* U.S. seeks greener biofuels, "flex-fuel" cars
* Financing effort to preserve existing biofuel jobs
* Biofuels have generated new jobs, state tax revenues (Recasts, adds more details from draft memo, comment from industry source; adds byline)
By Timothy Gardner
NEW YORK, May 4 (Reuters) - President Barack Obama will direct the heads of three U.S. agencies to make the biofuels industry cleaner and encourage output of ethanol made from non-food crops, according to a draft memo obtained by Reuters on Monday.
The Biofuels Interagency Working Group, to be headed by the secretaries of the Environmental Protection Agency, the Department of Energy and the Department of Agriculture, will be asked to identify policies that would make biofuels more environmentally sound and encourage production of "flex-fuel" cars that can run on either gasoline or fuel that is mostly ethanol, according to the memo.
In addition, Obama will ask Agriculture Secretary Tom Vilsack to "immediately begin refinancing of existing investments in renewable fuels as needed to preserve jobs in ethanol and biodiesel plants, renewable electricity generation plants and supporting industries," according to the memo.
An industry source with knowledge of the memo said Obama will encourage Vilsack to speed up financing opportunities under the 2008 Farm Law. Those include loan guarantees for development of biorefineries and demonstration-scale plants that could be worth tens of millions of dollars, the source said.
The memo said biofuels have generated hundreds of thousands of new jobs and "generated hundreds of millions of dollars in new tax revenues for local state and federal governments."
The U.S. ethanol industry has suffered scores of bankruptcies starting last October amid high corn prices, the credit crunch and a drop in fuel demand due to the recession.
As carbon markets develop, producers of grain-based ethanol may come under pressure to prove that their fuels cut emissions of greenhouse gases.
Environmentalists and some scientists say production of U.S. biofuels from corn and other grains can drive out production of other crops. That may force farmers in other countries to burn down forests and clear land — and create new sources of carbon dioxide, known as emissions from "indirect land use change" — to grow those crops.
The ethanol industry, on the other hand, says advances in new seeds and fertilizers mean they can grow more corn and other biofuel feedstocks on the same amount of land.
Cellulosic ethanol from non-food sources like crop waste and fast-growing grasses and trees are expected to be lower in emissions, but are not yet made in commercial quantities.
The memo said Obama would request Vilsack to "encourage production of next-generation biofuels from biomass and other non-corn feedstocks," and to speed funding for producers to burn crop waste and other biomass at distilleries instead of fossil fuels at plants.
Obama will also ask the group to:
*Develop the country’s first comprehensive biofuel market development program.
*Identify options to improve the environmental impact of the production biofuels feedstocks, taking into consideration land use, water efficiency and life cycle assessments of greenhouse gas emissions.
Separately the White House said it will hold a conference call on Tuesday with Vilsack, EPA Secretary Lisa Jackson, and DOE Secretary Steven Chu, in part to unveil a notice of proposed rule on the Renewable Fuels Standard on biofuels.
Industry groups, scientists, and environmentalists expect that the proposed RFS rule will examine whether and to what extent all biofuels cut emissions of greenhouse gases.
(Addtional reporting by Charles Abbott in Washington; Editing by David Gregorio)