Global Policy Forum

The evidence against ethanol is clear. Now the White House is betting on the next generation of biofuels.

Barack Obama used a campaign tour through the mid-west to announce he would spend up to $510m (£311m) to help build new refineries which could produce fuel from wood chips, grasses, or corn cobs. "Biofuels are an important part of reducing America's dependence on foreign oil," he said.

What's far from clear, however, is whether biofuels production is the most efficient way to do that, or to move the US towards greener forms of industry.

The biofuels industry has been slow to take off in the US – aside from corn ethanol, of course which has enjoyed 30 years of government support. But in a conference call with reporters, officials said the initiative from the departments of agriculture, energy and the navy could break the long losing streak.

Under the plan, the US government will provide matching funds to private companies building new biofuels refineries, or retrofitting existing plants. None of the funds are new, but have been redirected from other programmes, the officials conceded.

But for once, there is a guaranteed customer for biofuels, and that could make all the difference, the navy secretary, Ray Mabus, said. "The navy can also be the market. We have a big need for biofuels."

The US navy has been working on greening its fleet for several years. The navy wants to power half of its operations by nuclear and renewable energy within a decade.

Mabus argued the navy's efforts to test biofuels on jet fighters and river boats had already helped put biofuels prices within range of conventional fuels. "Prices from suppliers have been coming down very dramatically over the last year or so," he said.

It will be interesting to see whether private companies think the time is now ripe to jump into the market. Campaigners have long argued that corn ethanol's dominance has shut out efforts to develop a next generation of biofuels.

The Environmental Protection Agency had to scale back its targets for cellulosic ethanol, or fuel made from woodchips and inedible parts of plants, from 100m US gallons to just 6.5m US gallons a year – and even that modest target will go unmet.

As an article in Scientific American pointed out this month, biofuels still have a long way to go before competing with gasoline.

Despite the best hopes of scientists, CEOs and government policy makers, hundreds of millions of dollars in government money, more than two dozen US start-ups financed by venture capital and decades of concentrated work, no biofuel that can compete on price and performance with gasoline is yet on the horizon

Tuesday's announcement could be the last best chance, said Michael Livermore, executive director of the Institute for Policy Integrity. "One granting programme obviously isn't going to be a game changer in terms of advanced biofuels," he said.

Cutting the $6bn subsidies for corn ethanol would be a far bigger boost. But Livermore added: "It's kind of a reality test to ensure that there is genuine interest and this is not just a government boondoggle. If they don't show interest, it is a real sign that maybe this isn't such a good avenue in the future."