For those of you who have broadband, Google Video has a presentation by Vinod Khosla, a successful venture capitalist, about ethanol. He suggests (Powerpoint, 7.3 MB) that ethanol is competitive with oil at $35 - $40/bbl and that cellulosic ethanol made from switchgrass has many desirable features. He goes on to say that switchgrass adds nutrients to the soil. In order to catalyze the uptake in use of ethanol, Khosla proposes a set of government initiatives, such as mandating that E85 (85% ethanol, 15% gasoline) pumps be offered at certain gas stations.
One of the dispiriting aspects of Khosla's talk is that he relies on the government to do the spadework on ethanol rather than entrepreneurs and the market. For instance, in addition to the E85 pump mandates mentioned above, he wants to collect $35 million to promote a California ballot initiative that would tax gasoline to the tune of $380 million a year. For another, he proposes taxing oil when it falls below $40/bbl, such that OPEC can't lower its prices to run ethanol out of business. I think Khosla's instincts are poor in this regard. Politics is fickle. The money would be better spent on more durable gains, such as researching new technologies that make ethanol a more favorable economic proposition. As people become invested in ethanol, the politics will follow. Besides, for my tastes, we already have too much economic coercion going on in our society.
A couple of months ago, I had a discussion with my mom and dad, where they argued that using ethanol would mean essentially burning our topsoil, no matter that the ethanol feedstock was switchgrass rather than corn. However, Khosla says that switchgrass enriches the soil, even though he doesn't present any backup. I always have been sympathetic to my mom and dad's view with regard to ethanol from corn, but I would like to see some facts on how the soil is impacted by growth of switchgrass on a mass scale.
In any event, Khosla also mentions an aspect of ethanol that surprised me: It takes only $40 per vehicle to convert a gasoline-only vehicle to a Flex-Fuel Vehicle (FFV) that can burn E85 or regular gasoline. The car companies probably can justify this expense on positive PR grounds alone.