Currently with the subsidies to the farmers and the subsidies to the ethanol producers there is approximately $1.45 per gallon in subsidies. They would need to produce ethanol without the use of fossil fuels to produce them.... or come up with a new way to produce it using fossil fuels more efficiently.
Currently there is no profitable way that I am aware of to produce it without the subsidies.... and if the government does shift the money into cellulosic ethanol production.... guess where the companies producing ethanol are going to shift and make money?
Using alternates to power their production plant is exactly what BlueFire Ethanol is doing. They also plan to supplement the heat and methane with some of the ethanol they produce to make the plant 100% internally energy sufficient. Being internally energy sufficient will probably knock at LEAST $1.45/gal off the production costs of ethanol.
If they use methane and ethanol powered plant vehicles (fork lifts, trucks, loaders, etc.) that would reduce costs even more. It will cost some extra for them to built their infrastructure to use alternate energy while creating alternate fuels, but that is where the government money they are receiving comes in.
And that is where our government failed us in their push to use corn ethanol. First they chose an unsustainable biomass. It would not (did not) take a lot of research to point that fact out, but they pushed ahead anyway. Second, they did not bother to look at the energy economy when they started using more corn.
Third and most important, they ONLY looked at fuel production. They did not even consider the fact that in order to make efficient use of alternate fuels we would need to change our energy infrastructure significantly. Leaving the production plants themselves dependent on fossil fuel energy made the entire endeavor without meaning. Producing large amounts of ethanol - regardless of its biomass source - does little good if your infrastructure remains dependent on fossil fuels.
Luckily there is innovation taking place at other levels. And luckily the world economic conditions let us catch the unintended consequence of using food for fuel early.
But now we need to make the push to Congress, telling them to not withdraw completely from biofuels, but to alter their focus to supporting changing the infrastructures to produce biofuels as cheaply as possible, and simultaneously shifting our energy infrastructure to use alternate fuels. We need to change over oil fired electrical plants to use renewable fuels, reducing our oil use. We need to change coal fired plants, too, and then use coal liquifaction to produce clean burning diesel fuel, further reducing oil use. Millions of public buildings use oil and coal fired steam plants for heat. Switch them over to renewable fuels and save even more oil. In some areas private homes depend on fuel oil for heat. Switch them over.
Yes, I am calling for a lot of government money be spent in subsidies to help change our energy economy. But the subsidies I am calling for would be ONE TIME subsidies. When the infrastructures are switched over, the subsidies go away, instead of going on and on and on as they do when production and market is subsidized. Not only that, but as more infrastructure is switched over, the economy of alternate fuels becomes more efficient, making it more economical to continue switching over our infrastructure, reducing the need for subsidies to do so.