November 19, 2007 9:00 PM PST

Biodiesel venture combines refining, genetic engineering

A genetics company and a biodiesel refiner have formed a joint venture to see if they can cut the cost of biodiesel.

Sustainable Oil is a joint venture between Green Earth Fuels, an established biodiesel manufacturer from Texas, and Targeted Growth, which specializes in creating genetically enhanced plants. Targeted Growth has created a version of camelina, a distant relative of canola, with seeds that produce about 20 percent more oil than seeds from conventional plants, according to CEO Tom Todaro. The more oil that comes out of the seeds, the more fuel that can be produced. Additionally, camelina grows on marginal land, requires little water, and isn't eaten by humans.

Sustainable Oil, planned to be formally announced Tuesday, will continue the genetic research already performed by Targeted and sign contracts with farmers to grow its "Elite Camelina" plants. These farmers, in turn, will sell their output to Green Earth. Green Earth has a 90 million-gallon-a-year plant in Houston and has plans to build similar plants in the Northeastern U.S. and California.

"We want to be vertically integrated," said Green Earth CEO Greg Bafalis. Big oil companies do the same thing by combining refinery operations with exploration in the same company, he added.

By controlling the quality and supplies of its feedstocks, Sustainable Oil, ideally, will have a more predictable and lower cost of operation. Rising prices of soybean and other agricultural oils have been cutting into the profits of biodiesel refiners. "We will be able to control the yields and stability of output," Bafalis said.

Some biodiesel feedstock oils sell for about 45 cents per pound right now, he said. But Sustainable Oil will be able to beat that through its partner farmers, Bafalis predicts.

The first trickle of oil from the genetically enhanced plants will come next year. By 2010, Sustainable Oil hopes to be able to get enough oil from its farmers to make 100 million gallons of biodiesel a year.

Most of it will be grown in Montana, which has the parched, arid land that the genetic plants love.

This is an exciting opportunity for Montana; it represents a combining of two major thrusts of economic growth," said Montana Gov. Brian Schweitzer, in a prepared statement. "It is energy related and it is value-added agriculture. Having this sort of major commitment is great news." (Schweitzer plans to appear with the companies, along with Sen. Max Baucus, in a presentation on Tuesday.)

Biodiesel is one of the more popular green fuels on the market. It results in 78.45 percent less carbon dioxide than regular diesel when all the well-to-wheel fumes are calculated, according to the Department of Energy. It can also be put into any diesel car or truck with minimal, if any, modifications. By contrast, few cars can run on high concentrations of ethanol in the United States. Right now it costs more than regular diesel--biodiesel refiners get 50 cents to $1 a gallon, depending on the feedstock used to make it--but the price is expected to go down over time.

While biodiesel has several adherents, the same can't be said for genetic engineering. Many object to so-called Frankenfoods, although proponents point out that few, if any, health problems have ever been associated with genetically modified foods.

"One of my favorite stats is that more people are killed by falling Coke machines every year than genetically modified foods," Targeted CEO Tom Todaro told CNET News.com earlier this year. "Eighty percent of the corn and soy sold worldwide has biotech inside of it. You ate a transgene at breakfast this morning if you had cereal; I guarantee it."

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