This past week offered a perfect synopsis of the continuing debate over whether ethanol or biodiesel is the preferred biofuel of the future. Determining which fuel is better, though, is about as helpful as determining whether running or swimming is the healthier exercise option -- since both, of course, are beneficial. Both ethanol and biodiesel will reduce our reliance on traditional fossil fuels and will help cut down on harmful emissions. So how do they differ, and what really are the benefits of each?
First, the week in review. On Tuesday, ConocoPhillips (NYSE: COP ) tipped its hand in favor of biodiesel when it announced that it intended to begin manufacturing biodiesel from the 300 million gallons of animal fat that Tyson Foods (NYSE: TSN ) produces every year. The very next day, however, VeraSun (NYSE: VSE ) , the country's second-largest ethanol producer, scored a victory for ethanol when it said it will be building a new 110 million-gallon ethanol biorefinery in Indiana. Meanwhile, some companies, including heavy hitter Archer Daniels Midland (NYSE: ADM ) , are placing strategic bets on both biodiesel and ethanol.
Stacking them up
Let's briefly describe the two fuels, to help us understand what we're dealing with and what the debate is all about. In it simplest form, ethanol is an alcohol product produced from corn, wheat, sugar cane, and biomass and used as an additive in gasoline to increase its octane level. Biodiesel, on the other hand, is derived from natural oils such as soybean oil or animal fats.
So which is better? For starters, most leading experts now agree that both ethanol and biodiesel have a net positive impact on the environment. And they each have different strengths. However, that by no means suggests that they're equal.
According to a study published last summer in the peer-reviewed Proceedings of the National Academy of Sciences, the environmental benefits of biodiesel are substantially greater than those of ethanol. According to the report, biodiesel provides 93% more net energy per gallon than is required for its production, while ethanol generates only 25% more net energy. The study further suggested that biodiesel, when compared with gasoline, reduced greenhouse emissions by 41%, while ethanol yielded only a 12% reduction. From these viewpoints, it would appear that biodiesel is the clear winner.
If only it were that easy. From a land-use and agricultural-efficiency perspective, ethanol appears to be the better choice. That's because an estimated 420 gallons of ethanol can be produced per acre of corn versus only 60 gallons of biodiesel per acre of soybeans. In more practical terms, this means that if the production of biodiesel were ever to increase greatly, the cost of soybean oil would rise significantly.
An uncomfortable truth
In spite of all the political and media attention that biofuels have gotten recently, the sad truth is that even if all of the corn and soybean production in America were dedicated to their production, the country would replace only 12% of gasoline consumption and meet a mere 6% of diesel demand.
So in the race to curb our "caloric intake" on fossil fuels, neither running nor swimming will get us anywhere near the finish line. To meet President Bush's goal of producing 35 billion gallons of alternative fuel by 2017, America will need to develop other options.
To this end, DuPont (NYSE: DD ) and BP (NYSE: BP ) are now pursuing the production of biobutanol -- an alcohol that can be manufactured from sugar beets. But unlike other biofuels, butanol possesses some unique characteristics. For instance, it can be blended with gasoline at higher concentrations and it has the extra added benefit of being able to be distributed via the gasoline industry's existing infrastructure, whereas ethanol can be shipped only by truck or train.
Yet another option is cellulosic ethanol. The U.S government has recently committed almost $400 million into the research and development of this type of ethanol, which is produced from a variety of biomass, including switchgrass, wood, and even waste. Among the companies receiving funding in this area are BlueFire Ethanol, Iogen -- of which Goldman Sachs (NYSE: GS ) is a major investor -- and Range Fuels.
What's so exciting about cellulosic ethanol is that it has the potential to offer a very high net-energy impact. It can also be produced from feedstocks that use little to no fertilizer. These sources are abundant and aren't major sources of food -- and thus won't drive up food prices as we've seen as of late with corn prices. As an added benefit, it's believed that as the technology improves, the amount of ethanol produced per acre can increase significantly. Some experts have estimated that the figure could reach as high as 2,700 gallons per acre by 2030.
In short, cellulosic ethanol may very well have the environmental benefits of biodiesel and the agricultural efficiency of corn ethanol, but it can also potentially bring additional benefits to the table.
Foolish final word
The race to reduce our reliance on fossil fuels won't be won with a single alternative fuel. It will require a combination of ethanol, biodiesel, butanol, cellulosic ethanol, and perhaps some yet-to-be-developed alternative fuel. Therefore, to compete effectively, it may be necessary to be not only a triathlete who can run, swim, and bike, but also a decathlete who can do all of those things plus many more.
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The only thing Fool contributor Jack Uldrich is currently debating is whether to run a marathon this fall, but he fears he doesn't have the energy. He does not own stock in any of the companies mentioned in this article. The Fool has a strict disclosure policy.