Right here at NC State researchers are working on ways to genetically modify trees so as to make them a more viable source of cellulose from which to make ethanol.
Dr Vincent Chiang received, last year, a grant from the Department of Energy to find a way to make ethanol from trees. It basically involves modifying the genetics to reduce the amount of lignin in trees, thus enabling the cellulose within to be more easily converted to ethanol.
The New York Times carries a well balanced article on the issues.
Or see the original press release from NCSU
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