Most observers expect that the coming Obama era of American politics will include a strong push to enact a number of progressive new energy policy initiatives, many of which may profoundly shape the future of the U.S. ethanol industry.

The first challenge on President Obama’s plate will be the pending Renewable Fuels Standard rule, known as RFSII. That rule, which has been drafted by the U.S. Environmental Protection Agency, sets forth the regulations for complying with the latest iteration of the RFS that calls for the use of 36 billion gallons of ethanol by 2022. That rule is being held up at the Office of Management and Budget due to interagency disagreements between EPA, the Department of Agriculture, and the Department of Energy over the impacts of biofuels use on land clearing and associated emissions of greenhouse gases.

President Obama will need to referee this dispute and determine how the rule will treat these so-called indirect emissions before it can be promulgated and implemented. This is a critical issue for the biofuels industry, since it will set a precedent for ascribing greenhouse gas emissions to biofuels that will affect the extent to which ethanol and biodiesel are able to compete in an increasingly low-carbon world.

There is speculation that the stimulus bill that will be debated and presumably passed in January could include provisions accelerating the emergence of the cellulosic biofuels industry, such as an expansion of the Department of Energy’s loan guarantee program. The bailout of the U.S. automakers – the car companies that have taken the lead in making flexible fuel vehicles (FFVs) – will help ensure that they can continue their progress toward producing fleets that include a greater and greater percentage of FFVs.

Later in the spring, Congress is expected to take up energy legislation that likely will include a low carbon fuel standard. And sometime in the next few years, Congress is likely to pass legislation to establish an economy-wide program to cap greenhouse gas emissions and trade carbon emission credits.

Finally, Congress is expected to determine whether to extend the existing ethanol tax incentives in the next two years. Some, like former Senate Majority Leader Tom Daschle, are calling for the 45 cent per gallon blender credit to be converted to a producer credit, allowing Congress to drop the current import duty. In short, what happens in the next two years will determine in large measure the success of the biofuels industry over the next twenty years.