My previous innovation piece examined solar power -- a technology that's easy to love. Biofuels are a much more divisive subject, raising environmental, political, and other concerns. I'll do my best to navigate these difficult waters, and focus your Foolish attention on the possibilities of a green fuel future. At the same time, let's try not to overlook the shortcomings of any particular solution.

Corn ethanol's come undone
We'll begin with ethanol, the first and perhaps only biofuel to thus far have entered the American consciousness. On the plus side, corn-based ethanol produced by the likes of Archer Daniels Midland (NYSE:ADM) and VeraSun Energy (NYSE:VSE) can be produced domestically. The USDA's found that it has a positive net energy balance, and it can be used in standard automobiles in gasoline blends of up to 10% (E10). Some negative aspects include the food-versus-fuel problem, corn growers' reliance on lots of fossil fuel-derived fertilizers and water, incompatibility with existing pipeline infrastructure, and potentially higher emissions because of land use changes.

As far as standard ethanol goes, various tweaks can and are being made to reduce water consumption and increase ethanol yields. However, the explosion in corn prices overshadows these incremental improvements. It seems we need a real change, and that's where cellulosic ethanol steps in.

Celebrating cellulosics
Ethanol is basically moonshine -- sugar fermented into alcohol. In the case of corn, the sugar is found in the starchy kernel. But essentially any plant material can be used as an input, given the right enzyme to break down a plant's cellulose into simple sugars. The ideal plant would be inedible, and grow rapidly on marginal land with few inputs. Switchgrass is one oft-cited example. There are even more exciting prospective sources than switchgrass out there, but they tend to, ah, crop up in biodiesel production. We'll get to that a little later.

While it appears to be an improvement over corn, switchgrass still requires water, tractors, and fertilizer. Wouldn't it be more sensible to utilize already existing waste biomass? That's what start-up Range Fuels is looking to do with wood waste; it broke ground on its first plant late last year. Verenium recently won a government grant to help the firm commercialize its own process, which aims to process sugarcane pulp, among other feedstocks. A bit further off in the distance, General Motors (NYSE:GM) and Coskata are even planning to derive cellulosic ethanol from old tires.

The synthetic frontier
I just mentioned Verenium, an enzyme specialist allied with DuPont (NYSE:DD). There are many more life-science-oriented companies eyeing an entree into the renewable fuels space.

Start-ups like Amyris, Synthetic Genomics, and LS9 all ply their trade in synthetic biology, whereby lab-created microorganisms will have the potential to turn renewable feedstocks into not just ethanol, but gasoline and diesel fuels that are analogous to their petroleum predecessors. This synthetic fuel would solve the pesky pipeline problem, among others, but it's hardly poised to hit your local service station.

Biodiesel: The other green fuel
Thanks to huge emissions improvements, diesel now fuels nearly one-fourth of the world's cars. American diesel usage is more concentrated, with freight trucks accounting for more than 50% of consumption. Still, with Safeway (NYSE:SWY) converting its entire fleet to biodiesel, and many more industry players sure to follow, there's a huge domestic market. Tax-incentivized biodiesel producers have popped up all over the map. The National Biodiesel Board counted 171 at the end of January.

Most of today's producers depend on vegetable oils, particularly soybean oil, for their feedstock. A familiar problem rears its head, of course: Soybean prices are going through the roof. Similar innovation is thus required to save the biodiesel industry from its reliance on food-related crops.

Lard? It's not that hard
Fortunately, potential biodiesel inputs are quite broad, and they extend to the animal kingdom. Beef tallow and poultry fat present some unique challenges for biodiesel producers, on account of their high fat content, but they have the allure of being dirt cheap.

Nova Biosource Fuels, which is run by an oil-industry veteran, is one pioneer in this area, and GreenHunter Energy also says its new facility, slated for start-up next month, will be able to handle animal fats.

We come bearing oil
The use of waste oils and greases is not only admirable, but it promises to be highly profitable in the short run. Nova points out that these inputs render biodiesel production profitable even before significant tax credits are considered. Still, it's not clear that waste sources will be able to singlehandedly support the massive shift to biodiesel.

This is why BP (NYSE:BP) is jonesing for jatropha, while Chevron (NYSE:CVX) is allying itself with an algae alchemist. Both yield a high percentage of oil by weight. Jatropha grows like a weed, because it is one, and the reproductive rate of algae makes rabbits look downright Puritanical. If pressed, I would have to put my money on the latter.

A final Foolish word on future fuels
Speaking of our money -- as investors, we have our work cut out for us when it comes to divining the future of fuel. There are dozens of solutions that sound like the best thing since sliced bread, but sadly, some promoters are just buttering you up. My advice is to leave the science experiments to the venture capitalists, and direct your dollars toward the demonstrated moneymakers.

Related Foolishness:

  • Ethanol has dulled ADM's margins, but the firm is also betting on biodiesel.
  • Ethanol has also made this producer's future unknowable.
  • We've been debating the merits of these fuels for a while now.