes about 3 years to grow and, in countries like India, where land is scarce, has been difficult to find — even on marginal lands, which are typically inaccessible by vehicle and, therefore, unable to support commercial-scale production facilities. And, while not necessarily relevant to its production capacity, jatropha’s seeds and leaves are poisonous to humans. Australia’s government banned it in 2006, citing its health risks and invasive nature.

In spite of this, jatropha growth is expected to remain strong as more farmers in developing countries convert otherwise unusable land to plantation fields — a trend that is likely to persist as global food prices, fueled in part by the biofuel boom, continue their rise. Oklahoma’s switchgrass demonstration should help businesses and local governments determine whether their investments in cellulosic energy will be worth it.

Mascoma, an East Coast biofuel startup with a multi-pronged approach to commercializing cellulosic ethanol, has just become one of the most heavily funded companies of its kind with a $50 million funding reported by peHUB.

Based in Cambridge, Mass., Mascoma is in the process of building several demonstration-scale ethanol plants in three other states: Michigan, New York and Tennessee. It’s partnered with a variety of different corporations and universities at each location.

What that boils down to is hedging its bets — by experimenting with several different feedstocks and processes, Mascoma is making itself more likely to hit the jackpot, a cost-effective cellulosic ethanol facility. The feedstocks it’s using include wood, switchgrass, and in New York, mixed materials like paper sludge and corn stover.

The $50 million funding was broken into a $30 million venture round and $20 million in debt. Participating were one new investor, General Catalyst Partners, and previous investors Khosla Ventures, Atlas Venture, Flagship Ventures, Kleiner Perkins Caufield & Byers, Pinnacle Ventures and VantagePoint Venture Partners. Including various government grants, the company has taken just over $100 million to date.

Mascoma, a Cambridge, Mass. start-up that is trying to become the first commercial developer of cellulosic ethanol — something some environmentalists see as the most promising prospect for alternative, anti-global warming fuel — has won $14.8 million more in financing.

This comes after the company raised $30 million in fresh funding last month from Silicon Valley venture firm Kleiner Perkins and others.

The latest award, given by New York State Department of Agriculture and Markets and the New York State Energy Research and Development Authority, is for Mascoma to build a $20 million cellulosic ethanol plant in Rochester, New York. The plant will be the first commercial cellulosic ethanol plant in the U.S. to produce ethanol from wood-based biomass.

We wrote previously about the company here.

Mascoma, a start-up that is trying to become the first commercial developer of cellulosic ethanol — something some environmentalists see as the Shangri La of alternative fuel — will announce tomorrow it has raised $30 million more in venture funding.

Funding for the Cambridge, Mass. company was led by General Catalyst Partners, and included Kleiner Perkins Caufield & Byers, Vantage Point Venture Partners, Atlas Venture, and Pinnacle Ventures. Existing investors Khosla Ventures and Flagship Ventures participated.

Khsola Ventures’ Vinod Khosla and Kleiner’s John Doerr between them spent millions to support the Calif. Prop. 87 “oil tax,” which would have funded alternative energy research. It was defeated last week, so this funding suggests they remain undeterred.

Currently, ethanol is made from corn, and is relatively expensive to produce, and remains more expensive than gasoline. But scientists say ethanol can be made much more cheaply by breaking down and converting cellulosic material (grass, wood, agricultural and forestry wastes) into ethanol. Several efforts have experimented with cellulosic production but none have become commercial ventures yet — and experts say it will be a couple of years yet before cellulosic production is ready for primetime. Once ready, it may be blended with, or even displace gasoline entirely.