Economic growth. The panacea. For Western economies, the mature economies, carrying far too much debt, economic growth is required to lift them past the major problems brewing and soon coming to the boil.

Energy fuels productivity from capital investment. Coal fueled the industrial revolution, providing abundant, and therefore a cheap energy source to England, which in the the early 1800’s was burning in coal, the equivalent of 15M acres of wood per year. From coal, the world moved to oil. Oil has been the stalwart since the early 1900’s.

Energy, cheap energy, is what provides capital with it’s amazing productivity. With the advent of electricity, powered by power stations, fueled with coal, oil, the genie was out of the bottle. Oil of course fueled transport, which further enhanced the division of labour, and added further wealth.

Currently it’s not so much that oil is running out, although that will at some point be an issue: it is that the cost in energy, of extracting the oil is rising. The key ratio is: Energy Return/Energy Invested. In the 1930’s this was circa 100:1 in the 1970’s 30:1 currently, calculations put it somewhere around 16:1 If the world were a giant corporation, running financial statements, an analysis would disclose that the return on capital is falling. Productivity is falling. Growth is falling. This, when combined with the negative demographics and crippling liabilities incurred via the Socialist dream, has placed the world in a tricky position.

Biofuels have been an area of research. Until yesterday I held BIOF, an ethanol producer, that essentially was a bad play. Biofuels however have a potentially brighter future than this failure might indicate. Forget ethanol, the BIOF product, ethanol is a technology that is going nowhere. Rather, consider “Drop In Fuels” Drop-in-fuels are hydrocarbons grown by bacteria, fed on sugar. Drop-in-fuels can critically fuel jets. Ethanol never could be used for Jet fuel, and electric motors could never power jets: the world can’t and won’t need to give up jets.

The electric car has every possibility of actually taking off this time round. If they do, they still need the power to be supplied from electric generation powered from, drop-in-fuels. So either way, drop-in-fuels have a market, either to fuel cars running petrol/diesel motors, or running power stations to generate the electricity. Jets will be reliant on jet-fuel manufactured in this manner.

The US may, or may not, after the nuclear disaster in Japan, proceed with nuclear reactors on mainland US sites. Even if they do, there will be room enough for drop-in-fuel generators to provide electricity for business and domestic demand. The key is that energy has to become, as it was in the early 1900’s, cheap, abundant and [relatively] clean. The US also wants energy independence. The Arabs and Middle East debacles, military bases, can all be mitigated, pulling away from Imperialistic US foreign policy.

So who makes it, does it actually work, and more importantly, is there a stock that I can speculate in?

Dr Shaw is your man. Based in Redwood City California, Alan Shaw is the boss of Codexis which makes specialised enzymes that perform the chemical conversions. Who backs him? Shell and Cosan. Shell needs no introduction. Cosan is Brazil’s third largest sugar producer. Together, they are going to scale-up: building a factory that can produce 2.5M barrels.

The stock trades on the NASDAQ as ticker CDXS