The U.S. Department of Energy (DOE) and BlueFire Ethanol Fuels, Inc. (OTCBB: BFRE) today announced a cooperative agreement, which plays a critical role in bringing cellulosic ethanol to market.

The agreement provides BlueFire with the first of two stages of the Grant funding (totaling $40 million) for its second U.S. commercial ethanol production facility located in California. This facility was designated to demonstrate the economic feasibility and environmental superiority of producing cellulosic ethanol from post-sorted green waste and other cellulosic materials.

BlueFire Ethanol's California project was selected by the U.S. DOE alongside five other U.S. companies in February of this year. The program provides joint funding for the construction of a commercial cellulosic ethanol facility. This agreement finalizes the first phase of the partnership and will govern all aspects of the project leading up to construction. With the agreement in place, BlueFire will use the funds to continue pre-construction development activities which include design, environmental engineering, permitting and other preliminary activities.

Upon completion of phase one, an additional agreement for phase two will be negotiated outlining the facility's construction, which is expected to last 18-months. BlueFire anticipates the facility will be operational by 2010.

"The DOE funding will enable BlueFire Ethanol to build a facility that will convert post-sorted green waste and other cellulosic materials from the landfill into roughly 17 million gallons of fuel-grade ethanol per year," said BlueFire Ethanol CEO Arnold Klann. "The same process can be replicated at the majority of the Nation's 1,600 landfill sites, increasing the essential production of biofuels, while simultaneously helping cities cope with increasing volumes of landfill waste."

All of the ethanol produced will be sold under the terms of a long-term contract with Petro-Diamond, Inc., a wholly owned Mitsubishi Corp. subsidiary. Colmac Energy will purchase the lignin produced for use as boiler fuel for its biomass power plant located in Riverside County. The gypsum will be sold to local landscape wholesalers and the yeast will be sold as an animal feed supplement.

In addition to the DOE project, BlueFire expects to obtain all necessary permits to commence construction of a smaller facility near Lancaster, California sometime in the 4th quarter of this year. The Lancaster plant will produce roughly 3 million gallons of cellulosic ethanol per year from the cellulosic fraction of post-sorted green waste, wood waste, and other cellulosic materials. By locating biorefineries within the markets with the greatest demand for ethanol, BlueFire will help cities manage landfill waste -- solving two problems for the price of one. Because cellulosic ethanol has the potential to reduce greenhouse gas emissions by up to 86%, it is a key solution to addressing global warming concerns.

BlueFire Ethanol holds the exclusive North American license to employ the Arkenol Process Technology, a patented, commercially viable and profitable system that transforms cellulosic waste into usable ethanol. As a result, BlueFire is uniquely positioned to set the industry standard in converting waste materials -- such as wood waste, green waste, straw, switchgrass, and corn stover -- into ethanol.