Long before the Bush administration refused to waive California's requirement to oxygenate its gasoline to cut air pollution, a handful of rice farmers began working on a plan to turn their harvest leftovers into ethanol.

If the project is successful, its backers say thousands of the state's farmers, who have been struggling with disastrously low crop prices, will likely follow suit. But the Californians will have to race to get into the ethanol business before the well-established Midwestern processors divvy up California's market among themselves.

``It's a new industry, and if California doesn't get off its butt and get going with it, the Midwest is going to have the market,'' said Butte County rice farmer Ken Collin, president of the Rice Straw Cooperative.

The cooperative's members will sell agricultural waste to a $100 million ethanol refinery near the small farm town of Gridley after its planned opening in early 2003. The city has agreed to help buy the land and build the refinery. It will team with BC International Corp. of Dedham, Mass., to run the facility, which will produce about 30 million gallons of ethanol a year, said Tom Sanford, Gridley's energy commissioner.

The California ethanol market is projected at 580 million gallons, which would be about a 20 percent increase in the worldwide market. The state could someday produce 200 million gallons, said Bob Krauter, a spokesman for the California Farm Bureau Federation.

Gov. Gray Davis (news - web sites) and the Legislature laid the foundation for California's fledgling ethanol industry when they banned the use of the suspected carcinogenic water pollutant MTBE as a fuel additive by the end of 2002. MTBE and ethanol are oxygenates that help gas burn cleaner. Federal law requires that areas with severe smog problems use the additives to help keep pollution in check.

State energy officials are still considering ways to get around the recent Environmental Protection Agency (news - web sites) order to continue using oxygenates in its gas. Using Midwestern ethanol could raise gas prices by 5 cents to as much as 50 cents a gallon, said California Air Resources Board spokesman William Rukeyser.

If the EPA order stands, the need for more ethanol would require more than a dozen new refineries, many of which California farm leaders hope to see built inside the state.

While Midwestern ethanol is produced from corn, the West Coast product will likely be made from agricultural waste including orchard clippings, wood chips from lumber mills and lawn and garden trimmings from urban areas, Krauter said.

Two Southern California plants already make ethanol, one using whey left over from cheese manufacturing and the other using waste from breweries and soft drink factories. Together they churn out between 5 million and 7 million gallons annually, Krauter said.

California projects already in the works include a plan to convert a bankrupt beet sugar refinery in Woodland into ethanol production and a plan to build a plant alongside a lumber mill in Chester.

Besides producing ethanol, the Gridley plant will generate about 20 megawatts of electricity, half of which will be used by the refinery and half sold to Gridley residents through the city-owned utility company, Sanford said.

The farmers using the Gridley plant are hoping simply to get enough for their rice straw to cover the cost of baling and trucking it to the plant.

They're currently paying about $40 an acre to plow the stubble under because state law prevents them from burning it, and rice prices have been at break-even or less for the last couple of years.

``It's a chance for us to get back to revenue-neutral. About 35 to 40 percent of our profits every year are invested in getting rid of rice straw,'' Collin, the cooperative president, said.

To encourage California's infant ethanol industry, a bill in the Legislature would allow producers and local air quality districts to apply for state grants. Other pending legislation would give a tax credit to ethanol producers.

U.S. Department of Agriculture (news - web sites) grants are available to help ethanol producers buy crops or farm waste, with the condition the fuel is used to expand existing production capacity.

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On the Net:

American Coalition for Ethanol: http://www.ethanol.org

U.S. Department of Agriculture: http://www.usda.gov

U.S. Environmental Protection Agency: http://www.epa.gov

California Farm Bureau Federation: http://www.cfbf.com

California Air Resources Board: http://www.arb.ca.gov/homepage.htm