Plans are moving forward for Hawai'i's first ethanol plant.

Kauai Ethanol has received preliminary approval for an air emission permit from the state Department of Health, putting the project on track to break ground in January or February.

Production at what would be Hawai'i's first ethanol plant could begin about 14 months later, said William Maloney, president of project developer Pacific Quest Energy LLC.

The plant at Kaumakani would produce 12 million gallons of the alcohol-based fuel annually or 30 percent of what is needed to satisfy demand for ethanol created by a state mandate that took effect in April. Since April, the state has required that most gasoline sold contain 10 percent ethanol. The mandate is supposed to reduce Hawai'i's dependence on imported oil.

Ethanol is an alternative fuel that can be produced locally from sugar cane or one of its byproducts.

None of the five companies that pledged to build ethanol plants in Hawai'i has broken ground yet.

That means oil companies have been importing the grain-based fuel at a rate of about 4 million gallons per month from countries like El Salvador.

That could change if Kauai Ethanol gets an air pollution control permit from the state. The health department now is accepting public comment on a draft permit and could issue a formal permit early next year. That would put Kauai one big step closer to starting construction, Maloney said.

"It's the biggest hurdle," he said. "We literally can't do anything without that."

Companies that could benefit from the shift to ethanol include Hawai'i's two remaining sugar producers, which have operations on Maui and Kaua'i. Ethanol production represents a new market for sugar, but it won't necessarily result in new sugar cane processing plants or jobs in the near future.

Nonetheless, the new demand could keep the ailing sugar industry from contracting further amid stagnant prices and increasing foreign imports.

Kauai Ethanol is finalizing engineering plans, construction permits and financial agreements needed to build the planned $35 million ethanol plant, Maloney said. Construction of the facility, which would employ 16 people, would take 14 to 18 months.

Meanwhile, a pollution permit governing emissions from the plant's boiler could be granted in January or February, said Nolan Hirai, a supervisor in the health department's Clean Air Branch.

"It kind of depends on how much and what kinds of comments we receive," he said.

Reach Sean Hao at shao@honoluluadvertiser.com.