A Budding Investment Opportunity

By Michael Shulman

Bottom line: Corn-based ethanol will still be around, but projecting its growth and success -- thanks to idiotic federal mandates, which should be lessened or removed -- is problematic. Common sense, on the other hand, tells us that biomass-based ethanol is where the future of ethanol lies. And while we're not there today, it must come in the not-too-distant future -- maybe two years or a little more.

Biomass-Based Ethanol

The industry has created its own lingo. Corn and other simple-sugar-based ethanol are called "first generation." This is a reasonably well-understood term and a well-deployed technology.

Second-generation ethanol is made from cellulosic biomass like grasses, corn stalks, etc., through the use of catalysts and enzymes. It's the wave we are just entering -- pilot plants are being built -- and it should last for a long time.

Third-generation ethanol biofuels are not currently seen as substitutes for gasoline. They replace crude oil, diesel or similar non-gasoline feedstocks, and/or would be alcohol based.

Alcohol-based biofuels are not a short-term solution because it would cost too much and take too much work for car companies to make the changes for what is only a potentially small market.

Bottom line: Second-generation biofuels are a wave that is just building. I firmly believe that our next president is going to increase spending, in one fashion or another, on biomass-based ethanol. And there may be a good way to invest in it.

The best area to focus on when it comes to biomass biofuel investing is the suppliers of the enzymes and other catalysts that are required to make biomass-based ethanol.

Michael Shulman is Editor of ChangeWave Biotech Investor.