Thune said he hopes the payments under the Biomass Crop Assistance Program can begin in the next few months and that he hopes it will jump-start production of cellulosic ethanol, which is made from wood, grasses and plants.
"It's a tremendous economic opportunity and shot in the arm for our state," said Thune, who is a Republican. "It fits so well into our state's natural resources.
"Some states tap the oceans or the deserts for energy. We've got these bountiful grasslands, the forests in the Black Hills, and we've got the corn and crop residue from crop production. We've got all the natural resources that fit beautifully into the future of biofuels."
At least one organization, the Washington, D.C.-based Environmental Working Group, worries about taking land away from food production, like corn, to produce energy crops.
"That's the fundamental question that confronts us when we think of biofuel production," said Craig Cox, who works for the group in Ames, Iowa. "How much of the land and water can we devote to producing fuel before we start having really serious unintended consequences on the commodities markets and on the environment?"
No commercial biorefineries are operating yet. But Darrin Ihnen, a farmer in Hurley, S.D., is collecting and storing corncobs for cellulosic production at an emerging plant in Emmetsburg, Iowa.
"Cobs are the easiest to collect, has the highest density of starch other than the kernels, and it's something that most farmers agree is a waste product," he said. "You can take cobs off the land, and you're not hurting yourself nutrient-wise or environmentally."
It might help the environment to remove cobs and use them to make ethanol, said Rob Skjonsberg, vice president of government affairs for Sioux Falls-based ethanol maker Poet LLC. The company is working with Iowa State University to gauge the effect of taking corncobs off the soil.
"Environmentalists need to remember that the original environmentalist is the American farmer," Skjonsberg said. "He depends on the soil for his livelihood. The last thing he's going to do is anything to denigrate the property."
Poet hopes to produce cellulosic ethanol commercially by 2011, he said.