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NEW YORK (Reuters) - Private U.S. ethanol company Poet on Wednesday said it will begin making a small amount of next generation ethanol later this year using crop waste, a feedstock that could yield the alternative motor fuel without inflating food prices.
Poet, the country's top ethanol producer, has started building a cellulosic ethanol pilot plant in Scotland, South Dakota, that will be added to an existing plant that makes traditional ethanol from corn, CEO Jeff Broin told an ethanol conference on Wednesday.
The plant will have the capacity to make only a tiny bit of the fuel -- about 20,000 gallons per year. But that number could grow if the plant helps the company learn how to spread the process to some or all of its 23 other ethanol distilleries.
"I can tell you that I am surer of the future of cellulosic ethanol than I have ever been before," said Broin.
Companies are racing to make cellulosic ethanol to help boost production of domestic fuel that could be lower in greenhouse emissions. Last year's U.S. energy law mandated the blending of 16 billion gpy of cellulosic into gasoline by 2022.
Cellulosic ethanol can be made from breaking down the tough woody bits of plants into sugars, which are then fermented into fuel. The process takes more steps than traditional ethanol, so at the moment it is more expensive and the fuel is not made commercially.
Corn in currently the main feedstock for U.S. ethanol production, but critics argue that its use diverts the grain from the food chain and pushes grocery bills higher.
Joseph Gomes, an analyst at Oppenheimer & Co in New York, said commercial production of the fuel from cellulose by any producer is still about three or four years away.
Poet is investing $4 million in the pilot plant, which sometime during the last three months of the year will make fuel from corn cobs and corn fiber instead of corn kernels.
The process will use microscopic life forms to break down the waste, instead of heat and pressure, which some other cellulosic producers plan to use.
Critics of the next-generation fuel say costs have delayed widespread development, so it's uncertain when the fuel would add supply and cut prices in the enormous gasoline market.
Broin said that ethanol producers could eventually produce 5 billion gallons per year of cellulosic ethanol from U.S. corn cobs, which compares with current U.S. capacity of traditional ethanol of about 10 billion gpy.
Currently, ethanol makes up about 6 percent of the U.S. motor fuel market.
Editing by Jim Marshall