Expect strong federal support for developing the cellulosic ethanol industry to continue under the Obama administration, says Cole Gustafson, biofuels economist at North Dakota State University.

“From what we've seen so far, both green energy and job creation are major focal points of the new administration,” he says.

Among encouraging signals:

  • Obama strongly supported provisions to make tens of billions of dollars available for energy programs during the debate over the federal stimulus package in late January.

  • Obama encouraged extending tax credits allowing companies to write off 50% of original investments made in facilities producing fuels made from renewable sources. The credits were part of the Emergency Economic Stabilization Act passed by Congress last fall. “It put cellulosic ethanol on par with corn ethanol,” says Gustafson.

  • Obama directed the Environ-mental Protection Agency to reconsider an application from 14 states to set stricter limits on greenhouse-gas emissions from cars and trucks. Renewable fuels like cellulosic ethanol would be needed if stricter limits were in effect.

Although government support for the industry appears solid, development of a commercial cellulosic ethanol industry still faces major challenges. The worldwide credit crisis, recession and declining oil/gas prices make it extremely difficult to secure the level of private-sector investment necessary to move the industry forward, he says.

What's more, says Gustafson, even after those situations are resolved, investors may be reluctant to invest in cellulosic ethanol to the extent they invested in corn ethanol during its earliest development. “One of the reasons the corn ethanol industry came on so quickly was that it operates under a set of consistent and uniform performance standards most investors can relate to,” he says. “It's easy to explain to a Wall Street analyst or an investment banker that it takes 1 bu of No. 2 corn to produce 2.7 gallons of ethanol.

“But with cellulosic ethanol, you're talking about a wide variety of feedstocks — switchgrass, timber, sweet potatoes, cornstalks … — that can be used. And each of those will result in a different level of productivity. That's confusing to many investors. There are also still a lot of questions about what kind of processes will be best for converting the feedstocks into fuel, what the markets will be and how feedstocks will be transported and stored. Those are not the kind of things a New York investor type is looking for in an investment.”