VW, Shell, Iogen to study German biofuel plant

Sunday, January 08, 2006 5:16:41 PM ET

DETROIT (Reuters) - Volkswagen <VOWG.DE>, Royal Dutch Shell <RDSa.L> and Canadian biotech firm Iogen Corp. will jointly study whether to build a plant in Germany that can make cellulose ethanol, a biofuel that can cut cars' carbon dioxide emissions by 90 percent, Volkswagen said on Sunday.

The partners signed a letter of intent at the North American International Auto Show to explore the project.

Privately held Iogen already makes cellulose ethanol from agricultural residue such as cereal straws and corn stover.

Ethanol, an alcohol most often made from grains and sugar cane, is blended with gasoline to reduce tailpipe emissions in cars and trucks.

Brazil is the world's leading producer and exporter of ethanol, derived from its huge sugarcane crop. It already blends its domestic gasoline with 25 percent ethanol and is looking to U.S., Japanese and Indian markets to boost exports.

The International Energy Agency estimates that under the most optimistic scenario ethanol could make up 10 percent of world gasoline by 2025.