Dow and a start-up firm to test process expected to harvest hydrocarbons Dow Chemical and Algenol Biofuels, a U.S. start-up company, were set to announce Monday that they would build a demonstration plant that, if successful, would use algae to turn carbon dioxide into ethanol for use as a vehicle fuel or an ingredient in plastics. Because algae do not require any farmland or much space, many energy companies are trying to use the method to make commercial quantities of hydrocarbons for use in fuel and chemicals. But harvesting the hydrocarbons has proved difficult so far. The ethanol would be sold as fuel, the companies said, but Dow's long-term interest is in using it as an ingredient for plastics, replacing natural gas. The process also produces oxygen, which could be used to burn coal in a power plant cleanly, said Paul Woods, chief executive of Algenol, which is based in Bonita Springs, Florida. The exhaust from such a plant would be mostly carbon dioxide, which could be reused to make more algae. "We give them the oxygen, we get very pure carbon dioxide, and the output is very cheap ethanol," said Mr. Woods, who said the target price was $1 a gallon. Algenol grows algae in "bioreactors," troughs covered with flexible plastic and filled with salt water. The water is saturated with carbon dioxide, to encourage growth of the algae. "It looks like a long hot dog balloon," Mr. Woods said. Dow, a maker of specialty plastics, will provide the "balloon" material. The algae, through photosynthesis, convert the carbon dioxide and water into ethanol, which is a hydrocarbon; oxygen; and fresh water. The company has 40 bioreactors in Florida, and as part of the demonstration project plans 3,100 of them on a 24-acre, or 10-hectare, site that Dow owns in Freeport, Texas. Among the steps still being improved is the separation of the oxygen and water from the ethanol. The Georgia Institute of Technology will work on that process, as will Membrane Technology and Research, a company in Menlo Park, California. The National Renewable Energy Laboratory, an Energy Department lab, will study carbon dioxide sources and their effects on the algae samples. Algenol and its partners are planning a demonstration plant that could produce 100,000 gallons, or 379,000 liters, a year. The company and its partners were spending more than $50 million, said Mr. Woods, but not all of that was going into the pilot plant. The company had applied to the Energy Department for financing under the stimulus bill but would build a pilot plant with or without a grant, he said. With a stimulus grant, he said, the division of spending would be slightly more than 50 percent from the private sector, although the normal level was 20 percent. The project would create 300 jobs, he said, adding that Algenol and Dow were "incredibly hopeful" of getting the grant, partly because they had a combination of an innovative start-up company, a major company with extensive experience in industrial processes, a university and a national laboratory. At Dow, Peter A. Molinaro, a spokesman, said that the ethanol was "intriguing to us as a feedstock, because the chemistry is simple." Dow is already working on using ethanol from Brazilian sugar cane as a replacement for natural gas as an ingredient in plastics. When Congress created a tax subsidy for ethanol, it raised the price for non-fuel users like Dow, he said. "We're looking at options, and this is one," he said.