Silicon Valley venture capitalist backs biofuel

By Aditi Risbud

On the search for alternative fuels, Silicon Valley entrepreneur Vinod Khosla says the answer is clear as gin.

Delivering the keynote address at a Stanford Institute for Economic Policy Research forum, titled "Prosperity Despite Expensive Oil: Energy Solutions for California, America and the World," on April 21, Khosla endorsed ethanol technologies, which produce "biofuels" out of switchgrass, wood chips, corn and recycled fast food oil.

"Within the next five years, we can be irreversibly down a trajectory that doesn't need any petroleum in this country," Khosla said. "We can do this in all of the United States for less than half a billion dollars."

During his speech, titled "BiofuelsThink Outside the Barrel," at the Schwab Center to about 100 energy scholars, economists and policymakers, Khosla outlined three "action items" for switching to biofuels:

70 percent of all new automobiles should be flex-fuel vehicles, giving drivers the option of gasoline or ethanol;

10 percent of gas stations in the United States should distribute ethanol to "achieve criticality";

Create a tax on cheap oil to stabilize oil prices in the unlikely event they should fall below $40 a barrel. (Oil is currently $72 a barrel.)

"I don't think oil will ever [fall to] $40 a barrel until an alternative appears," Khosla said. "If an alternative appears, we will see the manipulation of oil prices to drive alternatives out of business. This [tax] is to assure Wall Street that [it] will not be subject to oil price manipulation by Saudi Arabia."

Khosla said those who own fewer than 25 fuel stations would not be included in the 10 percent of stations required to distribute ethanol, to keep "mom and pop" gas stations from bearing the burden of ethanol distribution.

"There are lots of things that make sense but will never happen because the interest groups are not aligned," Khosla said, addressing questions from the audience about "greener" alternatives such as solar, wind or hydrogen power.

"Biofuel is the only viable solution," he said. "It's a faster and lower-risk path to a renewable future." Scientific consensus says global climate change is due to an accumulation of greenhouse gases such as carbon dioxide in the atmosphere. According to the Intergovernmental Panel on Climate Change, fossil fuels like gasoline contribute to two-thirds of this buildup. This points to the need for a cleaner energy source that can be brought to consumers quickly.

Khosla is co-chairing a November ballot initiative in California with Hollywood mogul Stephen Bing to reduce petroleum consumption. By taxing oil production in California, the nation's third-largest oil producing state, the initiative would create funds to boost alternative fuel production.

"This is not a green objective," Khosla said. "This is an economic objective." An alternate fuel source could help curb inflation, create tax revenue and new jobs, lower the risk of costly military interventions abroad and ultimately reduce U.S. dependence on foreign oil.

Considered one of Silicon Valley's most influential venture capitalists, Khosla earned an MBA from Stanford in 1980 and went on to co-found Sun Microsystems with Scott McNealy, Bill Joy and Andy Bechtolsheim. In 2004, he began his own venture capital firm, Khosla Ventures.

Experts speaking about topics spanning from energy to economics preceded Khosla's keynote address. Stanford Professors Michael Boskin, Lawrence Goulder, Franklin Orr Jr., Geoffrey Rothwell, James Sweeney and Frank Wolak were among the 13 speakers, who also included California State Controller and gubernatorial candidate Steve Westly.

Ethanol is the best way to ensure cheaper fuel, create secure and diversified energy sources and maintain farm economies, Khosla said. "Even though they won't acknowledge it today, oil companies are best equipped to build biorefineries on a large scale." Some of the "more progressive" companies, like BP and Shell, are aggressively looking at ethanol, he added.

"My hope is that the oil companies will get convinced that they need to be in the business," Khosla said. "I believe at some point they will be investing. And that would be a wonderful thing."

Aditi Risbud is a science-writing intern at Stanford News Service.