Many people arguing in favor of a U.S. Senate vote in July to end billions of dollars in ethanol-industry subsidies said it was about time the industry stood on its own. Apparently, many investors feel the same way.

In 2010 investors contributed $930 million to alternative-fuel start-ups , a four-year low, according to a Lux Research Inc. report entitled "Hedging Bets With Flexibility in Alternative Fuels."

Investments in alternative fuels were relatively flat between 2009 and 2010 as the industry matures and fewer companies seek seed funding, says Andrew Soare, a Lux analyst and author of the report. Ethanol facility construction has declined in North America, and many plants have been idled, Soare says.

But while biobased fuel investments have slowed down, investors are turning their attention toward increasingly flexible technologies that utilize a variety of feedstocks  or generate diverse end products, Lux Research reports.

This includes a process called synthetic biology that utilizes agricultural, solid or gaseous waste to produce various fuels, rubbers, oils and plastics.

For instance, New Zealand-based LanzaTech Inc. converts nonfood, low-value gas feedstocks into bioethanol. The company utilizes waste gases from heavy industries, such as steel, oil refining and coal manufacturers.

This trend toward synthetic biology will likely force less-flexible, single-commodity technologies out of the industry, the Lux report concludes.

That's partly because traditional alternative-fuel sources, such as corn and sugar, are more susceptible to price fluctuations, Soare says.

See also:

With Ethanol Getting Clipped, What's Next?

Construction Begins on World's Largest Cellulosic Ethanol Plant