INTERVIEW-More incentives needed for cellulosic ethanol

The company hopes to build six or more 30-50 million gallon ethanol plants by 2001, at a cost of roughly $200 million each. Verenium is scouting sites in Florida, Louisiana and Texas.

Verenium is talking to potential corporate partners about equity for its planned projects, expertise to source and manage its feed stocks, and marketing and logistics.

"There is a lot of interest," said Riva. "A lot of major corporates are starting to show an interest in this."

The company will know later this year if its economic projections -- a goal of producing ethanol at a cost of $2 a gallon or less -- are achievable immediately.

"We thought that was competitive with corn-based ethanol at $4 a bushel," Riva said of corn costs.

But corn prices have surged since 2005 and on Monday corn prices at the Chicago Board of Trade rose above $8 a bushel for the first time amid flooding in the U.S. Corn Belt.

Cellulose for ethanol has gained interest due to increased worries about U.S. reliance on foreign oil, oil prices above $130 a barrel, and a backlash against corn-based ethanol from livestock feeders and foodmakers blaming ethanol for soaring corn prices and food inflation.

Besides the loan guarantees to construct biorefineries, the new farm law includes a tax credit of $1.01 per gallon of cellulosic ethanol, allots $300 million for payments to encourage larger output of advanced biofuels, creates a program to help farmers establish perennial biomass crops, and sets aside money for research into biofuels.

"The farm bill was terrific," Riva said. "It gets past the debate about what kind of advanced biofuels we should have. They have eliminated a lot of uncertainty. We have to find alternatives for liquid fuels." (Reporting by Carey Gillam; editing by Jeffrey Benkoe)