April 7, 2011 | Jeremy Ogul

It wasn’t too long ago that making car fuel out of corn seemed like a brilliant idea. It’s local and abundant — American farmers have planted more than 85 million acres of corn a year since 2007. And unlike petroleum, it’s renewable: use corn, plant more. No drilling required.

Turns out, though, that using corn to make ethanol, the fuel source that is blended into gasoline, has some serious unintended consequences. At the end of 2005, the front-month contract for a bushel (56 pounds) of corn was about $1.86. When the U.S. government started pushing corn-based ethanol production in 2006 and 2007, demand for corn increased, pushing prices to over $4 in early 2007. Today, the price is $7.62 a bushel.

Of course, demand from ethanol producers is only one of many factors influencing the price of corn, but it’s clear that corn cannot be the only source for biofuels.

Enter cellulose, the non-edible fiber that makes up most plants. Cellulosic ethanol has an advantage over corn-based ethanol in that it uses materials that would otherwise go to waste or not be used. Several businesses are already producing cellulosic ethanol using woody biomass, dried and post-sorted municipal solid waste, vegetative waste, yard waste, wood waste and agricultural waste.

“Cellulose, while more challenging than corn to convert into ethanol, represents an even larger opportunity as it is the most common organic compound on Earth,” said POET CEO Jeff Broin in testimony before the U.S. Senate Agriculture, Nutrition and Forestry Committee last week.

Ethanol producers use enzymes to break down plant sugars and then ferment them into alcohol, which is then blended into gasoline. With corn, this isn’t too difficult because the carbohydrates in corn starches can be broken down into sugars with cheap enzymes. Cellulose, on the other hand, has a more complex structure that is harder to break down into sugars. The process requires steam, sulfuric acid and more expensive enzymes.

Commercial production of cellulosic ethanol is still in its early stages, but the federal government is working on jumpstarting commercial-scale cellulosic ethanol production. The Obama administration last week announced its goal of breaking ground on at least four commercial-scale cellulosic ethanol refineries over the next two years. The goal is part of the president’s new “Blueprint for a Secure Energy Future.”

The U.S. Congress has mandated the production of 16 billion gallons of cellulosic biofuel a year by 2022, as part of a broader mandate to infuse the nation’s fuel supply with 36 billion gallons of renewable fuels (including corn-based ethanol).

One challenge facing companies like POET is getting enough farmers on board to make production profitable. Another challenge is finding the capital to build the first commercial scale biorefineries.

“Today it is impossible to get financing for a cellulosic ethanol plant without a federal loan guarantee,” Broin said.

The US Department of Agriculture’s Biorefinery Assistance Program has guaranteed loans to several companies already. For example, Range Fuels, Inc., is relying on an $80 million loan guarantee to finance the construction of a plant that will eventually produce 20 million gallons of cellulosic ethanol a year. In January 2011, Agriculture Secretary Tom Vilsack announced loan guarantees for three more cellulosic ethanol biorefinery facilities in Alabama, Mississippi and Florida.

“It is clear that it has to be something other than corn,” Vilsack said in a January teleconference with reporters. “It is clear that it will be multiple technologies. It won’t be any single feedstock, and it won’t be any single technology. It will be a combination of those things, and we will try to figure out what is most efficient, most effective in each part of the country.”