This week, Energy Secretary Samuel Bodman said that government mandates may be necessary to boost the use of alternative fuels.

Thanks, Captain Obvious, for telling us what we've known and been encouraging for years. It seems to me that there's no better way to enforce the adoption of certain practices than to have them be mandated by the federal government.

Bodman further proved how in-tune he is with the energy situation by using one of the most hackneyed expressions in the industry, "There is no silver bullet here." Thanks for the update, guy.

And even though the head of the DOE is now publicly calling for mandates, I'm still not convinced of his dedication to the cause. But my skepticism aside, alternative fuels are here to stay because they're clean, renewable, and will soon be economically competitive--if they aren't already.

Why else would GM Chairman Rick Wagoner have recently announced that vehicles using alternatives to gasoline will likely grow to account for about 50% of the U.S. automaker's global production over the next five years?

That announcement came as Wagoner was visiting China to announce a $250 million investment in a Shanghai research center that will work with alternative fuels.

If 50% of new U.S. vehicles are to run on alternative fuel, the demand for ethanol will undoubtedly rise astronomically, and those investing in cellulosic ethanol will likely find themselves with some heft profit taking. Take a look at the chart below, which forecasts the demand for cellulosic ethanol:

And, as I've written before, any ethanol demand above 15 billion gallons per year will have to be met by cellulosic ethanol. So the race is on to find the best feedstocks, the best conversion processes (cellulolytic or thermochemical), and the most logistically feasible way to harvest and transport the stuff.

The Advantages of Cellulosic Feedstocks

Cellulosic feedstocks have many advantages over using corn to produce ethanol. Because cellulosic crops are not used for food, there is inherently less price volatility. And because a wide variety of crops can be used, they can be grown in a wide variety of geographic locations--even on marginal lands--and can, therefore, be more abundant. Plus, with certain crops, more ethanol can be produced per acre than can be made with corn.

With so many advantages, it seems only natural that we have dedicated energy crops, rather than using food crops for ethanol production.

Here are some numbers to think about.

Right now, corn yields, on average, about 160 bushels per acre, with industry predictions climbing all the way up to 300. And we get about three gallons of ethanol per bushel. That means for every acre of corn harvested, about 900 gallons of ethanol can be made.

Add in four tons of stover (converted cellulosically) per acre, with which you can produce 100 gallons per ton, and we're looking at additional ethanol production of 400 gallons per acre--for a grand total of 1,300 gallons per acre. And that's using two different feedstocks, with two different harvest times, two different costs and two different conversion processes.

Now consider a dedicated biomass energy crop like switchgrass, miscanthus or sorghum. These crops can be harvested, at the present time, at a rate of 20 tons per acre, with ethanol production of 100 gallons per ton, for a total of 2,000 gallons per acre. You can see why energy crops and the cellulosic process will be huge successes.

And that's with the current numbers. Imagine how big this would be if crop yields and gallons per acre were increased and cost were continually driven down. That's exactly where this industry is heading.

A Bright Future for Cellulosic Ethanol Investing

Many cellulosic ethanol companies are hard at work trying to alter plant genes and traits for beneficial outcomes. Traits that are being modified include:

• stress tolerance
• photosynthetic efficiency
• nutrient requirements
• cell wall structure and
  
• metabolic engineering

These changes have positive outcomes that include crops able to be grown on marginal lands, lower production and transport costs, increased CO2 sequestration, lower fertilizer costs, increased ethanol yield per ton and the enhancement of overall economics.

And the biotech firms that can make this happen stand to make a hefty profit for their efforts, as will those investing in them. That's why so many of the big boys are fighting to get an edge in the cellulosic ethanol territory.

DuPont Fabros Technology, Inc. (NYSE: DFT) recently announced a research collaboration with Evogene LTD. (Tel Aviv: EVGN) to improve drought stress tolerance in corn and beans. Although it's called a collaboration, DuPont now has exclusive rights to several genes discovered by Evogene.

This announcement is one in a series for Evogene, which recently announced collaborations with Ormat Industries for biofuel feedstock production and with Monsanto Company (NYSE: MON) to improve nitrogen use efficiency in a number of crops.

The latter gave Monsanto rights to a number of crop genes and sent Evogene's stock soaring.

Monsanto, for its part in the crop gene market, hasn't done too badly either. Investors watched the stock soar from below $60 to about $96--just in the past six months.

As for the logistics, Deere & Company (NYSE: DE) is working with a host of biotech and ethanol companies to develop specialized agricultural equipment that reduces harvest time and cost.

For example, one of the machines Deere is creating harvests corn, stover and cobs at the same time, eliminating the need for multiple machines and lowering harvest time. This not only reduces cost, but also make farmers more likely to sell stover, which otherwise would remain unused in the field.

So not only is Deere improving the logistics of the industry, but they're improving farmer sentiment as well. And if cellulosic is to ever really take off, farmers' cooperation is going to be imperative.

Plus, their stock is performing pretty well for its investors, too.

As you can see, the road to commercial cellulosic ethanol is going to be long and arduous, and will need contributions from many different industries and companies.

But for every task that has to be perfected along the way, there will be money to be made. These are just a few of the cellulosic ethanol companies that are already establishing themselves in the industry.

There are plenty up-and-coming companies that will have their turn. And Green Chip is tracking their progress every step of the way for our readers investing with us. To make sure you are in position to capitalize on these investment opportunities, you need to be a Green Chip subscriber. And at our discounted rate, there is no better time than now.