The Environmental Protection Agency (EPA) recently cut the nation’s biofuel output quota for 2010.

It wasn’t a token cut, either. It was a -94% reduction in cellulosic ethanol, to 6.5 million gallons, from 100 million gallons.

(Cellulosic ethanol is a biofuel that can be made from any plant material. Traditional ethanol is made from corn.)

The administration’s cut is reason for investors to absolutely rejoice.

Let me explain…

Those of you who read my Government-Driven Investing newsletter know I shy away from partisan politics. This is not because I don’t have passionate beliefs — I assuredly do — it’s because partisan politics doesn’t make anyone any money. And while I love wading into the political scrum, I do it purely as an avocation. My main interest and top priority is helping my readers make wise investment decisions.

Sometimes, however, politics is unavoidable. This is one of those times.

I’ve long held the opinion that President Obama would not sign a significant health-care bill and that environmental legislation was more likely. Now the president appears ready to split his “green” initiatives into two parts. One is the cap-and-trade system to limit carbon dioxide emissions, the other is the president’s “green” jobs push. The cap-and-trade bill has attracted more ire from the same groups that opposed the president’s health-care plan, and it is likely to suffer the same fate: a quiet death in a Capitol filing cabinet.

With that background in mind, let’s cut to brass tacks. This administration needs a win. Some had thought that would be financial reform, which Mr. Obama had also promised. But his opposition, emboldened by the election of Scott Brown in Massachusetts, which stripped the Democrats of their super-majority, has changed that and the Republicans appear ready to dig in their heels.

With health care, cap and trade and now financial regulation off the table, the only other big issue left is green energy.

Green energy is mostly non-offensive to the president’s opposition. New, renewable energy technologies that reduce dependence on foreign oil appeal to both sides of the aisle. So does job creation. And policies that support green energy are mostly deficit neutral, as most of the investment comes from the private sector. Even the stimulus money that the Energy Department has given away has not been a giveaway, per se. Energy has required recipients to pony up matching funds in many cases to ensure that the technology being developed really was commercially viable.

#-ad_banner-#So what we’re talking about here is an issue that came to prominence as part of the president’s agenda, which has the capacity to win him industry support, create jobs and reduce dependence on foreign oil.

The question, then, is this: How to ensure a win?

Sitting around a burnished hardwood table in the Old Executive Office Building, what would be my advice to the President?

Simple. Cut the output target.

After all, no one’s going to notice. Not really. It’s inside baseball. Letterman isn’t going to joke about it. “The View” is going to gab about something else at their gabfest. Morley Safer and “60 Minutes” have far bigger fish to fry.

And later, when said output target has been exceeded, you’ve got a win to crow about.

Here’s the visual: The President in short sleeves and a hard hat, goes down to a construction site in Florida to break ground on a cellulosic ethanol plant. It could be one, say, that is supported by a federal loan guarantee. He can stand in the dirt with the dignitaries and say “this plant will help the United States meet and indeed surpass its ambitious goals for advanced biofuel output and usher in a new era of clean energy while creating thousands of green-collar jobs — all at no cost to the taxpayer.”

This isn’t a stretch. I didn’t crib this from an episode of “The West Wing.” That cellulosic ethanol plant in Florida? It’s real. It’s a joint venture between giant BP Plc (NYSE: BP) and tiny Verenium Corp. (Nasdaq: VRNM). It’s just waiting to be approved. Other projects around the country are getting geared up. Projects involving all sorts of cutting-edge cellulosic technologies, from the latest and greatest enzymes from companies like Dyadic International, Inc. (OTC: DYAI.PK) to interesting new concepts like private ethanol-producer POET’s corn-cob idea.

There are thousands of success stories in the cellulosic space. They’re about a year or so behind the federal timetable in the 2007 bill. So instead of missing the timetable, the administration simply amended one year of it.

Verenium took a hit on the day the EPA lowered its quotas. It should have shot up: The timetable didn’t change because the feds don’t want to support cellulosic ethanol, the timetable was changed because industry can’t quite deliver the cellulosic ethanol, and amending the quota saves face for both parties. And my guess is that Verenium will shoot up, and dramatically, as soon as the company’s flagship cellulosic ethanol plant is approved by Mr. Obama’s Energy Department.

Risk-tolerant energy investors can best cover cellulosic with Verenium and Dyadic. If you’re unfamiliar with how critical Dyadic is to the industry, be sure to check out this recent article.