Converting cellulose to ethanol involves two fundamental steps: breaking the long chains of cellulose molecules into glucose and other sugars, and fermenting those sugars into ethanol. In nature, these processes are performed by different organisms: fungi and bacteria that use enzymes (cellulases) to "free" the sugar in cellulose, and other microbes, primarily yeasts, that ferment sugars into alcohol.
The ideal organism would do it all -- break down cellulose like a bacterium, ferment sugar like a yeast, tolerate high concentrations of ethanol, and devote most of its metabolic resources to producing just ethanol. There are two strategies for creating such an all-purpose bug. One is to modify an existing microbe by adding desired genetic pathways from other organisms and "knocking out" undesirable ones; the other is to start with the clean slate of a stripped-down synthetic cell and build a custom genome almost from scratch. Synthetic Genomics, founded by Craig Venter, is in hot pursuit of a bacterium. There is progress in both strategies.
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