Energy independence and environmental concerns are the driving forces behind ethanol development. It is also political, with both parties trying to win the influential farm vote by doling out billions in tax credits. Regardless of the motive, ethanol could alleviate oil supply crunches while diminishing carbon dioxide emissions tied to climate change.

The global market for bio-fuels in 2005 was about 13 billion gallons, less than 2 percent of global transportation fuel consumption. Ethanol production costs can be as low as $1.10-$1.20 a gallon, although they are rising because of higher corn prices. Corn ethanol may be as competitive with gasoline when crude oil is more than $50 a barrel.

"Commodity price risk is the most significant risk factor inherent in the bio-fuels industry," says Ryan Katofosky with Navigant Consulting.

Ethanol supporters say that the immediate goal is to use more fuel additives and less gasoline. The Energy Policy Act of 2005 set out to do just that by requiring the use of 4 billion gallons in 2006 and 7.5 billion by 2012. Altogether, there are 112 ethanol plants in operation and another 76 under construction, which is plenty to meet the requirements under the current law.

Ethanol detractors, however, contend that the amount of energy it takes to convert corn to ethanol produces less energy and more emissions than if oil is just refined and combusted -- a claim, however, that is disputed by certain reputable scientists. Critics also note that in 2005, 13 percent of the U.S. corn crop was used to make ethanol, which has created shortages and pushed up the price of every product that uses corn as a feedstock.

For its part, the investment community is developing a greater level of comfort with first generation bio-fuels such as ethanol from corn, says Katofsky. But, those opportunities are limited. That's behind the push to use cellulosic ethanol, although there is a hesitancy to put capital into those second generation technologies until they are more established.

Government Help

In the interim, the government will fill the void. The U.S. Department of Energy is supporting both cellulosic ethanol research as well as "gasification." In the case of the latter, the byproduct is "syngas" that could be used to make hydrogen for fuel cell-powered vehicles.

In the case of the former and as the process matures, the government would expect the production costs of ethanol to drop from its current $2.26 a gallon to about $1.07 by 2012. To help get there, the Energy Department says it will invest up to $385 million in six projects over the next four years. When fully operational, the "bio-refineries' are expected to produce more than 130 million gallons of cellulosic ethanol per year.

BlueFire Ethanol is one of the benefactors, which has been awarded $40 million. That company creates ethanol from landfill trash that, in turn, reduces methane emissions that contribute to global warming. The plant, which is to be built in Southern California and is expected to be operational by year-end 2009, has the potential to be replicated at most of the 1,600 landfill sites around the country.

Iogen, likewise, will be awarded research dollars. The Canadian company is partnering with Shell to build a plant near Idaho Falls that will produce 18 million gallons of ethanol annually and use such feedstock as wheat, switchgrass and rice straw. The technology could be implemented nationally, producing as much 32 billion gallons per year.

"I want to start off by saying that cellulosic ethanol is a lot closer to reality than most people realize," says Brian Foody, President, Iogen Bio-refinery Partners, noting that he drives a flex fuel car powered by cellulosic ethanol. "So cellulosic ethanol is well beyond being an exciting, but unproven, technology."

Without question, all parties along the ethanol value chain receive tax benefits. But, the technology's future is promising. While grain-based ethanol requires substantial amounts of fossil fuel inputs, it is still cleaner than conventional fuels, creating 20 percent fewer greenhouse gas emissions, says the International Energy Agency. Oil giant BP, meantime, is on record saying that bio-fuels could provide 30 percent of the global energy demand by 2030 and do so without harming food supplies.

That's why the House Democrats are pushing legislation to not just encourage ethanol production but to also motivate the development of the infrastructure to support that growth. It would reimburse companies to equip their filling stations to pump gasoline blended with 85 percent ethanol. Beyond that, those members would fund research meant to double automobile fuel efficiency as well as expedite fuel cells and plug-in hybrids.