How to beat the high cost of gasoline. Forever.
Ethanol is the answer to the energy dilemma. It's clean and green and runs in today's cars.
By Adam Lashinsky, FORTUNE senior writer


SAN FRANCISCO (FORTUNE) - General Motors will take the occasion of the Winter Olympics in Italy to begin telling Americans about a topic that has nothing to do with skiing or bobsledding. Believe it or not, the once-great automaker will stake its position as a friend of the environment and as a promoter of ethanol, specifically a blend of 85 percent ethanol and 15 percent gasoline called E85.

One could question GM's timing on a lot of things. Pay attention to the message though. GM (Research) is onto something really big, namely how we as a country can finally begin weaning ourselves off gasoline.

Sure, ethanol calls to mind images of Jimmy Carter in a cardigan. But things have changed since the 1970s, when an oil-shocked president turned to agribusiness to create a homegrown alternative to gasoline. Instead of coming exclusively from corn or sugar cane as it has up to now, thanks to biotech breakthroughs, the fuel can be made out of everything from prairie switchgrass and wood chips to corn husks and other agricultural waste.

This biomass-derived fuel is known as cellulosic ethanol. Whatever the source, burning ethanol instead of gasoline reduces carbon emissions by more than 80 percent while eliminating entirely the release of acid-rain-causing sulfur dioxide. Even the cautious Department of Energy predicts that ethanol could put a 30 percent dent in America's gasoline consumption by 2030.

We may not have to wait that long. After decades of being merely an additive to gasoline, ethanol suddenly looks to be the stuff of a fuel revolution -- and a pipe dream for futurists. An unlikely alliance of venture capitalists, Wall Streeters, automakers, environmentalists, farmers and politicians is doing more than just talk about ethanol's potential. They're putting real money into biorefineries, car engines that switch effortlessly between gasoline and biofuels, and R&D to churn out ethanol more cheaply. (By the way, the reason motorists don't know about the five-million-plus ethanol-ready cars and trucks on the road is that until now Detroit never felt the need to tell them. Automakers quietly added the flex-fuel feature to get a break from fuel-economy standards.)

What's more, powerful political lobbies in Washington that never used to concern themselves with botanical affairs are suddenly focusing on ethanol. "Energy dependence is America's economic, environmental and security Achilles' heel," says Nathanael Greene of the Natural Resources Defense Council, a mainstream environmental group.

National-security hawks agree. Says former CIA chief James Woolsey: "We've got a coalition of tree huggers, do-gooders, sodbusters, hawks and evangelicals." (Yes, he did say "evangelicals" -- some have found common ground with greens in the notion of environmental stewardship.)

The next five years could see ethanol go from a mere sliver of the fuel pie to a major energy solution in a world where the cost of relying on a finite supply of oil is way too high. As that happens, says Vinod Khosla, a Silicon Valley venture capitalist who has become one of the nation's most influential ethanol advocates, "I'm absolutely convinced that without putting any more land under agriculture and without changing our food production, we can introduce enough ethanol in the U.S. to replace the majority of our petroleum use in cars and light trucks."

Ethanol has already transformed one major economy: In Brazil nearly three-quarters of new cars can burn either ethanol or gasoline, whichever happens to be cheaper at the pump, and the nation has weaned itself off imported oil. Not only does Brazil no longer have to import oil but an estimated $69 billion that would have gone to the Middle East or elsewhere has stayed in the country and is revitalizing once-depressed rural areas. More than 250 mills have sprouted in southeastern Brazil, and another 50 are under construction, at a cost of about $100 million each.

So the question is, can something similar happen in the United States? For the first time, the answer seems to be yes, if only because so many factors are going right simultaneously. High oil prices, low corn prices, and a shooting war in the Middle East (as opposed to merely saber-rattling embargoes) all have given new momentum to the biofuels moment. Government mandates have helped too.

What it really comes down to, however, are attitudes. This is true at big companies and even among oil-industry thinkers who don't even think we're running out of oil. Says Beth Lowry, GM's vice president for energy and environment: "People's perception used to be 'The agricultural lobby is very interested in it.' Now people are waking up and saying, 'This isn't just about the Midwest. This is about the U.S. as a whole.'"

Adds Daniel Yergin, one of the country's top energy experts: "I don't think I've seen so many kinds of renewable energy fermenting and bubbling as right now. The very definition of oil is broadening."

To read the full article from FORTUNE Magazine, click hereTop of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.