Back in March, I argued that corn--at least in the short term--is a viable feedstock for ethanol production, and that cellulosic ethanol would eventually take over as king of the biofuels.

My argument went like this:

"But for the next five years or so, corn will remain a key component of the ethanol industry . . . until cellulosic ethanol comes online commercially.

"And that's when you're going to see the kind of production necessary to make a significant dent in foreign oil consumption."

In that same article, I also stated that America's farmers will be the Arabs of the Midwest.

Now, I'm not saying I'm the prognosticator of prognosticators, but it seems there was more than a kernel of truth in those statements.

You see, last week I attended a biofuels symposium at the Green Chemistry and Engineering Conference in Washington, D.C. And there certainly was a lot of time devoted to the subject of cellulosic ethanol.

The reason for all the buzz is simple. If we're to ever make a real dent in the amount of oil we import, biofuels are going to have to be introduced on a much more massive scale.

And doing so using only corn is unsustainable in the long term. There are land use issues, water issues, food price issues, etc., that will limit corn's contribution to a sustainable 15 billion gallons annually by 2017.

Last year, the US produced 4.8 billion gallons of ethanol from corn. And don't get me wrong, that number will continue to rise, leaving plenty of opportunity for Green Chip investors.

But to achieve the President's goal of producing 35 billion gallons of renewable fuel per year by 2017, cellulosic ethanol is going to have to make a big push for viability. With that in mind, let's look at a 2005 study by the US Departments of Agriculture and Energy (USDA and DOE).

That study, "Biomass as Feedstock for a Bioenergy and Bioproducts Industry: The Technical Feasibility of a Billion-Ton Annual Supply," concluded that the land resources of the US could easily produce a one-billion-ton supply of sustainable biomass sufficient to displace 30% or more of the country's present petroleum consumption.

In fact, the same study reported that forest land and agricultural land alone have the potential to produce 1.3 billion dry tons of biomass feedstock per year: 368 million dry tons from forest lands, 998 million dry tons from agriculture.

And that's not even an upper limit. Check it out:

So if one billion tons of biomass can displace 30% of our oil consumption, and we use 319 trillion gallons of oil annually, then, theoretically, we could sustainably produce over 95 billion gallons of ethanol from biomass annually.

Just take a moment and let that sink in. Remember, the President's goal is a mere 35 billion gallons by 2017.

And now that we know we can produce much more than that, the only factor left to delve into is time. You see, while the feedstocks may be there, the technology to convert them to ethanol is still developing.

It's one thing to make cellulosic ethanol in a lab with stringent control standards, and a completely different thing to haul millions of tons of dirty plant material directly to a processing plant for conversion.

There are many factors that come into play along the way. The feedstocks need to be harvested, hauled, and pretreated before they are stored, converted, and distributed.

That's a lot of steps that have to be perfected, which means a ton of coming investment--not to mention the amount of profits companies can deliver by providing solutions in the struggle to produce mass quantities of cellulosic ethanol.

And, as is normally the case, the Green Chip team has and will be all over this emerging opportunity.

In fact, our Green Guru, Jeff Siegel put out an alert to his Alternative Energy Trader members a couple of weeks ago on Verenium Corporation (VRNM: NASDAQ).

Last Wednesday, the shot up from $4.10 to $6.22 in 48 hours.

Take a look:

This, my friends, is a company that not only makes specialty enzymes critical to the production of cellulosic ethanol, but that also has a pilot production facility and is constructing the first demonstration-scale operation in the nation.

And take a look at BlueFire Ethanol Inc. (BFRE.OB), which was one of the lucky companies to get a piece of the $385 million the feds recently shelled out for cellulosic ethanol.

That's more than a 52% gain since the beginning of the year. And this industry is in its infancy. In fact, the first demonstration facilities won't be coming online until 2010.

As cellulosic ethanol prepares to step to the plate as a big hitter, you can be sure the potential for profits will increase dramatically as well.

We're talking about the second generation of biofuels and a validated generation of new wealth.

Make sure you turn to Green Chip for the latest on cellulosic opportunities.

Until next time,

Nick