Mascoma, a developer of cellulosic ethanol, said Tuesday it has raised $61 million in a third round of funding.

Backers include automotive giant General Motors Corp., which announced an undisclosed amount of investment and a partnership with Mascoma last week, and oil and gas company Marathon Oil, which contributed $10 million.

Mascoma will use the cash to finish building a demonstration plant in Rome, N.Y., which it hopes will produce ethanol by the end of the year, in addition to constructing a second plant and further developing its ethanol conversion process.

"After all this is used and spent, we'll have a lot of proof in both the lab and in operations of our process," Mascoma CEO Bruce Jamerson told Greentech Media. "We believe we'll show that we can make a very low greenhouse-gas-impact fuel on a very economical basis."

Companies developing cellulosic ethanol derived from nonfood sources, such as switchgrass and wood chips, have not yet been able to produce fuel on a mass scale or at an affordable price.

But Mascoma says its process, which uses heat and ethanol-fermenting microbes, cutting out the need for chemicals and additional enzymes, will make ethanol production viable. It has caught the attention of investors like GM, which also recently invested in the cellulosic-ethanol company Coskata.

In spite of investors’ votes of confidence, biofuels companies face some big challenges. Among them are the debates about biofuels’ environmental impact, energy use and effect on land use and food. While these controversies mainly have surrounded corn-based ethanol, some of the backlash could carry over to developers of cellulosic ethanol.

Rick Kment, a biofuels analyst at DTN Research, said that public concern about biofuels overall is making it more difficult to obtain permits for new factories, and that even cellulosic-ethanol companies may see a slowdown in permit approvals as a result (see Poet Cancels Ethanol Plant).

In addition, the political climate in a presidential election year has fueled the fire (see Green Light post).

Republican presidential nominee Sen. John McCain led a group of senators in asking U.S. Environmental Protection Agency chief Stephen Johnson to curb the Renewable Fuel Standard, signed into law last year. The standard requires the country to produce 36 billion gallons of ethanol by 2022.

Democratic presidential candidate Sen. Barack Obama followed suit, in an appearance on Meet the Press, when he suggested that the federal government should rethink its stance on corn-based ethanol. And Democratic presidential candidate Sen. Hillary Clinton has made similar statements.

Despite the unfriendly political climate for corn-based ethanol, Mascoma believes that ethanol will still be in demand in the United States, especially because of skyrocketing gas prices, company officials said.

"In general, you'll see ethanol need to increase simply because we're short on refined products," said Jamerson. "Don't watch the political rhetoric; watch what the oil companies and then the vehicle drivers are doing. They're not buying any less gasoline, and thus they are not buying any less ethanol."

He added that cellulosic ethanol is a different ballgame from corn-based ethanol production, and that the current backlash against the latter will not hurt his business in the long run.

"Our sector gets great support from the political folks," he said. "In some ways, this helps our business, because it highlights there's a greater need for nongrain-derived fuel. I think we're pretty separate from the political rhetoric on corn."