AUGUST 2009

Federal law demands more ethanol – not from corn

The federal government’s timetable for cellulosic ethanol calls for more than 15,900 percent increase in production by 2022.

—Obermueller

“While environmentalists are focusing on cut backs in greenhouse emissions, investors need to keep an eye on these federally mandated increases,” said Andy Obermueller, chief investment strategist for Government-Driven Investing.

Investors tend to dismiss ethanol because they think they’ve heard the story. They focus on corn-based ethanol. Obermueller says that’s a mistake. He advises investors to focus instead on cellulosic ethanol, an advanced biofuel derived from an organic compound found in all plant life.

They need look no further than existing energy law.

“Most investors look for stocks in the Wall Street Journal,” Obermueller said. “I look in the Federal Register.”

As an example, Obermueller cites the 2007 Energy Security and Independence Act. It calls for 100 million gallons of cellulosic ethanol in 2010 and 16 billion gallons by 2022, an over 15,900 percent increase.

Obermueller thinks companies that own significant cellulosic ethanol technology will see similar gains in their stock prices. There aren’t many.

“Lots of companies have a stake in traditional corn-based ethanol,” Obermueller said. “But there’s only one pure-play in cellulose and that’s Verenium.” The company developed the enzymes that can turn cellulose into ethanol.

In 1995, Verenium was granted a license to commercialize cellulosic ethanol technology that had been developed at the University of Florida and other academic institutions. It’s been hard at work ever since, spending millions of dollars to hone the process. It also has built two demonstration-scale plants in the United States and a third in Japan.