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Dollar-a-gallon ethanol plant in U.S. operation next year

Pennsylvania lures cellulosic-ethanol maker Coskata to build a $25 million commercial demonstration plant that would make 40,000 gallons per year at $1 a gallon.

Cellulosic-ethanol company Coskata on Friday announced that it has broken ground on a plant in Pennsylvania that will be operating by early next year.

Coskata has a technology that combines a gasification chamber and a bioreactor to make ethanol from a variety of feedstocks, such as wood chips or even tires. General Motors, Khosla Ventures, and Advanced Technology Partners are investors.

The $25 million plant in Madison, Pa., will make 40,000 gallons per year. At that size, it's meant to demonstrate the process at commercial scale. Its plans also call for a full-scale facility, producing 50 million gallons to 100 million gallons a year of ethanol, by 2011.

The company has said it can produce ethanol at $1 per gallon and that its process is clean, able to reduce greenhouse gas emissions by 84 percent, compared to gasoline. Corn ethanol, meanwhile, makes about the same greenhouse gases as gasoline production.

The plant-building plans were announced by Pennsylvania Gov. Ed Rendell. Many states are eager to provide incentives to start-ups like Coskata, such as tax breaks, to create clean-tech "clusters."