I'm not sure the renewable energy community would ever cheer the death of subsidies for a fellow renewable, but after the Senate voted to repeal ethanol tax credits, I heard a quiet golf clap from wind and solar boosters. Ethanol has been a touchy subject -- popular in agriculture-heavy states like Iowa, Minnesota, and Nebraska -- but the realities of the "renewable" fuel never quite added up, and Congress has apparently gotten the memo.

The main problem is that the physics of "renewability" never really worked for corn-based ethanol. Studies have put the energy output of making corn-based ethanol at around 1.5 times the energy put into the process for making it. The corn-based product isn't nearly as efficient as sugarcane-based ethanol produced by Cosan (NYSE: CZZ), plus it takes food out of the market, indirectly raising food costs.

What's next
The ethanol debate isn't dead in Congress, but it has taken a turn for the worst. The bill hasn't been through the House, and the White House opposes it -- but with 73 of 100 senators voting to cut the subsidy, it appears to be only a matter of time until it's gone.

The new ethanol
This setback doesn't mean the search for alternative fuels is over; the Senate just decided it was done supporting one that was never going to get cheaper. Now it should be time to turn our attention to newer, more promising technology. Yes, I'm talking about algae.

ExxonMobil (NYSE: XOM) made a push into algae biofuels last year, and Solazyme (Nasdaq: SZYM) came to the stock market this year with its microalgae bioproducts. Solazyme can make more than fuel from its algae, and that flexibility may keep its hope for a fuel alternative alive.

There are other companies turning everything from animal fats to wood chips into fuels and other products. Amyris (Nasdaq: AMRS), Syntroleum (Nasdaq: SYNM), Rentech (AMEX: RTK), and Gevo (Nasdaq: GEVO) are some of the main companies that may see the blow to ethanol as a positive for their business.

These alternative fuels aren't nearly as mature as the existing ethanol market in the U.S., but they aren't as dependent on subsidies, either. In a time of budget deficits, an alternative energy source that can stand on its own two feet should be a welcome sight.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.