This week saw some bad news for ethanol. The American petroleum industry’s main lobbying arm filed a lawsuit to fight the EPA’s new ruling that cars made in or after 2007 can use a 15 percent ethanol blend.

On top of that, it looks like Congress is considering not renewing generous ethanol subsidies (which will expire at the end of this year) and opening up the U.S. ethanol market to outside players like companies in Brazil, which have thrived in the sugar cane-to-ethanol business.

So what’s an ethanol company gotta do to stay ahead? The good news is, biofuels and solar technology are the most likely of all alternative energies to reach the holy grail of grid parity in the next decade — that is, they may become competitive with traditional energy sources, according to a new report from Boston Consulting Group.

What’s more, it looks like the smart bets are on biofuels companies that use waste as a feedstock, according to Lux Research analyst Andrew Soare. One of the companies doing this is Ineos Bio, a subsidiary of Ineos, a big chemicals company with sales around $24.8 billion.

In Florida, Ineos Bio is kicking off the construction of a $100 million waste-to-ethanol commercial-scale plant that will have eight million gallons of capacity. Enerkem is currently working on a 10 million gallon capacity facility in Canada that will purportedly be the first in the world to turn municipal waste to ethanol.

“Though the scale isn’t a big deal, the fact that the technology converts waste to ethanol is indeed a big deal,” Soare said.

Ineos Bio can take a wide assortment of renewable biomasses like wood, vegetative and yard waste, and municipal solid wastes and convert them into ethanol. Fellow ethanol companies Enerkem and Coskata also use waste as a feedstock, which is a distinct advantage. Both of those companies were named on this year’s list of top 100 cleantech companies, compiled by the Cleantech Group.

Why is waste as a feedstock an advantage, you ask?

Well, first and foremost, it’s cheaper than other feedstocks. When you take into account the cost of cultivation, land use and transport for other sources like corn and sugar, feedstocks are usually the “highest single component of cost,” Soare said. In some cases, companies even get paid to haul away the garbage.

Waste avoids the controversy that flares when food sources like corn, sugar, and soy get crunched into ethanol. Ethanol derived from waste also gets classified as an advanced biofuel, so it doesn’t compete with corn-based ethanol for government subsidies.

“Biofuel companies need to cut costs drastically to compete with a massively scaled commodity like oil, and reducing the biggest chunk of that cost profile, feedstock, will drive these companies towards petroleum parity,” Soare said.

Ineos Bio may well be poised to surge thanks to the financial might of its parent company, while Enerkem still depends on the government to fund its commercial facilities, Soare said in his Lux analysis. However, that 14.8 billion gallons of ethanol capacity Soare is forecasting for 2012 gets mighty close to the 16 billion gallons of demand forecasted for that same time. Update: Enerkem’s vice president of government affairs and communications Marie-Hélène Labrie emailed us to say the company draws funding from a “diverse” set of sources, saying: “Enerkem is well-backed financially by high-caliber investors, such as Waste Management, Rho Ventures and Braemar Energy Venture. All cellulosic biofuel companies, including Ineos Bio, receive government funding for their first plants.”

[Image via Flickr/mugely]