MINNEAPOLIS - This fall, the Chippewa Valley Ethanol Co. will go in search of the humble corncob. A $150,000 state grant will help the central Minnesota farmers' cooperative test two collection systems to gather the small, scratchy harvest remnant: one that rides piggyback on a combine and one that follows behind.

It's the next step that's, well, groundbreaking. The Benson, Minn., fuel cooperative intends to stoke its boilers with the cobs, after they've been transformed into a gas by a new technology that could do the same to all manner of refuse from the countryside, including wheat straw, sunflower hulls, wood chips and prairie grass.

By next year, the Chippewa Valley cooperative expects to wean itself of 90 percent of the pricy natural gas it now needs to cook corn ethanol from members' crops.

"This is a dynamic industry, and you can never rest," said General Manager Bill Lee, a chemical engineer and Tennessee transplant who stayed on to run the plant he helped build 12 years ago.

The knock against corn ethanol all along has been that it doesn't substantially cut down on U.S. consumption of oil, because it consumes nearly as much of the fossil fuel in its making as it replaces in its use.

But Lee is part of a growing chorus saying that's no longer true, if it ever was. They point to the U.S. Energy Department's most recent efficiency analysis, published last year, that credits ethanol plants with cutting their energy use by 22 percent from 2001 to 2006.

More recently, Chippewa Valley and other small Minnesota cooperatives are leading the nation in innovations they expect ultimately will eliminate the use of fossil fuels at the ethanol plant and replace them with renewable energy such as wind and corncobs.

Some analysts say there's more at work here than establishing "green" credentials. It's money. Producers must cut their major expenses - corn and natural gas.

Corn and gas cost more than the going rate for ethanol many days on the commodity markets, said Robert Sharp, ethanol editor at Platts, an energy information publication.

Those upside-down numbers were behind the recent decision by VeraSun Energy, one of the nation's biggest ethanol producers, to hold off opening three new plants - including one in Welcome, Minn., Sharp said. The company's stock price tells why: Down from $30 a share two years ago, it closed July 9 at $4.06.

"I'm confident in saying the industry's margins are squeezed to the breaking point," Sharp said.

Minnesota cooperatives are the logical leaders, according to several industry observers. They were among the earliest ethanol producers, starting in the mid-1990s, so they benefit from more experience and less debt than the newcomers. Also, most of their ownership is local farmers, who are likely to stick with a plant through tough times - especially when, like now, they have the hedge of good corn prices, said David Morris, vice president of the Institute for Local Self-Reliance in St. Paul, Minn.

MINNEAPOLIS - This fall, the Chippewa Valley Ethanol Co. will go in search of the humble corncob. A $150,000 state grant will help the central Minnesota farmers' cooperative test two collection systems to gather the small, scratchy harvest remnant: one that rides piggyback on a combine and one that follows behind.

It's the next step that's, well, groundbreaking. The Benson, Minn., fuel cooperative intends to stoke its boilers with the cobs, after they've been transformed into a gas by a new technology that could do the same to all manner of refuse from the countryside, including wheat straw, sunflower hulls, wood chips and prairie grass.

By next year, the Chippewa Valley cooperative expects to wean itself of 90 percent of the pricy natural gas it now needs to cook corn ethanol from members' crops.

"This is a dynamic industry, and you can never rest," said General Manager Bill Lee, a chemical engineer and Tennessee transplant who stayed on to run the plant he helped build 12 years ago.

The knock against corn ethanol all along has been that it doesn't substantially cut down on U.S. consumption of oil, because it consumes nearly as much of the fossil fuel in its making as it replaces in its use.

But Lee is part of a growing chorus saying that's no longer true, if it ever was. They point to the U.S. Energy Department's most recent efficiency analysis, published last year, that credits ethanol plants with cutting their energy use by 22 percent from 2001 to 2006.

More recently, Chippewa Valley and other small Minnesota cooperatives are leading the nation in innovations they expect ultimately will eliminate the use of fossil fuels at the ethanol plant and replace them with renewable energy such as wind and corncobs.

Some analysts say there's more at work here than establishing "green" credentials. It's money. Producers must cut their major expenses - corn and natural gas.

Corn and gas cost more than the going rate for ethanol many days on the commodity markets, said Robert Sharp, ethanol editor at Platts, an energy information publication.

Those upside-down numbers were behind the recent decision by VeraSun Energy, one of the nation's biggest ethanol producers, to hold off opening three new plants - including one in Welcome, Minn., Sharp said. The company's stock price tells why: Down from $30 a share two years ago, it closed July 9 at $4.06.

"I'm confident in saying the industry's margins are squeezed to the breaking point," Sharp said.

Minnesota cooperatives are the logical leaders, according to several industry observers. They were among the earliest ethanol producers, starting in the mid-1990s, so they benefit from more experience and less debt than the newcomers. Also, most of their ownership is local farmers, who are likely to stick with a plant through tough times - especially when, like now, they have the hedge of good corn prices, said David Morris, vice president of the Institute for Local Self-Reliance in St. Paul, Minn.

"Every plant is a little lab, thinking, how can we do this better?" Lee said. Chippewa Valley, with 980 local owners, has grown from 15 million to 47 million gallons a year. "And in 2005, we made the decision to get better, not bigger," he said. "To us, that means lower costs and more renewable energy sources."

Chippewa Valley started its new biomass gasifer technology in April. The pipes, burners and controls fill an 80-foot-tall metal building, where it will turn plant matter into a gas that then powers the ethanol plant. It's the nation's only one of its kind in commercial operation, Lee and other plant operators said. Now, it's burning wood chips.

But more significantly, it's designed to burn all kinds of raw materials, including corncobs. That gives the cooperative the ability to power itself on whatever fuel is cheapest and most available - corncobs in the fall, for example, Lee said. He's paying about $13 for 1 million BTUs of natural gas; and he expects wood chips and corncobs to cost less than half that. As a bonus, cooperative members also are part owners of Iowa-based Frontline Bioenergy, which developed the gasifier.

Corn Plus in Winnebago, another Minnesota farmer-owned cooperative with about 750 members, replaces 60 percent of its natural gas with a somewhat different system it developed three years ago, General Manager Keith Kor said. The cooperative burns corn syrup, a byproduct of the ethanol process that used to clog up the operation. The syrup fuel has saved the members $18 million in natural gas, plus they sell the residue ash to farmers for fertilizer, Kor said.

In March, Corn Plus became the first ethanol plant to produce its own wind power when it flipped the switch on two wind turbines, he said. They will replace about 40 percent of the electricity Corn Plus has been buying off the grid.

About the same time, Corn Plus became the first ethanol plant to join the Chicago Climate Exchange - a small, voluntary version of a nationwide, mandatory cap-and-trade system that Congress is widely expected to mandate to control carbon pollution.

As a net-non-polluter, Corn Plus qualified for 40,000 "carbon credits" - 10,000 of which it has already sold to polluters at $6 a credit. "We're banking the rest, because I think they'll be more valuable in the future," Kor said.

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The Central Minnesota Ethanol Co-op in Little Falls has plans to take biomass one step further: replacing the natural gas heat source and the corn feedstock with wood chips. It's a plentiful resource around the ethanol plant, where the Corn Belt gives way to northern woods, said General Manager Kerry Nixon.

Central Minnesota is applying for a federal grant to design and build the technology that also will be able to extract enough moisture from the green wood to cover all the production-water needs. Nixon expects word on the grant in September.

The federal government sees ethanol derived from cellulose as the growth area for the future, Morris said. The new federal ethanol standards require consumption of 36 billion gallons of ethanol by 2022, but only 15 billion of that is to be corn ethanol. The goal is to replace raw materials that people otherwise could eat - such as corn - with materials that they can't, such as wood or prairie grass, Morris said.

Poet is not a small ethanol cooperative. It's the nation's largest ethanol producer at 1.3 billion gallons a year. The South Dakota-based company is rolling out a system that will burn gas from city landfills to power its ethanol production, CEO Jeff Broin said. Poet is about to build a pipe to deliver methane gas from the Sioux Falls, S.D., city landfill to its ethanol plant in Chancellor, S.D. The landfill now just burns off the gas, wasting the heat, Broin said. He expects the Sioux Falls landfill to provide at least 30 percent of the Chancellor plant's natural gas.