This is either a historical moment, or another in the long line of false starts in biofuels.

Valero, the petrochemical giant, has invested in Mascoma, which develops microbes that it says can economically and efficiently convert wood chips and grasses into cellulosic ethanol. Under the deal, Valero could invest up to $50 million into Mascoma. Valero also signed a non-binding letter of intent to support the construction of a plant in Michigan that would be capable of generating 40 million gallons of ethanol a year. Frontier Renewable Resources, a Mascoma joint venture, will build the plant if funds can be obtained. Ideally, construction could begin this year and if the plant gets built Valero said it could enter into a purchasing agreement.

Investors and executives have long waited to see a full-fledged partnership between an established fuel giant and a VC-backed startup. Getting into the fuel industry requires an inordinate amount of capital and time. Don Paul, Chevron's former CTO, once estimated that it takes $3 billion and 15 years to get a fuel from a lab bench into commercially interesting levels of production. This is a business where a 400,000-gallon-a-year plant, like the one Mascoma has, is a prototype.

Some startups -- Imperium Renewables, Range Fuels -- have spent hundreds of millions, only to flail and discover that it's not enough. The Department of Transportation has had to curb its ambitious goals for cellulosic ethanol production: the recession, the swoon in oil prices from their $140-a-barrel highs in 2008, and the high capital costs have all combined to reduce actual production to a trickle.

Mascoma has faced struggles itself. It has raised $100 million from private investors like Marathon Oil, GM and Khosla Ventures and received $100 million in grants and loans from federal and state government agencies. Nonetheless, it has also faced delays and layoffs. Plans for plants in Tennessee supported by state grants fell through. Bruce Jamerson, former CEO of Mascoma, has spent the last few years trying to raise $250 million to $300 million to build the Michigan plant. Jamerson is now the chairman of Mascoma and Frontier. Mascoma appointed William Brady CEO last year.

So here comes Valero. California voters know the company as the organization that funded the ultimately unsuccessful effort to overturn its carbon regulations. But Valero has also been one of the more active Green Giants when it comes to acquisitions. In 2009, it bought seven ethanol plants from VeraSun for nearly $500 million. Valero is also an investor in Algenol. Think of it: seven years ago, you never saw a Valero station. Now they are a common site. It's an aggressive company.

With its existing ethanol footprint and expansion plans, Valero seems like it would be a serious candidate to become a major player in biofuel. The potential market is strong, too. The tax package passed late last year by President Obama renewed the biofuel tax credits (50 cents to $1.00 a gallon, depending on the fuel). The Department of Defense has also passed stringent biofuel goals. Forget the costs: biofuels enhance the armed services and increase national security, says Ray Mabus, Secretary of the Navy.

But note the language: "up to" $50 million. Valero signed a "non-binding" agreement to support the plant. Fossil fuel giants have a signed a number of agreements that have yet to lead to biofuel nirvana. One executive told me Shell has over 80 strategic alliances in biofuels. ExxonMobil has touted itself as a big proponent of algae. However, the work remains in the lab. We've got calls to Mascoma now to clarify.

"Valero's proposed investment in our first commercial-scale production facility" was discussed by Brady in a prepared statement. The emphasis is ours. It's not the most rah-rah prepared statement we've ever seen.

And $50 million remains a long way from the $250 million that it might require to build the first commercial-sized plant.

Stay tuned.

Mascoma, by the way, came out of Dartmouth College. That is professor and Mascoma founder Lee Lynd in the photo. Cellulosic ethanol usually takes three stages: cellulose has to be separated for vegetable matter, cellulose then has to be converted to sugar, and the sugar then has to be converted to alcohol. The idea behind Mascoma is to combine the last two stages to cut costs.

One of the challenges has been to find microbes that can tolerate a high alcohol environment. So you can think of it at Mad Men meets microbiology.