Artemisinin Cancer

male speaker: but i do wantto say, i was a tremendous skeptic of this whole concept,as i notice many of you were on [? misc, ?] until maybe about eight monthsago or so, when i talked to vinod and actuallyalso to richard branson and other folks. richard has the unfortunateissue of buying about $1 billion worth of jetfuel every year. and he feels bad about it,burning it all, of course.

and as far as he can tell, thebest way for them to actually make up for that fuel usage isto really aggressively go after production of ethanol. and i'm sure vinod will tellyou much more than i can on this subject. but i'm now much more ofa believer in this. i think it's a very importantthing to really deeply understand. and we have the world experton it here today.

[applause] vinod khosla: thanks,[? larry. ?] boy, we have a fullhouse here. i'm going to assume, and thoseof you who know something about ethanol will bear with meas i talk through some of the basics. but i'll try not to do toomuch time on basics. i will tell you upfront,not everything's ripe for that now.

but on the whole, the trade-offsare overwhelmingly in favor of that now. and i hope we can get intoit when we do q and a. and we'll try and leave enoughtime for q and a. i will move through this very,very quickly. a larger version of this,this is about 130 slide presentation, i'm not going togo through all those slides. but there's enough detail on mywebsite that anybody who's interested can go through it.

so let me start with somebasic assertions. i don't think of ethanolas an alternative fuel. i think gasoline should be thealternative fuel that meets 10%, 20% of our needs. we definitely don'tneed hydrogen. we can come back and talkabout it in my view. we don't need new car engines,designs, distribution systems. and this is the surprisingpart, hopefully i'll convince you.

in less than five years, we can,at very little cost, make an irreversible changein our trajectory. that's my goal today, withlittle cost to consumers, little cost to automakers, andno money from the government. that sounds fairlyimplausible. but hopefully, you'llbe convinced soon. so obviously you know, this isa typical gas pump in brazil. so why do i think thisimplausible thing is actually at least plausible?

brazil, in three years, withoutsubsidies, driven strictly by consumer demand,has gone from 4% percent of all new cars being flex-fuelcars to 80% last month. that's in three years. detroit here talks aboutnothing can be done in less than 15. it's the same companies. gm and vw are thebig suppliers. ford has a big presence there.

they've replaced 40% of theirpetroleum use already. we talk about doing somethingby 2040 or 2050. all of us in the technologybusiness know how ridiculous it is to forecast past aboutthree to five years. but here's the fundamentalreason. forget taxes. forget subsidies. just say, what is thecost of production? the production cost of a gallonof gasoline is about

$1.60 a gallon. the production cost of a gallonof ethanol is about $0.7 a gallon. it's actually probably under$0.70 for the more efficient producers in brazil. there are a lot ofolder plants. you add about a 25% adderto that because you get lower mileage. on a per-mile-driven basis,ethanol maybe costs $0.90 per

gallon equivalent of gasoline. it's cheaper. that's why consumersare demanding it. they won't buy cars thatprovide [? both. ?] in fact, it's gotten to thepoint where in the 10th largest car market in the world,vw, one of the largest makers, is thinking ofnot making any more gasoline-only cars. if that's happening, i think weshould be paying attention.

that's caught my attention. and unlike here, brazilianethanol has a dramatic reduction in greenhouse gases,in fact, a dramatic reduction in pollutants. and we can come back to that. and they've saved over $50billion in imports for an economy their size. imagine what we can save. wespend $250 billion a year importing oil.

hopefully you believe if theycan do it, it's at least plausible, if not possible. how do i think it's possible? here's the surprise. there's five million of thesecars in the usa today. and that number maynot mean much. but in fact, there's almost asmany flex-fuel cars here in california today on the roadsas there's diesel vehicles, almost as many, about 70% of thenumber of diesel vehicles.

and we don't haveany e85 pumps. we don't have, forthe first time, a chicken and egg problem. do we get the cars? do we get the fuel? the ethanol's there. the cars are there. we just don't have anydistribution because the oil companies won't do it.

even in the us, and this is aconservative number, ethanol costs about, most of the plansi look at have numbers like $0.90 a gallon to produce,something like $1.20 a gallon for an equivalent gallonof gasoline. and i often speak in terms ofgasoline-equivalent gallons because of the mileagedifferences. compared to any price you canimagine for gasoline, probably down to $35 a barrel forgasoline, ethanol is cheaper. this is cost to cost, nosubsidies, no taxes.

and i think we should treat themat least equally, if not give a carbon creditfor ethanol. and we have a four billiongallon a year industry that's growing about 25%a year already. so the pump is primed. and it costs an automakerabout $30 more to make a gasoline car into a flex-fuelcar capable of taking either fuel. so why ethanol?

because it's today's cars,today's liquid fuel infrastructure, thesame tankers. you can use the same tanks, inmost cases, that are in the pumps today. it leverages thecurrent trends. you can have flex-fuel cars thatare already out there. you can make it a flex-fuelhybrid. and we already have theinfrastructure. what else?

no matter what your point ofview, and this is what makes it very plausible, if you onlycare about a cheaper fuel, then ethanol is the answer. if you care about nationalsecurity, energy security, geopolitics, then ethanolis the answer. and ex-director of the cia jimwoolsey is one of the most vocal advocates of this, onlyfrom the energy security and geopolitics point of view. if you're tom daschle and onlycare about farm incomes, then

in fact this is theright answer. and they're a very powerfulpolitical group in the us. and if you're the nrdc or theunion of concerned scientists, they are in favorof this, too. so it's very rarely that yousee the automakers and the environmentalists and the farmguys and the neoconservatives all agreeing on thesame thing. i've listed everybody exceptthe oil companies. and i'll get to that.

[laughter] vinod khosla: so this is myway of getting people a little bit mad. do we want to feed mideastterrorism or midwest farmers? i think it's very clearto me which i prefer. do we want to import expensivegasoline or cheaper ethanol? and we don't import ethanoltoday, even though it's dramatically cheaper. so we have an internationallylow-priced product, oil,

competing with a domestic,protected market with a high price, and it's still cheaper. imagine if you opened it up. do we want to create more farmjobs or mideast tycoons, or fossil fuels or green fuels? and wendy schmidt came upwith one of the best slogans i like to use. let's put the fossilin fossil fuels. that's what we need.

and we'll get to. do we need anwr oil rigs orprairie grass fields? that's the choice we have. iwon't spend any time on this. but it's obvious that flex-fuelcars give you choice for almost no costand add a lot. by the way, a presentation i sawfrom gm about three weeks ago said a hybrid-- and i love hybrids too,don't get me wrong-- for about $3,000 dollars ofincremental cost may save 50

to 75 gallons of fuel a year. a flex-fuel car for $30 willsave 300 gallons of petroleum, of gasoline. now the answer'spretty obvious. you will hear a numberlike $100 extra for a flex-fuel car. they include the cost of asensor that they need to meet epa requirements anyway. but because they're lobbyingfor extra incentives in

washington to make flex-fuelcars, they like to jack up that number. i've looked at it carefully. it's $30. and if they amortize all theirone-time testing it adds another $10 to the costof a flex-fuel car. this is a chart i came up. and again, you pick your issueon the left hand side and say, i only care about the cost permile, or i only care about the

environmental costs, and sayhow does oil compare with hydrogen comparewith biofuels. and i won't spend too much timebut just say, at least, you can disagree and agree, butno matter how you do this chart, it's pretty obvious whatthe answer is, especially if your goal is to line up allthe political interests to actually make it feasible. now what's right is differentthan what's feasible. so if you agree with me so far,we went from implausible

to plausible, maybeto possible. now the question is, howdo we make it probable? to answer that, just say, whatare all the reasons it might not happen. interest groups, land use. do we have enough land? does it have the rightenergy balance? does it have the rightemission profile? and then the most importantthing, in my view, how do you

kickstart this stuff? so where do the interestgroups stack up? i've already talked aboutthe automakers. and in fact, gm has now decided,fortunately, that hybrids got associatedwith toyota. and they need their brandingto be flex-fuel. so i suspect you will see thembe very, very aggressive. in fact, they've shared their2007 model year plans with me, and they're far in excess of anyregulatory requirements.

let me just say that much. they're going to bevery aggressive. that's why they have thelivegreengoyellow.com website that they advertisedin the olympics. the agricultural interests,it's obvious, more income, less pressure on subsidies. they have this wto pressureon subsidies. they like this opportunitya lot. the environmental groups arevery supportive of this.

the oil companiesare not today. but the progressive onesare actually being aggressive about it. the most advanced research oncellulosic ethanol is being funded by shell. the ceo of bp is completelycommitted to biofuels. and he realizes that not onlydo we have a climate crisis on our hands. and for all of you, i've stoppedreferring to this as a

climate change orglobal warming. it's a climate crisis. but more importantly, the onlyplace a place like bp and shell can find oil now ismaking deals with the dictators in nigeria orthe despots in sudan. and their business risk profileis so high that the more advanced ones arestarting to look at this very seriously. and for distribution, it'sa new opportunity.

i can't imagine a betteropportunity for walmart than to put an ethanol pump inevery single walmart. not because they want tobe green, and they do. they have a green plan. but because they wanteverybody to drive their car there. it's in their interests. it's traffic. so what do i recommend?

and i'll come back to this. in fact, i'm going to skipthrough this and say, there is something in it for everybody,no matter who you are. there's something to win. and so it's time for this grandcompromise which i've been proposing. so let me go to remedies. how can we actually get fromhere to what is clearly a viable solution?

what does it take? and i call them page onerecommendations and page two. the page one recommendations,which i think get us most of the way there and willirreversibly make this trajectory happen, putus on this path, don't take any money. so what are these things? require that 70% of new carsbe flex-fuel cars. and i picked 70% for fairlytechnical reasons.

we can go more into it. b, and this is something gm isalready doing, ship a yellow gas cap to all the people who dohave flex-fuel cars so they know they have one. 99% of the people whoown such a car-- if you own a ford taurus,look in the manual. there's a reasonable chanceit's a flex-fuel car. if you own a ford f-150, youprobably own a flex-fuel car, at least certainengine models.

and i'm suggesting we actuallyprovide them incentives to cover more than their $30 cost.and gm likes this idea a lot, except they don'tlike to be required. and i'll tell you why "required"word is important. require e85 ethanoldistribution at 10% of the gas stations. that's a pretty small number. remember, each gas stationhas six to eight pumps. now i'm saying 10% of the gasstations, which means 2% to 3%

of the pumps offer ethanol. and i even go further, becausepolitically it's not acceptable to put pressure onthe really small operators. just say, if you own more than25 stations in the country, you convert 10% of them tohave at least one pump. and the last one is to legislatea "cheap oil" tax for price stabilizationpurposes. what do i mean by that? i was in dallas in january,and i gave this pitch.

and the vice chairman of alarge, national oil company came up to me and said if you dothis, we'll drop the price of oil, and all theethanol producers will go out of business. he actually had the gallto threaten me. so i came up with my nextrecommendation. it was easy. we put a price floor. if oil drops below $40 a barrel,we charge a tax such

that it stays at $40, whetherit's $35 or $40, it's somewhere in there that we needsupport against price manipulation so we don'tget manipulated. and what i propose we do, everytime price goes below that level, you use the moneyyou get collecting as a tax to build up extra oil reserves orbuy futures hedges on oil, so when price does go back high,we can stabilize the price. so it's just really a price-- i call it a contingent tax forprice stabilization only.

it's not really a tax. by the way, none of theus energy information administration forecastspredict oil getting to anywhere near thatlevel on its own. so the only reason it would getthere is because of price manipulation. what does this do? these three things, none ofwhich take very much money, except this gas pump ideafrom the oil companies.

and the number is trivial. i calculated that you could docalifornia with a few hours of exxon profits last year. you could do all of californiafor a few hours' worth of profits. they make about $100 million aday, every day, 365 days a year, in profit. so if you do these, you giveinvestors the confidence that the cars will be there.

the oil companies won't get inthe way of distribution. and i'm not requiring 90% of thepumps, 10% because that's all you need to reachcriticality. and that you won't be subjectto price manipulation. that will give wall streetenough confidence to do the rest. they will investin the plants. even with the distortions likethe import tax, i believe everything will happendespite those things. my page two recommendationsare things that will help.

if you have a new technologyfor cellulosic ethanol, and i'll get into this alittle bit more. today, most ethanol in thiscountry is produced from corn, which is not very green. it's about a 20% reductionin greenhouse gases, a moderate reduction. if you want to get to 80%,you want to make it from agriculture waste or biomass. those technologies can't getfinanced to build plants

because these typical plantsare $100 million. and you can't get wall streetfunding, project funding. it's funny, you can get therisk equity funding quite easily for these plants. but you can't get thetraditional project funding. so you prove out any newtechnology with a loan guarantee that youcan charge for. allow-- i don't know i jumped around.

so i apologize. allow imports of foreignethanol tax-free above the rfs standard. now i would like to allowimports tax-free, period. but we have mandated a standard,minimum amount of ethanol used in thiscountry in the last energy bill last year. all i'm saying is at least allowethanol imports above that minimum standard tax-free,because demand is

expected to be atthat standard. and i think that will makea huge difference. we have subsidies forall kinds of crops. there's tremendous wtopressure to get rid of those subsidies. if we are going tohave subsidies-- i'm never a fan of subsidies-- at least, let's use it forsomething that helps with the transition.

so switch those subsidiesto energy crops. the farmer cares abouthis income, not which crop he gets it from. the other thing, and this is thetypical kind of thing that creates a market distortion,ethanol has a subsidy, but the farmer doesn't get any of it. what i heard is well pastmidnight, when this was being debated in the conferencecommittee, the oil companies inserted two words into thelanguage calling this ethanol

subsidy a blender's credit. so the person who's blendingit with gasoline gets it. all $2 billion of it last yearwas collected by the oil refineries, like theyneeded more money. it's unfortunate, butthat's how the political system works. and i talked to one of thesenators' aides who was in the conference room. they said, now if it gets to1:00 am, they're still

negotiating, and oil guys arewilling to stay there. and everybody says,ok, let's agree. let's go home. it's unfortunate. i've also suggested if we can'tget rid of the ethanol subsidy, which i believe weshould, we do not need a subsidy for these plants to maketons of money today, and at any expected price for oilin the next 25 years, given the forecast. but if the farmersare going to insist on

having it, i'd rather it bea subsidy that goes to the farmer who produced the ethanolor the plant that produced it, if only tobuild more ethanol capacity in this country. so at least we have expandingcapacity if you're going to do a subsidy. it's sort of the lesserof two evils. the other thing today, theautomakers have this big issue with cafe standards, which ipersonally happen to like.

the environmentalists thinkthey should be increased. the automakers think theyshould be decreased. what everybody can agree on,even the environmentalists, is let's switch them to at leastcall them petroleum mileage, not mileage. if the automakers encourage moreethanol or renewable fuel use, whether it's throughhybrids or any other reason, and the amount of petroleumrequired to drive the average mile in the united statesgoes down, then they

get benefit of that. so you line up incentives. i'm not going to go throughall of these. this is my personal forecastof what we can do. the yellow line is demand in theus as it is growing today, which is growing about2% a year. if we do some conservationmeasures, demand can come down to 1% percent growth. that's the light blue line.

the dark blue line is the monthof ethanol i believe we can produce in this countrywithout any imports, if we just ramped up capacity at aslower rate than capacity is ramping up today. i'm assuming in that a 10%increase in capacity-- oh, i'm sorry, 20% a yearincrease in capacity. it's increasing faster than thattoday and for the last two or three years. and then it moderates down to15% and then to 10% a year.

and the purple line is thegasoline-equivalent gallons. so we can eliminate most ofour petroleum use, and definitely all of our petroleumimports, for at least cars and light trucks--and diesel is a slightly different issue. biodiesel is the way totalk about that-- in less than 25 years. people find it surprising. but there's a more detailedmodel behind this that goes

into how many acres can be putinto biomass production, how many gallons of ethanolcan we get per ton. i've talked to the best plantbiologists in the country to say how many tons canthey get per acre. so there is a sophisticatedmodel behind it. the spreadsheet for this is onmy website, so you can change your assumptions. it's in this long presentation,after the end. so the other issueis land use.

the nrdc has said we need a 114million acres, with a set of assumptions. and i'll give you a reference. the jim woolsey/george shultzestimate is 60 million acres. my estimate is about 55 millionacres, because i actually assume technology makesa difference, and we don't stay still. and then there's other sourcesof ethanol, for municipal waste, from forest thinnings,from animal waste.

i actually know somebody who'staking stuff, hog shit, and actually trying to makeethanol from it today. and by the way, 60% of theagricultural land in this country is not meantfor human food. it's for animal feed, 60%. there's far more corn in yourmeat aisle than your corn aisle, by a lot. and one other word, the lastline is direct synthesis. there's a number of people, andi don't include this in

any of my forecasts, there'ssome clever ways to use a new field called synthetic biologyto address the energy problems. now these arereally, really potent. i will only give you one exampleof what that kind of technology can give. a professor in berkeley chosea malaria drug, artemisinin, that cost about 100 timesmore than people in africa could afford. he used synthetic biologytechniques to design brand new

metabolic pathways thatdidn't exist in cells. and he used collaborating witha company we had invested in that's a synthetic genesynthesis company to produce this malaria drug. and they're stillin the process. in fact, this whole project hasgotten $42 million dollars from the gates foundation toget malaria at a price. that exact set of technologiescan be applied to the energy problem.

and i'm not in anyforecast you see. as a technology estimate, i liketo at least think about them, if not include them. so there's multipleapproaches. i'm sorry i screwed up mypresentation sequence. but there's multiple approachesto address land. you can take the approach, wecan take currently managed lands and use biomassfrom that. you can say there'sexport lands.

there's well over 130 millionacres of land that is used strictly for food exportsthat we can use to reduce oil imports. and a fraction of thatcould be sufficient. there's crop rotation schemes. many of these biomass thingsare in fact recommended as good agriculture practicebecause when you grow corn, you have topsoil loss. and you don't want that.

so these are great rotationcrops that enrich the soil with carbon. there's 40 million acres of landin this country that we pay farmers not to grow any foodon today, every single day for the last few decades. then there's dedicated intensiveenergy crops. that's the way ithink it'll go. and here's the best one. i love this one.

if you think about it, themidwestern prairies were all about feeding animals hundredsof years ago. in fact, when you grow thingslike switchgrass, that's what the animals fed on hundredsof years ago. and today, if you make cellulosefrom switchgrass, your byproduct should be allthat animal protein. so we can do both, feed all ouranimals for our food and produce fuel for our cars fromthe same land at the same time, from the sameenvironmentally great crops.

so this is just a setof recommendations. there's a doe study on this. the nrdc, this "growing energy"report i'd highly recommend to anybodywho's interested. i won't go through that. this is the conclusionof the doe report. this is the last paragraph fromabout 150-page report. it says that we have enoughbiomass without any change in agriculture practices.

that's 130 billiongallons a year. that's one year ofmiscanthus crops. and while doing that, itdoes two other things. it takes all the nutrients,puts them in the soil, not in the plant. so you don't have to replenishthe essential nutrients. it also not only puts carboninto the plant, it puts it into the soil also. so the soil is richer.

you harvest it by cuttingit off, and it grows again next year. and today, these areat between 10 to 12 tons per acre. you get two tons or threetons of corn per acre. every plant biologist i'vetalked to who's serious says we could probably approach40 to 50 tons per acre. at that level, we'd need 30 or40 million acres to feed our whole country, even withthe demand growth.

there is a reference here thatwill go into all the details of this crop, including whatyields they have today, and what would constitute a greatenergy crop, because you don't want this monoculture of oneplant covering everything, though the prairie grassesdid pretty well. i won't go through this. but the economics of this,today we need subsidies because over a 10-year costbasis, farmers actually net lose money.

that's why they havesubsidies. this actually generatesfar more income. that's the last line. and it has great fieldcharacteristics, nutrient characteristics. switchgrass is another crop,dramatically better, dramatically more biodiversity,dramatically richer soils, and again, highpotential for co-production of animal food with the fuel.

i won't go through these,but that's another. professor lee lynd at dartmouthhas done this study on producing biomass fromcurrently managed lands. and i list all these approaches,because different people like differentphilosophies. and i said, pick yourfavorite one. you can do it anyof these ways. this is sort of a fun slide. if we turned the stateof south dakota--

i think of south dakota assort of disposable-- vinod khosla: it would becomethe third-largest oil-equivalent producerin the world by itself, at very modest-- you notice i use, in fact, thisis from a company called ceres, which doesplant genetics-- at 15 tons an acre. if you get to 45, it's biggerthan saudi arabia. there's plenty of land.

i'm not going to spendany time on it. the economics workfor the farmer. biomass generates more incomeat less invested cost than either corn or wheat because ithas to work for the farmer. if you had 100 million acresunder the same set of assumptions, you'd bediscovering it'd be the equivalent of discovering onenew exxon, and all their proven reserves,every 10 years. ok, so the next question--

let's see how i'mdoing for time. i should speed upa little bit-- energy balance. corn ethanol has 1.2 to 1.8times the energy out compared to energy in. and that's not petroleum. that's fossil energy. by the way, petroleum is 0.8. so corn ethanol is about twiceas good as petroleum, because

they always forget to mentionthat petroleum doesn't produce a unit of energy out for everyunit of energy in. there's transportation. there's refining. there's all those costs. from non-corn ethanol, sugarcanetoday in brazil has 8x the energy out. and this assumes you stillmake fertilizers the old-fashioned way, frompetroleum, you make pesticides

the old-fashioned way. you don't change any of that. and depending on whichcellulosic ethanol technique you use, and this assumes youkeep using fossil fuels, not bio mass, to provide the heatfor your refining processing. this is an argonne nationallab study. and since it's hard to read,that's electricity at 0.45 energy balance, petroleum at0.81, coal at 0.98, corn ethanol at 1.34 using one set oftechniques and 1.78 another

way, and cellulosicethanol at 10.3. this is a great study on theenergy balance for those of you interested. not only that, thefull computer model is on the website. you can download it. you can change the assumptionsand run the model for yourself and say, if assume somethingdifferent, what happens? i'm not going to spendany time on that.

this will be on my website. this is the petroleumand fossil fuel reduction benefits. this is fossil energyused in cellulosic ethanol, in corn ethanol. this is reductionof petroleum. so again, let meskip past this. this is self-explanatory andpart of the argonne model. but the important thingis the conclusions.

it says this is not even ameaningful thing to measure. and that's wherewe should stop. there is a researcher calledpimentel who spread a reverse, different notion. and by the way, he's anentomologist, not an energy researcher. every other study has proventhat that research is wrong. this is the nrdc data. they have a wonderful reportcalled "ethanol: energy well

spent." it shows allthe studies. and the one study that goesabove the input cost is this pimentel study. but they forget to mention thatgasoline is even higher than that, even abovethe pimentel study. this is the amount of energy inversus out for cellulosic, again, multiple researchers. there's a great science articlein january this year on this also by professorkammen at uc-berkeley.

but here's the nrdcconclusion. i'll let you read it. i won't repeat it. environmental issues. again, the argonne model, thisis greenhouse gas reductions. i love this model because theyactually post the model. and you can read on it withyour own assumptions. and you can characterize eachprocess differently because each ethanol plantis different.

by the way, that energy balancegoes from 1.5 to 3 if you burn biomass to distillyour ethanol at the end of your process instead ofusing natural gas. that simple step changes it tothree times, which i know some people are actually doing. so these are greenhouse gasreductions, again for cellulosic ethanol on the righthand side, and then corn ethanol using wet millprocesses, corn ethanol with dry mill processes.

i won't go through all of it. this is actual emission levelsof e85 and gasoline for a 2005 ford taurus and 2005mercedes-benz. on almost every metric,and definitely overall, e85 is as good. now why is this confusing? ethanol has a characteristic,and i'm happy to go into the details, that as you add ethanolto gasoline, certain emissions, specially evaporativeemissions, go up.

and so when you have 5% ethanoland gasoline to replace mtbe, it's actuallypretty good. you get much above 10%, andemissions actually increase. and brazil, for regulargasoline, uses 20% ethanol, and for ethanol, uses100% ethanol. so then the people who don'tlike ethanol always point to e20, which we've neverconsidered using in this country, and say it increasesemissions. that's the kind of[unintelligible] they create,

when e5 is better than gasolineand e85 is much better than gasoline. this is actual data fromthe california air resources board. this is a communicationi got from the nrdc. i won't spend any time. it fundamentally sayse85 is great. and more importantly, all thereasons to not like ethanol, many of them were probablyvalid 20 years ago.

and some people stilllike to use them. it reminds me of how long thetobacco companies went on saying that smoking doesn'tcause cancer, or at least you can't prove it. i see almost exactly the samething happening here again. so everything i've said isassuming no significant progress in technology. and there's lots of waystechnology can improve things. sorry, my presentationsequences.

i've spoken to some of it. in fact, this is one of myfavorite quotes from the editor of science magazinein 1988. and i think this is not onlyabout ethanol, but fundamentally the waywe manufacture chemicals will change. with all kinds, i gave you theexample of this malaria drug, you will see that repeatedover and over again. because there is another, betterway to manufacture

things, and that's tocopy what nature learned a long time ago. so today we have corn ethanol. i think cellulosic ethanolis coming. during the second world war,when hitler couldn't get oil, he used gasification of coal. but there's no reason youcan't gasify biomass. in fact, those technologiesare almost ready, too. then there's algae.

you go to a website calledgreenfuelsonline.com. they're actually buildingalgae farms out of mit, producing their client 22,000gallons of fuel per acre. now it's a wonderful idea. i think it's not quite ready. but every year, with bioengineering, the algae improve. craig venter, who raced the usgovernment in sequencing the human genome, is doing asynthetic biorefinery.

and i'm working with somepeople on some very interesting synthetic biologytechniques that are a little further out. and i have to again say, alli'm talking about for the numbers here is the corn andthe cellulosic bioethanol, none of this other stuff. and i can't, because people thensay you're not credible, because they look backwards,not forwards. lots of companiesworking on this.

and here's what one companyis doing, increasing-- let me skip past that. they're expanding usable acreageby increasing drought tolerance, heat tolerance,drought recovery, all salt tolerance of plants. this company has the largestlibrary of plant genes. and they insert them,cross them over from one plant to another. they're increasing thetons per acre.

they're reducing the dollars perton, like the fertilizer intensiveness of growingthese things. they're increasing the gallonsper ton by reducing the lignin content of the plant andincreasing the carbohydrate content of the plant. this is all simpleengineering. we've just never had to worryabout it, so we haven't worried about it. reducing the cost of enzymes,developing commercial energy

crops, and that's justone company. now i can go through a longlist of companies. so where are we? we have a choice. do we import oil or ethanol? do we want to add to the real,rural economy, which genuinely needs help? and it's just [? supplying ?] our food economy.

we can add to that somesignificant portion of our energy economy. it would completely change theface of rural america. just think of thepossibilities. because energy is a muchbigger part of [? our energy ?] thanthe food economy. and this is a macroeconomicshift that would change the whole planet, i think. and it relies on innovation.

it relies on entrepreneurship. it relies on what i call thepower of ideas, fueled by entrepreneurial energy. and that's a far more powerfulforce than anybody in washington understands. brazil's already done this. i've talked about this. this is a good curve. this is a curve with cumulativevolume, what the

production cost of ethanolhas done in brazil. because we are at such smallnumbers compared to gasoline production costs, i wouldconjecture that we have a long way to go down, just out ofaccumulated experience. this is a curve on the yieldof ethanol per ton of sugarcane in brazil. it's still going uppretty rapidly. this is just the priceratio since 2001. what are we doing inthe united states?

people like this idea. when you ask people, do you wanta gasoline tax, 87% no. but you say, do you want agasoline tax to reduce our dependence on foreign oil,the number goes from 87% no to 37% no. you ask them, do you want agasoline tax to reduce global warming, the numberdrops to 34%. this is from a new yorktimes poll last month. people do care.

washington doesn't realizeit, but people do care. this is the rfs standard. this is mandated in thelast energy bill. but this is how fast ethanolcapacity has been expanding in the us already. and much of it happened beforethe energy bill. this is the number of-- i won't spend anytime on that. for those of you interested,there's a detailed breakdown

of production costs by item,two different models. one is this one, and theother is this one. again, i won't go through it. there's one macro message. there's solar energy in the caseof ethanol, crude oil. both processes, when you look atthem, cost roughly $0.50 a gallon to produce, other thanthe feed stock cost. it's actually pretty amazing. because it's a very similarkind of process.

i won't spend anytime on this. let me stop there and openit up to questions. there's a bunch of referencesup there, so feel free to use them. so let me open itup to questions. and we can go from there. yes? audience: so your three requiredsteps all involve the federal government.

and i don't think anybody inthis room believes the federal government is going to jumponto this bandwagon. so you also made a commentthat for a few tens of millions of dollars, perhapsyou could convert all or enough of the gas stationsin california. so you know some people whocan afford a few tens of millions of dollars. and i'm wondering if there'sanything that we can do without the federal governmentto make it happen.

vinod khosla: letme answer that question in multiple ways. first, it's a few tens ofmillions of dollars in california to equip 10% of thepumps if exxon does it, the pump owner does it. that's the catch. it's a lot more if you setup a whole new system. and that's where thebottleneck is. so i'm looking for something theoil industry really wants.

and hopefully in washington,we can trade them. the fact is, the price floor onthe oil, senator lugar, who introduced a new bill based onthese recommendations just about a week and a half ago,before the senatorial recess, tested this idea atthe brookings institute in a speech. it got a lot of play. that's how things workin washington. you test it.

you talk about it somewhere. it gets a lot of play. see who gets on the bandwagon. so i can't tell youit will happen. but i can tell you at leastone person, relatively important, was boldenough to test it. the flex-fuel car mandate isin about three bills before the congress and senate. representative markey hasintroduced a bill, senator

obama and lugar have introduceda bill, lieberman's talking about introducinga bill. so there's enough[? cachet. ?] i haven't yet found anybodygutsy enough to mandate something for theoil companies. and i'm going to try it. and if it doesn't work, ihave a backup strategy. everybody signs up the rfsstandard for ethanol. we can have an rfsstandard for e85.

we can also havean rfs standard for cellulosic ethanol. and all those would bealternative, not as good, but good enough ways to get there. so there are backup strategiesin that. in fact, i have a white papercalled "a near term energy solution" that talks aboutsome of these. again, that's on my website. i know there was a questionthere, back there.

audience: you mentioned shelland bp as two companies whose leaders are very keen on this. what's stopping them? [inaudible] federal government[inaudible] around? vinod khosla: i would say theyare much more aggressive about this in europe than in the us. and i would also say, they'rewaking up to this in the last year or so. in fact, i know in februarythat chevron appointed

somebody to draw up a businessplan for them in this area, too. so there's encouraging signs. but here's the issue. if you have billions andbillions of gallons of reserves, and the price of oildropped $20, you have a lot of disincentive in makingthat happen. so i suspect they willbe positioned to participate in this.

they will get ready. they're reasonably well-equippedto build these plants, factories. an ethanol production facilitylooks like a brewery. in fact, we learned how to makethis ethanol when be made 200 proof moonshine. and in fact, you can put 200proof moonshine instead of ethanol, and it worksjust fine. that's exactly what it is.

the only thing the federalgovernment does is make sure you denature it so thatpeople don't drink it. other than that, it does notdiffer from the moonshine. so i think the companies willjump in at the right time. but i don't think they have aninterest. look, exxon made $36 billion of profit last year. do you think they have anyinterest in this changing? and the higher the price of oilgoes, for free, the value of their reserves goes up.

their market cap goes up. and by the way, they can sellthe same oil at a higher price, and they makemore money, too. i think all their interestsare against them. they don't want it to happen toofast. if it happens, they will jump in. yes. audience: what do youthink about-- you talked about a potentialrenewable fuel standard for

cellulosic ethanol to help thattransition to cellulosic. before that, what do you thinkabout labeling, either voluntary or mandatory labeling,to distinguish between cellulosicand corn-based? vinod khosla: i thinkthat's a good idea. i was at a two-day conferenceto find a solution. that was, in fact, one ofthe solutions that was recommended. i'm sorry.

the question is, what aboutjust labeling cellulosic ethanol and corn ethanol. i think the first thingwe need to do, and i think it's a good idea. the first thing we need to dois just offer ethanol in the marketplace. then we can start labeling it. it's like labeling organic foodand non-organic food. it's very, very similar.

and i think that will happen. it's just to me, if you go backto my slide on how you go from possible to probable, themain issue i believe is kickstarting this. for that reason, i'm going totake a little interrupt here and bring up a differentpresentation. since kickstarting, i believe,is the key issue, we have a ballot initiativei'm co-chairing. and i won't spend time on allthese things, except to say

it'll be run by a fairlyindependent board. and a number of nobel laureates,environmental groups are supporting us. i think larry's finally agreedto support us, as has wendy and eric schmidt. we definitely need lotsof money for this. the oil companies are gearingup to spend lots of money. we have a group ofindividuals. the oil companies have muchbigger balance sheets.

so anybody who can helpraise money or give money, that's great. but we also need a largeblogging force to go blog this message for us. so we will look. and the [unintelligible]love this stuff. so let me stop there andgo back to questions. audience: so is there anycompany we can invest in, [inaudible], and make[inaudible] more money?

vinod khosla: i don't giveinvestment advice. audience: i'm all in favor ofsustainable south dakota switchgrass. i wonder, though, if you sharethe concern, some people say that as soon as you get theright enzyme, people are just going to throw rainforestsand wetlands and anything they can for it. vinod khosla: i think that'sa genuine concern. i think some of itis misplaced.

it always comes upabout brazil. but if you look at theeconomics of it, the rainforest area is notthe best area in brazil to grow sugarcane. the pasture lands are. so my bet is they will convertall the pasture land they have, and there's lots ofland in brazil that's appropriate for this. and remember, these arerelatively environmentally

friendly crops. in fact, the micanthus is theprairie grass version-- switchgrass used to be theprairie grass in the midwest. so it's really returning theselands to their old environment. will we have issues? if you do a monoculture, i'msure we'll have issues. but i suspect that's not how itwill turn out, that we will do different things in differentregions and have

more diversity. we know what to do. so my optimistic scenario is forthe mid-term, we'll have enough yields so the land areaneeded will even be smaller than the 55 million acres i'mtalking about, which is relatively small. we have 73 million acres ofsoybeans just for export. but long term, i think we'llavoid all that, use some of that fancy syntheticbiology stuff.

i just think we need to startdown this trajectory. audience: [inaudible] saidyou're taking into account rising sugar prices[inaudible]? sugar has been on a tearfor the past few years. vinod khosla: my fundamentalassumption is short term, you will see those kindsof spikes. because sweden announced thatthey will use flex-fuel cars and ethanol to meet their kyotocompliance requirements. japan is going to brazil forethanol to meet their kyoto

compliance. price of ethanol goes up, nobodywants to make sugar, sugar price goes up. so there is short-termcompetition. but long term, i am absolutelyconvinced the cheapest way to make it will be fromcellulosic. and people will make it fromcellulosic not because it's greener, but becauseit's cheaper. i think the greenwill be free.

there was a questionback there. audience: yeah, do you have anynumbers on the yield per acre by latitude. you said north dakota was[inaudible], and i just wanted to know if [inaudible]. vinod khosla: yes, there'sactually the link if you follow on miscanthus waspretty interesting. but i have my favorite chartwhich i want to bring up here. i wasn't planning ontalking about it.

it's in my spare charts. but let me go to it. i love this chart because if youcare about more than the us, and you care about theplanet, the best biomass belt is where there's the mostpoverty in this world. so if we do, in fact, go to thiseconomy, it will be good for this part of the world,africa, south america. it's amazing to see thecoincidence between poverty and the best biomass belt.

i hope that answersyour question. yes, there was aquestion here? audience: yes. why stop at cars? what about electricity, heating homes, stuff like that. does it make sense? vinod khosla: you know, peopletell me it's ridiculous enough to go around.

when i first said i think we canreplace all our petroleum, people said that wasreally crazy. i actually believe we won't stopthere, especially with some of the gasificationtechniques and some of the characteristics relatedto that. we will start going deeper. there's no reason to stop. audience: what about brazil? what do they do forelectricity?

vinod khosla: brazil, theyactually take a lot of the gas after they made the ethanol,burn it, and the mills produce far excess-- and by way, burning is a relatively inefficient process. you get about 20% heatutilization at best, because you're diluting it withair and burning it. there are other ways to do it. you can get to 60%,70% efficiency.

but the brazilian ethanolproducers sell a lot of electricity into the grid. other questions? audience: so one of the ways toget washington to change, [inaudible] the right policies,is to lobby, right? so you have the oil lobby onone side, but you also [inaudible] a number of[inaudible] positively impacted by this, theagriculture group, the is there any conservative lobbythat you see buying into

[inaudible]? vinod khosla: well, we'reworking on it. it is hard. but we areworking on it. audience: so what is thegreenhouse gas balance on burning this and then[inaudible]? vinod khosla: could yourepeat your question? audience: what's the greenhousegas balance on the plants going, versus the costof burning it again? vinod khosla: so almost allcarbon, in fact all of the

carbon in most of these crops,comes from the air. and so you're reallydoing a full cycle. you're not really adding anynet greenhouse gases to the atmosphere. the plants i like, miscanthusand switchgrass, actually not only do that, but in the processgoing, take carbon from the air and fixit in the soil. so there's a net reduction. other-- yes.

audience: i'm curious what youthink about biodiesel now. vinod khosla: what do ithink about biodiesel? this question comes up a lot. biodiesel is a good fuel. it's not as land-efficient. so when i looked at the macroissue, you can produce a few hundred gallons of biodieselper acre today using these low-cost techniques, and theyhave to be low-cost. you can produce a few hundred gallonsof ethanol today.

i can see how with ethanol,you get to 4,000 gallons per acre. but i don't know how you getthere with biodiesel. so in terms of land efficiency,over the longer term, there's a dramaticdifference between the two. there's not as large ashort-term difference. there's question back there. audience: yeah. you spoke about how thepumps are [inaudible].

aren't there other consumers ofgasoline, like the airline companies, which might have anincentive to [? plug ?] ahead and get this kindof alternative? vinod khosla: airlines area funny thing, because certifying an aircraftto run a new fuel is a long, long process. that's why larry mentioned,and larry and i had dinner with richard branson in davos,he wants to offset it by producing green ethanol.

but he can't directly use-- besides, aviation fuelsare only about 7% of the fuel market. home heating oil is aboutthe same percentage. the bulk of it is carsand light trucks. audience: so i likethe vision. and a lot of you talk was abouthow compelling it is economically for everyone,just about everyone. and consumer choice favors it.

but i'm a little unconvincedabout some of the techniques to get there. and so there's really two partsof the unconvincing. the first part is what'sdifferent in brazil? you put in such a good[inaudible] argument. what if we do nothing? won't it just happen anyway? or why did it happen so wellin brazil, and what's different about thatfrom here?

and then the second part is thati'm a computer scientist, but i like to pretend i'man economist sometimes. and in economic circles, it'swell known that price controls, fixed price floors orceilings or whatever, are generally not the best ways toaccomplish favoring incentives or whatever. why advocate the price floorand the other two things, instead of things that seemmore economically sound? vinod khosla: ok.

so let me try and answerboth those questions. they're great questions. in brazil, it wasthe politics. brazil is competing for regionalinfluence with venezuela, which has a lot ofoil, and brazil doesn't. so they made a strategicdecision. and for those of you who don'tunderstand how important this is, in january, venezuela, withits money, paid off all the imf loans of argentinaso argentina would listen

venezuela politically on theleft, instead of listening to the imf, which is awestern influence. that kind of thing happensall the time. that happened in january. argentina paid off 100%of its imf loans. so that was the regionalkind of thing. the brazilian government decidedthat this was a good thing for them to do. they worked out the economics.

and frankly, it didn't takeoff because of that. it was when oil went aboveabout $30, $35 a barrel. it took off by consumerdemand. and there are no subsidiesfor ethanol today. and fundamentally, when i lookat production costs, i eliminate all those extraneousfactors. what's the flaw in theeconomics argument is economics always assumesa level playing field. i can give you 100 examplesof why this is not a level

playing field. i gave you the example of howthe oil companies get $2 billion from the ethanolproducers, and the refineries collect it because they changedtwo words in a law well past midnight. hurricane katrina happened. the price of oil shot up. guess what happened? oil profits, the largest profitsever recorded by any

corporation in world history. that was exxon last year. and guess what they did? got an incremental $7 billionof reduction in this extraction fee that'scharged in the gulf. they got $7 billion subsidies,despite making the record profits they'd ever made. that's the way the game isplayed, unfortunately, because they have strong politicalclout.

so it isn't a levelplaying field. i would completely argue withyou that this would make sense if, in fact, it was alevel playing field. and that's why they key word iuse we need to kickstart it, not subsidize it. audience: fine that's the firstpart of the question. but if i grant you the non-levelplaying field, why a price fix, rather than a subsidyto the industry, or one of these other--

vinod khosla: let me tell youwhy, because what the oil companies, what this gentlemanin dallas said to me was, we will manipulate theprice of oil. we can drop it for two years,drive the ethanol refineries out of business, and thenraise it again. so it's only to preventprice manipulation. if it was true market phenomena,i wouldn't recommend that. in fact, i only added that thirdrecommendation after

dallas, after this guy havingthe gall to come up to me and say, we'll screw aroundwith you. so other questions? audience: is it really possibleto actually produce all of this ethanol from thesun where oil has been for millions of years, a processthat we're consuming in a very fast pace? is it really possible interms of the energy coming from the sun?

vinod khosla: so the questionis, is it really possible to produce this much oil. and again, i would suggest youread the "growing energy" report by the nrdc, or you readthe jim woolsey/george shultz paper on the web. i've looked at it many differentways, because you don't know that any one wayis an accurate set of assumptions. and the answer comesout to the same.

male speaker: i havemy last question. first place, let's thankvinod for coming. male speaker: larry, larry,larry, larry, we're giving him some votes. a 10? is that a 10 out of a 10? i think he's pretty good, too. vinod khosla: we got somefrench judges here. male speaker: there's one morequestion, which is, so, it's a

pretty compelling speech. what do you want peoplein the audience to do? vinod khosla: well,two things. you can help us kickstartthis in california. our goal is, if you get that $4billion, and the voters in california pass that, we willhave the money to get it kickstarted, like paying thesmall operators enough money so they can install a pump. so we need money to runan ad campaign.

we estimate we need$35 million. the oil companies, i expect,will spend over $100 million, because they have the money. and it's only a groupof individuals. there's no big interestbehind us. so money is valuable. and i know wendy'shere somewhere. she has lots of brochures thatanybody wants on this california initiative.

it's over there. that's one. two, i think we need to havemuch more effective marketing and internet marketing,blogging. i have this dream of1,000 bloggers dedicated to a mission. so anybody who can helpconstruct that, and all of you understand how to do this betterthan i do, those two would be very valuable.

male speaker: thankyou again, vinod. audience: thanks.