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A surprising $100 million has been raised so far in the fight over the California oil tax. Californians will vote in November on whether to put a tax on oil extracted from California wells.

There’s so much at stake in California, because its economic clout often means other states follow its lead. To put this $100M number in perspective, that’s 40 percent of what it cost to run for U.S. president last time, according to this summary in the Mercury News (registration required) about the fight between Silicon Valley supporters (including venture capitalist Vinod Khosla, pictured here) and Chevron and other oil interests.

Wired has a noteworthy piece by Vinod Khosla, where he describes his biofuel investments with more detail than we’ve seen before. Not only is Khosla at the center of the one of the biggest political battles the state has seen, he’s as frenetic as any investor right now in biofuels. In one example, he elaborates on the $3.3 million investment he made last month in Kergy, a Denver company, which is the first “anaerobic thermal conversion machine.” Kergy has been secretive until now; we mentioned it here.

So what, you ask, is anaerobic thermal conversion? Khosla explains:

Kergy’s machine is special because it makes cellulosic ethanol through anaerobic thermal conversion rather than through fermentation or acid hydrolysis. It does not need organisms or enzymes to do its work. Biomass is heated in an oxygen-free environment to produce carbon monoxide and hydrogen….The carbon monoxide and hydrogen are then reconstituted into various alcohols • like ethanol. Better still, fermentation and acid hydrol­ysis can take days to occur, but thermal conversion breaks down organic matter and converts it to ethanol in minutes.

And here’s the really exciting part: Because all organic matter contains carbon, [inventor Bud] Klepper can make ethanol out of cellulose or any form of organic matter. This means the usual suspects such as corn, switchgrass, sugarcane, and miscanthus but also any waste product such as wood chips, paper pulp, cow manure, and even human waste.

Khosla has his critics, as when he came under attack by The Oil Drum. When we visited him last week, he said his argument now is that nation can take incremental steps — but not necessarily huge steps — to wean itself from oil dependence. He dismisses hydrogen as an energy source, because it would require too radical a shift in resources. There is no infrastructure build to support it. He says he keeps getting pitches from entrepreneurs wanting to build a hydrogen company, and he responds: “Now what? Who are you going to sell it to?”

Corn ethanol, on the other hand, is already here, and has a ready market. So then you can build upon that, by moving to the much more efficient cellulosic ethanol, which is where Khosla is focused. He compares it to the Internet. The earliest version of the Internet was far from perfect. But it was useful, and some companies made money. But with AJAX and other cool new tools, we’re still innovating.

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Tags: co:Chevron, co:Kergy, inv:Khosla-Ventures, people:Vinod-Khosla