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HUGOTON, Kan. – There is an old joke in the energy business that advanced biofuels are the fuel of the future, and always will be.

A Spanish company, Abengoa Bioenergy, has bet $500 million on robbing that joke of its punch line. In the middle of a cornfield here it is building a 38-acre Erector set of electrical cable and pipe that will soon begin producing cellulosic ethanol, which it calls a low-polluting alternative to petroleum products. This is just as the George W. Bush administration and Congress intended seven years ago with legislation promoting energy independence.

But even as Abengoa and other companies prepare to produce significant amounts of cellulosic ethanol, using corn stalks and wheat straw as opposed to corn itself, the appetite for such fuels seems to be diminishing.

The market is saturated with ethanol from corn. The automobile and oil industries are resisting efforts to increase the amount of ethanol blended into gasoline. And now the Environmental Protection Agency is considering reducing the amount of advanced biofuels required for blending into vehicle fuels this year by more than 40 percent below the original target in the Energy Independence and Security Act of 2007. A final decision is due in June.

“It’s very frustrating,” said Christopher Standlee, executive vice president of Abengoa. “The whole purpose of the Renewable Fuel Standard was to encourage investment to create brand-new technologies that would help the United States become more energy-independent and use cleaner and more efficient fuels. We feel like we are just on the verge of doing that and now the EPA is talking about changing the rules.”

Other things have changed, too, since 2007. A boom in shale drilling has produced a sudden gush of domestic oil. Increasingly efficient cars and a sluggish economy have cut demand for fuel. (In recent weeks, ethanol prices spiked because of transportation problems in the Midwest. Gas stations in several states ran out of gasoline because there was not enough ethanol to blend, but the problem is considered temporary.)

And there is disagreement about the potential for biofuels. Several companies have failed to develop commercial biofuels or have given up trying.

The energy act’s goal of reaching 21 billion gallons of advanced biofuels by 2022 is now considered virtually unreachable, even by biofuel enthusiasts. “It would take an enormous effort of deploying capital and labor and engineering,” said Paul Winters, a spokesman for the Biotechnology Industry Organization.

Many energy experts remain skeptical about the new plants. “It’s stuff being built, but that doesn’t mean they are cost-effective or at large enough scale to make a difference,” said Michael E. Webber, deputy director of the Energy Institute at the University of Texas at Austin.

For years, the future of biofuels has been debated in Congress and at various federal agencies, pitting oil companies and refiners against the biotech industry and farmers who grow corn. Oil executives say corn ethanol and advanced biofuels are uneconomical. Biofuel producers say the oil companies just want to squash a potential competitor. They insist they can compete as long as the price of oil remains above $70 a barrel (it is now roughly $100) and gasoline stations offer higher blends of ethanol.

A major obstacle for the biofuel industry is the “blend wall,” the current 10 percent limit on ethanol at most gasoline stations. Some car companies warn that above that level, fuel could damage engines in older vehicles. The Energy Department has disputed such concerns, and the EPA has approved use of 15 percent ethanol blends for cars manufactured after 2001. But gasoline stations have been slow at installing the necessary equipment. And only a modest number of vehicles can use E-85, a blend that is 85 percent ethanol.

But biofuel producers and lobbyists say the country needs more of their product. “Cellulosic biofuel has the promise to deliver tens of billions of gallons of ethanol to the United States, but there needs to be a market for that,” Brian Foody, president and chief executive of Canadian biofuel company Iogen, told reporters in a recent conference call by industry executives discussing the impact of the EPA proposal. “We believe it’s critical for EPA to create a segment or space in the market for E-85 to grow and to set numbers that will provide incentives.”

Biofuel executives say that if the EPA adopts the proposal, they would probably have to limit new U.S. investments and develop plants instead in Europe, China and South America.

More than $5.7 billion has been invested in developing advanced biofuels as they have progressed from laboratory tables to pilot and demonstration projects, and now to a handful of commercial-scale plants, according to the Biotechnology Industry Organization. The group estimates that it will take private investment of $95 billion or more over the next decade or so to scale up commercial production to meet long-term congressional targets.

The biggest cellulosic ethanol plant is in Italy, and it produces 10 million gallons a year, roughly half the capacity of the Abengoa plant here. A few tiny plants in the United States opened last year and have had mixed success.

But this is the year biofuel production will finally lift off, industry executives say.

By summer, South Dakota-based ethanol producer Poet, in partnership with Dutch company Royal DSM, will complete the startup of its Emmetsburg, Iowa, plant, which is projected to produce up to 25 million gallons a year making use of corn cobs, husks and leaves. Within the next year, DuPont is expected to complete the biggest of the three plants – a $225 million plant near Nevada, Iowa, with a capacity of, 30 million gallons a year, that will make ethanol from corn waste.

But Abengoa, which received a $134 million loan guarantee from the Energy Department, will be first out of the gate, its plant beginning full operations by early May. The company plans to produce 25 million gallons of biofuel a year at the plant here and has started a 21-megawatt electricity plant at the site powered by biomass.

Abengoa has developed a proprietary enzyme to mix with corn stalks and wheat straw to produce sugars that will then be fermented and distilled to produce cellulosic ethanol. That more efficient process can increase yields and decrease costs. Over the past four years, Abengoa has improved yields from 55 gallons of ethanol per ton of biomass to 80 gallons per ton.

What is more, because cellulosic ethanol relies on the waste products of corn rather than corn itself, it does not raise demand for corn or raise corn prices.