Tuesday, January 15, 2008

Will That Be Unleaded, Diesel or Bacterial?

From the WSJ's Deal Journal blog:

Investors may have been about as bullish on troubled General Motors this past year as they have been on, say, bacteria. Now they don’t have to choose: GM has made an investment in Coskata, which will produce ethanol out of the waste products from certain strains of that icky stuff.

For GM, the benefit is clear: the auto maker wants to get about half of its models ready to use ethanol by 2012. Ethanol helps reduce 85% of the carbon emissions you might get from engines burning gasoline alone. And federal legislation enacted in December mandates that U.S. producers crank out one billion gallons of the kind of ethanol Coskata produces by 2012.

What seems like a good move for GM, however, is bad news for some other big names, starting perhaps with Bill Gates and Sir Richard Branson. So where might these giants of industry go wrong in their ethanol investments? Branson said last year he wanted his company, Virgin, to spend around $400 million to produce ethanol mostly made from corn. And Gates’s private-equity firm, Cascade Investment, bought $84 million of convertible bonds in Pacific Ethanol, which has built its business mostly on deriving ethanol from corn. The investments look like smart ones: Federal rules require four billion gallons of ethanol – any old kind of ethanol – to be blended with gasoline every year. There also is a nice fat ethanol tax credit of 51 cents a gallon....MORE