In his 2007 State of the Union speech, President George Bush called on the United States to reduce its gasoline consumption by 20 percent over the next decade by tightening fuel economy standards and producing 35 billion gallons of renewable fuel by 2017. The question many are asking is, “When will we get there?”

The western United States isn’t waiting. From a political standpoint, California, Oregon and Washington are creating the motivation through incentives for consumers and businesses to adopt or invest in solutions. In fact, California Gov. Arnold Schwarzenegger (R) has taken a leadership role on global warming efforts and the adoption of clean energy solutions.

Last year, venture capitalists took note of the governor’s progressive stance on climate policy and directed more than $1 billion to California’s clean technology sector, representing an almost 7 percent increase in California’s overall share of investments in the clean technology sector for 2006.

The U.S. government is also taking notice. The U.S. Department of Energy in June announced that it plans to spend $375 million in California, Tennessee and Wisconsin to develop more efficient ways to convert non-food crops into auto fuel.

Despite recent developments, the prevailing opinion in the investment community is that the President’s 20 percent renewable fuel target will be a sizable challenge to meet given the significant ethanol and/or biodiesel refining capacity increase required. Currently, only 12 million gallons of ethanol production capacity is online or in production against an annual U.S. fuel demand of 180 million gallons. The economics associated with competitive ethanol production are being challenged by the rising cost and fundamental inefficiency of corn as a food stock to generate ethanol, as well as the yet-unproven ability of cellulosic sources to be cost-attractive in the United States.

Meanwhile, biodiesel is gaining ground. The recently announced IPO filing for Seattle-based Imperium Renewables demonstrates the industry’s commitment to building capacity for biofuel production. Imperium says it expects to have an approximately 405 million gallon-per-year capacity by the end of 2008. These are important steps on the long highway to attaining President Bush’s goal.