New technology crucial to lift biofuels potential

By Anna Mudeva

AMSTERDAM (Reuters) - Developing new technologies to make biofuels cheaper, cleaner and reduce competition with food production is crucial in turning the "green" fuels into a viable alternative to crude oil.

Industry experts and officials told the Reuters Global Biofuels Summit that new biofuels made from non-food crops had the potential to help reduce the world's oil dependence but still needed to overcome substantial technological challenges.

Political worries about climate change, energy security and soaring crude oil prices have triggered a global race to produce biodiesel and ethanol from sugars, grains and edible oils.

To increase use, governments in Europe, Asia and the United States are offering tax incentives and bringing rules that force oil retailers to include biofuels in the motor fuel they sell.

But the first-generation biofuels cost more than their mineral rivals and compete with food producers for raw materials and land, which have sharply raised prices of grains and vegetable oils.

"We have to ... bring second generation biofuels onstream as quickly as we can," EU Commission agriculture spokesman Michael Mann said.

"The first generation has not been quite competitive with the traditional fossil fuels," he added. "With the second generation, biofuels will be more cost efficient and allow us to produce from a wide range of sources".

The International Energy Agency said recently that a shortage of arable land in the future will constrain the present global boom in biofuels and forecast that the "green" fuels will only play a bigger role when new technology enters the game.

Biofuels accounted for only about 1 percent of global road-transport fuel consumption in 2005.

The European Union, which wants biofuels to make up 10 percent of its motor fuels usage by 2020, plans to dedicate about one billion euros a year to renewable energy research, including new biofuels technologies in coming years.

The U.S., a leading corn-based ethanol producer, is focusing on development of ethanol from cellulose, found in woody shrubs, grasses and crop stalks. The industry will receive a boost next week when President George W. Bush is expected to call for a massive increase in U.S. ethanol usage.

INVESTMENT PILING UP

Venture capitalists and oil majors, who have been absent from biofuels production so far, also bet on the new technology and have lined up projects to explore the possibilities of biomass-to-liquid and cellulose ethanol production.

"We think in the end these cellulose technologies will be cheaper than corn-based technologies, or the same cost, and will compete directly with oil very, very effectively," said Vinod Khosla, a leading Silicon Valley venture capitalist.

He forecast that the cost of producing a new ethanol made from crop wastes, hardy grasses and fast-growing trees would sink below $1 a gallon in 10 years as output rose.