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It’s time to give algae their due. While hundreds of startups have been grappling with the problem of how to squeeze fuel out of corn, grass, wood, trash and nearly anything else you can think of, quiet little algae have progressed to the point where they may well save the world alone.

One of the latest headlines is a heavily self-funded startup called Algenol Biofuels, which anticipates producing a jaw-dropping billion gallons a year of ethanol by the end of 2012. The Florida-based company just inked a deal with a new Mexican company called BioFields to build a refinery south of the border, according to Reuters. But wait a minute, you might say — ethanol?

The idea of producing ethanol from algae might seem a little odd, because thus far, only biomass producers have produced ethanol, mainly from corn and sugar. Algae produce a lot of oil, which is useful for producing biodiesel, or can be processed differently to produce gasoline, jet fuel and other products. Algae oil, however, doesn’t translate directly into ethanol.

That makes Algenol unique, to my knowledge. To make the fuel, its modified algae are enclosed in bio-reactors full of seawater and CO2, where they can churn out ethanol, which evaporates and is piped out — no further steps necessary.

Using an enclosed system isn’t quite as unusual, but it’s not the standard in algal fuel production. Most companies anticipate growing their charges on open ponds. The recent history of algae cultivation has required overcoming various hurdles in either sort of system. Algae must be protected, not only from the intrusion of other life-forms, but also from poisoning or smothering themselves with their own byproducts.

That’s a simple problem in a lab setting, but grows more intractable the larger the installation. But while outfits like Aurora BioFuels, GreenFuel and LiveFuels have grappled with the problems, a succession of bigger-and-better announcements have appeared.

Before Algenol, just a couple weeks ago, Sapphire Energy announced that it would create a “green crude” comparable to light, sweet crude (the best kind) drawn from the earth by oil companies, using only sunlight and water from agricultural runoff and other polluted sources. Another startup, Aquaflow, said it could just skim up unwanted wild algae, which it may use for jet fuel.

Separately, talk in some quarters is picking up about using algae to produce hydrogen, a process being perfected by, among others, the University of California at Berkeley in conjunction with the National Renewable Energy Laboratory.

All this raises a question of which fuel is best. Biodiesel has a higher energy content than most other fuels, but it’s not nearly as commonly used as gasoline in the US, a fact that Sapphire uses as a selling point. Ethanol, on the other hand, has a relatively low energy content and is new to transportation, meaning it requires some infrastructure changes. Yet Algenol says it will be producing the “cheapest fuel in the world”, and money is the salient point. Another commentator suggests skipping them all, and just producing methanol.

But the similarity between all these startups is that they’re just counting eggs. None of those eggs, as of yet, have hatched. So while the claims continue to get bigger, keep an eye on what’s actually growing. For some schemes, it’s bound not to be as much as they hope.

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