Ethanol giant POET says it can make ethanol from cellulosic sources--rather than the corn grain it's usually made from in the United States--for costs that are approaching that of corn grain ethanol. Last year, when it started a pilot plant for making ethanol from corn cobs (one of many potential cellulosic sources), it cost $4.13 to make a gallon of ethanol. Now it costs just $2.35 per gallon. In comparison, corn grain ethanol costs about $1.60 to $1.90 a gallon, a cost heavily dependent on the price of corn and natural gas. The company hopes to get costs below $2 a gallon.

That's considerably more than the $1 per gallon figure that some startups are claiming, but who knows if those estimates will pan out. The $2.35 figure from POET seems solid--it comes from a company that knows how to make large amounts of ethanol, and the figure includes all of the relevant costs: "interest, depreciation, wages, benefits, repairs, maintenance, insurance, etc.," according to a company spokesperson. It seems like a good indication that cellulosic ethanol could soon be competitive with conventional ethanol, and fossil fuels.

A number of factors have helped bring costs down, the company says.

· Chemical raw materials required in the process have been reduced, resulting in an operating cost savings of $0.20 per gallon.

· The energy used in the pretreatment process has been reduced by more than half.

· Alternative energy technology has been demonstrated to provide all of the energy for the cellulosic ethanol plant and at least 80 percent of the adjacent corn-based plant.

· Enzyme cost has been cut in half and is expected to continue to decline.

· Through continuous optimization of the process, entire unit operations have been eliminated, reducing overall capital cost by over 40 percent.