SACRAMENTO, Calif. --- California Gov. Arnold Schwarzenegger's plan to curb CO2 has sparked a race to develop alternative fuels that can capture a chunk of the state's $45 billion fuel market. According to a report in the Wall Street Journal, most energy analysts believe this race to develop a fuel that generates less carbon dioxide and greenhouse gases will be won by companies that look beyond conventional corn-based ethanol. The state's new fuel standard will take effect in 2010. The governor's plan, unveiled in January, also requires that the carbon content of passenger-vehicle fuels be reduced by at least a tenth by 2020. One contender in this quest for alt-fuel dominance is Pacific Ethanol, headed by Bill Jones. The company has built California's first modern ethanol plant in the San Joaquin Valley. But BP PLC and Chevron Corp. are also in the running. These oil industry giants have mounted big research projects aimed at finding ways to make ethanol out of such materials as elephant grass and wood chips. Other companies in the race are focused on developing technology to convert vehicles to burn natural gas, the Wall Street Journal said.

Originally posted on Fleet Financials