GM spreads bets with investment in second ethanol start-up

General Motors is opening its pocketbook to get ethanol to the pumps and into its cars.

The auto giant on Thursday announced a partnership and an undisclosed investment in cellulosic-ethanol company Mascoma. The Cambridge, Mass.-based start-up is developing a biochemical approach to converting wood chips and agricultural wastes into ethanol.

It's GM's second investment in a cellulosic ethanol company. Earlier this year, it formed a partnership and took a stake in Coskata, which will be testing its fuel at GM facilities.

For GM, the investments are part of its strategy to prime the pump for ethanol that can power its FlexFuel autos, which run on either gasoline or E85, an ethanol-gasoline blend.

There are about 14,000 E85 stations in the United States, a tiny fraction of the total, which is a problem for GM. It says there are 7 million flex-fuel vehicles in the States, 3 million of which are made by GM.

The ethanol investments are also technology hedges for GM. Coskata promises to be able to make ethanol at $1 per gallon out of a range of nonfood materials, in a process that combines gasification and a chemical reactions.

Mascoma, meanwhile, is creating specialty microbes that can break down nonfood plant matter into sugars that are fermented into ethanol. It is in the process of building a couple of ethanol demonstration facilities in New York, as it develops its next-generation technology. Mascoma is said to have raised a third venture capital round worth $50 million, and it has been granted more than $60 million in state and federal research grants.

GM Chief Executive Rick Wagoner on Thursday announced the partnership with Mascoma in San Francisco, where he touted the company's efforts to address global warming with alternative technologies.