I'll be the first to admit it. Biofuels, for the most part, represent an industry heavily motivated and run by special interests and Midwest politicians.

Let's face it, if you really wanted to decrease oil consumption, you could do most of it with more efficient vehicles, hybrids and Plug-In Hybrid Electric Vehicles (PHEVs).

In fact, according to the Set America Free Coalition (organized by the Institute for the Analysis of Global Security), if all cars on the road are hybrids, and half are PHEVs by 2025, U.S. oil imports would be reduced by 8 million barrels per day.

That's roughly 80 percent of our total oil imports!

Nonetheless, the movers and shakers on the Hill want biofuels. So that's exactly what we're going to get. The question is how long will it take to move us from the highly-inefficient corn-based ethanol to something that'll at least pose less of a threat to food crops and water supplies?

Certainly we know that sugar-based ethanol, like that which dominates Brazil's transportation infrastructure is more efficient than corn-based ethanol, simply because the feedstock is better.

With corn, the conversion process involves the application of enzymes, whereas sugar only requires a fermentation process. And overall, the energy requirement for converting sugar is about half that compared to corn.

So it's no surprise that we're now seeing ethanol advocates (those interested more in the business and investment opportunity instead of a campaign contribution), salivating over the possibility of gaining access to Cuba's robust sugar crops.

The Potential of Cuban Ethanol

Apparently, while Fidel Castro is not a fan of ethanol, claiming it punishes the poor by driving up food prices (an argument that's often shared by those who seek to profit from ethanol's "less-than-impressive" performance on Wall Street), his brother Raul is a fan. And this guy's taking over the reigns.

If Cuba decides to invest in the country's sugar industry, it could provide serious profits for those on the receiving end of that sugary sweet crop, as the country has the potential to make 3.2 billion gallons a year.

This would make Cuba the world's third largest producer.

Still, it's anybody's guess how this will turn out. And even if Cuba becomes the next big ethanol player, it doesn't change the fact that ethanol is not going to provide much more than about a 10% displacement once the Renewable Fuel Standard in the U.S. is met.

Don't get me wrong. We'll still play any angle that'll make us a few bucks. Especially in the short-term. Certainly Sam Hopkins of Green Chip International is. In fact, his call on Brazil's second largest sugar producer, Cosan (NYSE:CZZ) has put our readers up about 33% so far.

The State of Ethanol in the U.S.

But none of this changes the fact that here in the U.S., nearly all of our ethanol is still coming from corn.

Sure, there seems to be a lot more money getting funneled into cellulosic research these days. And companies that are developing specialty enzymes and pretreatment processes for the production of cellulosic ethanol stand to make a boatload as we get closer and closer to commercial production.

But we're not there yet.

In the meantime, we're now hearing about the possibility of a $3 billion pipeline that could ship ethanol to the East Coast from the Midwest.

In order for this to happen, there needs to be a feasibility study, loan guarantees from the federal government, and research into fixing the technical issues involved with putting ethanol in a pipeline to begin with.

If everything goes through, it would take about three to four years to get into operation. Certainly we hope there will be some cellulosic ethanol available to push through this pipeline. That would make it worthwhile. But right now, in 2008, we're not seeing much more than the same old bureaucratic rhetoric.

Regarding the pipeline, Senator Tom Harkin (Chairman of the Senate Agriculture Committee, interestingly enough) said that having a dedicated ethanol pipeline running from the Midwest to the Eastern markets would help bridge the gap between the Midwest and the east, aiding America's energy security.

You know what else would aid America's energy security?

A vehicle that ran on something other than gas!

Because even with E85, you still need it.

A PHEV however, can easily deliver an all-electric range of 30 miles. And that's the perfect range, since the average U.S. commuter drives 29 miles per day or less (according to the Bureau of Transportation Statistics).

That, my friends, is how you displace foreign oil. And that is why we continue to remain bullish on PHEVs.

Sure, we'll make a few bucks from the development of cellulosic ethanol. There's no doubt about that. But we're also loading up on the electric motor and high-performance battery companies that will move the next generation of hybrid and PHEVs.

Want more on these companies?

Visit Green Chip Stocks today.

To a new way of life, and a new generation of wealth...

Jeff

"Energy stocks... The only way a human is going to make any money."

-- Matt Simmons, Peak Oil's first and most vocal proponent,
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Once again some one is overhyping a product that is inefficient, more damaging and less desirable than fuels.

Yes, the average commute may be 29 miles, but that just means that 50% may be less, and 50% may be more. It also ignores the fact that people are not robots, and require entertainment, which means they will want to be able to go places (which are often more than the mere 29 miles away) for pleasure, or business.

For instance, I like being able to take a drive every now and then. With a PHEV that'd be a guaranteed breakdown as the battery power would run out long before I had any interest in returning home. So much for that pleasurable event.

"30 mile range for electric vehicle as ideal" Are you NUTS!!!
Here we go again some one who lives in sunny Florida or Calif. where everything is perfect making an ideal statement. A 30 mile EV in North Dakota wouldn't get you downtown when it is below zero. What good is a EV if you can only use it 4-months a year.
If it doesn't get at least 100 miles per charge it's not worth building....period!!!

great article jeff!

I've read a few stories that Hemp Ethanol could be very productive. Is there any truth to that?

Jeff, As soon as things settle down in Cuba it can become major supplier of ethanol to US via pipeline to Florida. A great investment opportunity if Cuba decides to adopt the China economic model...which I think it will. We need to be able to import both sugar and alcohol without penalty and stop using corn for ethanol. In meantime Brazil and others can deliver lots of cane sugar and alcohol at very attractive prices.

How does importing ethanol help us?
If it's such a great thing, how come Brazil is going full steam ahead with developing their offshore oil resources? As for Cuba, keep watching them. With the Chinese and Canadians they will be developing oil resources between Cuba and Florida. The way to cut down oil use in this country is to stop urban sprawl and develop public transportation, which can be all electric. Also, if we would open all areas to oil and gas exploration, we'd be better able to support ourselves.