To my surprise, recently I found myself the subject of an editorial by the Wall Street Journal which characterized me as a strong advocate of subsidies for food-based ethanol, and as a recipient of “federal dole” who ought to “take a vow of embarrassed silence.”

I have not advocated subsidies for food-based ethanol. In fact, I strongly believe any nascent technology that cannot exist without subsidies beyond an introductory period will not gain market penetration, and is not worth supporting.

I do look forward to the WSJ‘s complaints about oil’s subsidy bonanza, from tax breaks for drilling, loopholes that allow royalty-free or below-market offshore oil leases, manufacturing tax breaks, as well as roughly $7 billion in subsidies in the wake of the Katrina disaster. At a recent WSJ Conference, 75 percent of the erudite audience “voted” (rightly) that oil was more highly subsidized than ethanol.

Were these not such serious matters, the WSJ editorial would be laughable. But there are serious issues at stake. Should we not look past our noses to the larger issues of dependence on oil? The alternative of biofuels raises serious questions deserving more depth than the entrenched, one sided views of the Wall Street Journal.

Discussing biofuels is like discussing drugs: Society recognizes the difference between aspirin and cocaine; we should also be cognizant of differences amongst biofuels. Biofuels vary dramatically in their environmental impact and their effects on food prices. For instance, biodiesel from food oils like soybean or palm oil have traditionally created environmental negatives, they are unscalable and likely to be fundamentally uneconomic. On the other hand, corn ethanol has served as a useful stepping stone to cellulosic ethanol but has recently come under criticism — some of it fair, some absurd. A preferred alternative, cellulosic ethanol, is coming fast, but to be environmentally sound it must not directly (or indirectly) force alternative crop production into environmentally sensitive regions like rain forests.

Currently we are faced with an energy crisis, an environmental crisis, a food crisis, and a terrorism crisis, and all are related to oil. High cost options like hybrids and electric cars may sound good, but are unlikely to materially reduce carbon emissions. To make a meaningful impact, we have to ensure that at least 500-800 million of the next billion cars we produce on this planet in the next 15 years be low carbon cars. The only cost-effective option likely to get broad market acceptance is cellulosic fuel cars in the next decade or two.

Doing nothing is not an option. Instead, it comes down to a fundamental question — given our economic and energy constraints and framework, we must find the best option that can meet our needs, taking care not to let the perfect be the enemy of the good. A crisis is a terrible thing to waste and if pursued intelligently, this crisis may help us to permanently solve our dependence on oil.

Much of public opinion is influenced by paid-for campaigns of interested parties. Recently the Grocery Manufacturers Association has started a multi-million dollar campaign against corn ethanol; meanwhile, the American Petroleum Institute is far more concerned about food prices than oil prices. One hears slogans about how much corn and water are required to produce a gallon of ethanol — a 16oz steak takes about the same amount of corn and more water. Are opponents of corn ethanol also calling for a ban on steaks, especially since chicken is a healthier food and takes less corn to produce?

Similarly, we’re told that hybrid cars are a great solution, but we seldom hear that they reduce carbon emissions about as much as corn ethanol and at a cost that is a hundred fold more per car compared to a flex-fuel car. A recent McKinsey study rated them among the most expensive ways to reduce a ton of carbon emissions.

We must not let the clever PR campaigns distract us from a broader societal goal of producing environmentally sound cellulosic biofuels; thanks to the market that corn ethanol has established, they are getting significant. Congress wisely established a Renewable Fuel Standard that requires oil refiners and fuel blenders to use up to 36 billion gallons of renewable fuels produced in America. This standard caps corn ethanol at 15 billion gallons and provides an incentive to produce next generation cellulosic fuels. Sufficient biomass exists as waste from forestry operations alone to meet all of the 21 billion gallons of cellulosic fuels mandate established in the 2007 energy bill. All 36 billion gallons of the mandate could be produced, at prices approaching $1.00 per gallon within ten years, if we include agricultural crop waste, municipal organic waste, and sewage.

Add winter cover crops grown on current agricultural crop lands during the winter months when the land sits idle and is subject to nitrogen runoff and topsoil loss and we could, even after excluding up to 50 percent of our annual crop lands, replace most of our gasoline imports. By some agronomists’ estimates winter cover crops could produce 450 million tons of biomass within ten years and over 750 million tons of biomass by 2030 on 150 million acres of winter crop land. That is sufficient biomass to replace much of our imported gasoline. All this could be accomplished without an additional acre of land used for biofuels production. At the same time, winter cover crops will improve the ecology of traditional annual food crops during their summer growth period.

Food prices have been a concern recently — but it is little understood that oil prices affect the food Consumer Price Index in the U.S. two to three times as much as corn prices, according to a study by LECG. And oil prices have risen 1,000 percent in the last ten years while corn prices have risen 200-300 percent. Elsewhere, an Informa economic report notes that “just four percent of the change in the food CPI could be attributed to fluctuations in the price of corn.” If biofuels were taken off the market, Merrill Lynch estimates oil prices would be 15 percent higher, which in turn would put further upward pressure on food prices; meanwhile the increased supply of corn would put downward pressure on food prices.

The net effect on food prices is hard to estimate accurately. For the developing-world rural poor, which comprise about 67 percent of those living below a dollar a day, food price increases often increase income as their subsistence farms become economic, while for the urban poor food price increases are disastrous. No wonder developing countries like India and Brazil have been pressing the WTO to increase food prices by reducing western food subsidies so their farmers can generate income form farming. And charities like Oxfam have historically been reluctant to export cheap American corn to Africa for this reason. On the other hand, can you imagine the human benefits of hundreds of billions of dollars going into biomass refineries in Africa every year? It may be the single most important tool we have for poverty reduction in Africa!

The environmental effect of corn and cellulosic ethanol depends upon what one assumes about their source. If ethanol is produced on lands that displace food production into the rain forest, the net environmental effect will be negative. But if we keep burning oil and coal, the environmental consequences will be bad too. A simple national and international policy that incentivizes countries like Brazil and Malaysia to preserve their rain forest through carbon credits while banning biofuels (and maybe all agricultural exports) from countries that do not meet rain forest deforestation reduction targets could dramatically change the environmental benefits of biofuels.

Thermochemical conversion approaches to cellulosic ethanol production reduce water use by 75 percent compared to corn ethanol and below the water use of gasoline refining. Furthermore, they reduce carbon emissions by 75 percent while producing ethanol at production costs well below that of corn ethanol and gasoline.

To incentivize the production of biofuels that are environmentally beneficial, I have suggested a “CLAW” — or carbon, land, air quality, and water — impact rating for all biofuels, much like LEED ratings for buildings. If we reduce the RFS mandates in the energy bill (as some have called for) we are likely to reduce the investment in next generation cellulosic fuels with disastrous consequences for our energy security and the environment. As one of the larger investors in cellulosic and waste based biofuels research, I should know.

It is clear that corn ethanol has served as a stepping stone for cellulosic ethanol and other biofuels, mitigating risk and establishing a market. As a venture capitalist, I would not have invested in cellulosic without corn ethanol’s partial alleviation of the risks of creating a market, creating distribution terminals, E85 pumps and starting our flex-fuel fleet. In fact, I believe that the cellulosic fuel mandates are too low. It would be smarter to change the RFS such that the RFS can be adjusted for five to seven years, both up or down every year, based on the availability of cellulosic fuels at a fair price above a floor price but related to the price of gasoline.

Consumers would be protected by such a “price capped cellulosic RFS” approach and it would offer investors and producers assurance that all cellulosic fuels that are produced at these reasonable prices will be mandated until cellulosic gets to scale by 2015. We will not have to worry about too ambitious a schedule for biofuels production. Yet it will prevent manipulation of cellulosic ethanol by interested opponents of clean fuels while increasing investment in cellulosic research and production facilities. And lest we forget, ethanol is just a starting point. Cellulosic jet-fuel and cellulosic diesel, and even renewable gasoline, are also under aggressive development by many startups, eliminating the need for food-based biodiesel at cheaper prices.

All biofuels are not equal; as with anything, we can do it poorly or we can do it right. I believe that cellulosic biofuels offer scalable, economic, and environmentally meaningful impact on reducing our petroleum usage with benefits to farmers, entrepreneurs, and American consumers. I have many investments in biofuels companies, and some say I believe in biofuels because I have invested in them. I suggest that I have invested because I believe. I believe we can help the environment, our economy, and our national security by remaining committed to our current course.