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The topic of skyrocketing food prices has become front-page news all around the world. Although several items have contributed to the meteoric rise in the prices of various grains, rice, and corn, the current U.S. policy on corn-based ethanol is considered to be one of the main culprits. The imbalance of supply and demand for corn as a result of its use in making ethanol has contributed to a surge in inflation in many farm and agricultural areas; meat, dairy products and bread prices have all moved up considerably. Additionally, given the acute nature of the problem, the U.S. energy policy and its support of corn ethanol is now coming under criticism, since 20 pounds of corn (enough to feed a lot of hungry people) is required to produce just one gallon of ethanol.

So what is the solution?

Several solutions exist, but the most immediate, and certainly the most promising, comes in the form of cellulosic ethanol. Cellulosic ethanol is fuel produced from the structural material in plants called lignocellulose. While typical forms of cellulose-to-ethanol processes focus on switchgrass and woodchips, a small, early-stage company called BlueFire Ethanol (OTCPK:BFRE) claims to be able to convert municipal solid waste (otherwise known as garbage) into ethanol.

The company has a patented process to break down the cellulose and convert it into sugars, which are then fermented into fuel. The company had a facility up and running for four years in Japan and is currently in the early construction stages for their first plant in the U.S., which will be located in Lancaster, CA and should produce 3.4 million gallons per year of cellulosic ethanol by mid 2009.

The U.S. Department of Energy has taken notice of BlueFire, as well. Last year, the DOE awarded them both a grant and a loan guarantee – plans to build a second facility are also in the works. GM (NYSE:GM) has also made several investments in cellulosic companies, however, only BlueFire can produce ethanol using a process called concentrated acid hydrolosis. This process is thought to be the most efficient and cost-effective.

Although it would be irresponsible to suggest that BlueFire is either an investment or take-out target of a major energy player, one could certainly see the company gaining some strong PR momentum in the months ahead as the food shortage continues to dominate headlines and lawmakers and industry experts seek potential solutions.

Disclosure: Author has a long position in BFRE.OB

Source: BlueFire Ethanol: A Solution to the Food vs. Fuel Problem