May 5 (Bloomberg) -- The Obama administration is injecting almost $2 billion to encourage more production of advanced biofuels while reviewing an initial finding that some corn ethanol doesn’t meet pollution-reduction standards.

The effort is intended to create jobs, reduce U.S. dependence on overseas oil and curb greenhouse gas emissions blamed for global warming, the administration said today in a statement. At the same time, the environmental value of biofuels must be accurately calculated, Cabinet officials said on a conference call.

The Environmental Protection Agency, acting under legislation passed by Congress in 2007, for the first time proposed methods to measure greenhouse gas emissions associated with biofuels. The agency’s initial review found that certain methods of corn ethanol production don’t meet a requirement to emit 20 percent less greenhouse gas than gasoline.

“Corn ethanol was never going to be the global warming solution,” said Eli Hopson, a lobbyist for the Union of Concerned Scientists in Cambridge, Massachusetts. “It’s a transitional fuel and incredibly successful at doing that, and now we need to work toward the next piece of the puzzle.”

Developing next-generation biofuels is critical to meeting the standards Congress established in 2007, Hopson said. The law quadrupled the requirement for blending ethanol and other biofuels into gasoline supplies.

Ethanol producers have struggled amid lower fuel demand and volatile prices for corn that’s the primary source of the alternative fuel in the U.S. At least seven makers of the additive have sought bankruptcy protection in the past year, including Aventine Renewable Holdings Inc. and VeraSun Energy Corp.

Production Methods

EPA Administrator Lisa Jackson said today that corn ethanol on average has emissions that are 16 percent less than petroleum-based fuels. Still, certain production methods could meet the law’s requirement of 20 percent less, she said.

The EPA analysis takes into account aspects of biofuel production from clearing land for planting to transporting the fuel and burning the blended fuel in cars. The agency is seeking public and scientific comment on its proposal during the next 60 days.

Rod Weinzerl, director of the Illinois Corn Growers Association in Bloomington, said he’s confident that corn ethanol will meet the requirement before the rule is made final.

“I feel pretty good where we are on the science side,” he said. “Sixty days from now, we’ll be in a better position.”

The administration took the “unusual but appropriate step” of subjecting its calculations of carbon footprint to peer review, said Bob Dineen, chief executive officer of the Renewable Fuels Association on a conference call with reporters.

Economic Stimulus

To bolster the development of ethanol and other biofuels, the Energy Department will make available $786 million in economic stimulus funds to support biofuel production, and the Agriculture Department will dedicate $1.1 billion within 30 days, the heads of the agencies told reporters today.

Jackson, along with Energy Secretary Steven Chu and Agriculture Secretary Tom Vilsack will lead a task force to encourage use of biofuels. The effort represents President Barack Obama’s “firm commitment in making this industry an integral part of this new 21st century American economy,” Vilsack said on a conference call with reporters.

The government group will help develop policies to spur production of vehicles that can use a higher blend of biofuels and spur more retail availability of the fuel, the Cabinet officials said.

The agencies also will direct funds to aid ethanol producers and support the expansion of biofuels refineries.

The Agriculture Department will use existing biofuels credit programs, included in last year’s farm bill, to help struggling biofuels producers restructure their businesses, Vilsack said.

Clearing Forests

Environmental groups say research shows that clearing forests and grasslands to plant corn for ethanol causes indirect emissions of greenhouse gases that must be factored in when considering its overall benefit.

Jackson called corn-based ethanol a bridge “to the next generation of biofuels,” including those that use agricultural waste products to create fuel.

To contact the reporters on this story: Catherine Dodge in Washington, at Cdodge1@bloomberg.net’ Tina Seeley in Washington at tseeley@bloomberg.net.

Last Updated: May 5, 2009 15:56 EDT