Are alternative fuels reliving the 1980s?

To meet RFS requirements, investors must pour billions into cellulosic ethanol plants. How eager they will be to do so is a question. Today, about 30 cellulosic projects are in various stages of development nationwide. Investors are wary. Among six large DOE-sponsored projects, two big investors have recently pulled out.

The Energy Department’s target is to bring cellulosic ethanol costs down to about $1 per gallon so it can compete with corn ethanol. That’s the equivalent of $40 to $50 a barrel – a rough target for venture capitalists, too.

At a recent conference on algae-based biofuels, a noted venture capitalist set $50 a barrel for oil as the base line his investments must beat, says Nathanael Greene, senior biofuels policy analyst for the Natural Resources Defense Council, who attended the conference.

When the RFS was put in place, cellulosic ethanol investors thought $70 to $80 per barrel was the price threshold at which to jump in, says Paul Winters, a spokesman for the Bio­tech­nology Industry Organization (BIO), which represents cellulosic ethanol producers. “Now that those investors have jumped in and oil prices are falling, they’re not sure what the base number is going to be.”

With such uncertainty, federal loan guarantees will be critical, a spokesman for a major cellulosic ethanol producer wrote in response to a BIO survey.

“With the collapse of the credit markets, access to capital has become and will likely remain much more difficult to access,” the spokesman wrote in an e-mail shared by Mr. Winters. “The high price of oil has been a trigger for the current melt-down that we are facing by sucking a lot of oxygen out of the US economy.”

Gas-sipping cars may be vulnerable

Fuel-efficient vehicle technology also looks acutely vulnerable to falling oil prices. Cash-strapped auto giant General Motors last week announced it was suspending new product development efforts, including several hybrid models.

But GM will continue developing the plug-in hybrid Chevrolet Volt, which could go 40 miles on one charge. Energy security experts say such capability is vital since it would replace imported oil with power from the electrical grid derived from coal, natural gas, wind, and other domestically derived sources.

But will GM stay with the Volt if oil prices drop further? Will consumers pay $40,000 for it if gas is $2.50 per gallon?

“With the economy in the dumps and gas prices coming down, people right now are thinking ‘I’ll hold onto my car and drive it less ... rather than moving to a more fuel-efficient
car,’ ” says Bradley Berman, editor and founder of Hybridcars­.com, a website that focuses on hybrid vehicle trends.

For the US auto industry, recession may be a greater threat than cheap gas.

“Interest in hybrids is not anymore at the fever pitch with long lines, but it remains solid,” Mr. Berman says. “A lot of people still want higher fuel economy just to save money.”

The big question, he says, is what happens when the economy strengthens and people start buying cars again. Will they buy fuel-efficient vehicles – and will Detroit offer them in volume?

“There’s going to be plenty of demand to absorb the initial ability of car companies to produce these new fuel-efficient vehicles,” says Reid Detchon, executive director of the Energy Future Coalition, a coalition of energy security experts and environmental groups who favor a shift to 25 percent renewable energy by 2025.

“If gas prices do go under $2 a gallon, well, there would be less excitement about plug-in hybrids,” Mr. Detchon admits. “But there’s really a lot less concern about gas prices these days – and a lot more about US energy security. That’s a big difference from the 1980s. So I think that detaching the US from dependence on Middle Eastern oil will continue to be a concern that will drive policy.”

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