mascomaSoon after announcing funding for Soane Energy — a company working to clean up its oil extraction projects — Chevron released news that it will partner (PDF) with biofuel maker Mascoma to turn lignin, a byproduct of ethanol production, into diesel and jet fuel.

If the technology takes hold, it could nearly double the productivity and efficiency of ethanol plants. This is important, considering the national emphasis on ethanol derived from agricultural sources like corn and other feedstocks. Critics of ethanol says that the process used to make it is just as dirty and wasteful as using gasoline. With Mascoma’s technology, bioefuel producers may be able to change their minds.

But this thinking is a long way out. For now, Chevron Technology Ventures has signed on to fund a two-year research and development program. The goal is to determine whether the conversion of lignin into useable fuels would be feasible and economical on a large scale. Mascoma plans to combine its process — which uses enzymes to ferment agricultural waste and wood into ethanol — with Chevron’s thermal technology that can turn the hydrocarbon-based lignin into transportation fuel. Chevron will also pony up a wide range of feedstocks to see which one produces the optimum amount of lignin. No financial terms were disclosed.

While Mascoma has raised more than $100 million over three rounds of capital, it is currently seeking venture financing and stimulus funding from the U.S. Department of Energy to build its first commercial-scale ethanol plant in Kinross, Mich. Michigan state government has already provided some support to match potential federal funds. The company already has a smaller demonstration plant in Rome, N.Y. that has been operational since late last year.

Based in Lebanon, N.H., Mascoma is backed by Flagship Ventures, General Catalyst Partners, Khosla Ventures, Kleiner Perkins Caufield & Byers, Pinnacle Financial Partners and VantagePoint Venture Partners. It has also received strategic investments from General Motors and Marathon Oil, among others.

VentureBeat is hosting GreenBeat, the seminal executive conference on the Smart Grid, on Nov. 18-19, featuring keynotes from Nobel Prize winner Al Gore and Kleiner Perkins’ John Doerr. Get your early-bird tickets for $495 before Sept. 30 at GreenBeat2009.com.