General Motors announced a partnership with biofuel startup Coskata, as the carmaker takes a more aggressive position in renewable fuels and throws its sizeable weight behind an untested but promising technology.

The announcement was formally made on Sunday at the North American International Auto Show in Detroit.

“Anytime a big established company gets involved in a biofuel venture it means they’re serious,” said Emerging Markets Online President Will Thurmond. “And it means the market will accelerate faster.”

GM will be the first major U.S. carmaker to take a stake in a next-generation biofuel producer. It will join a growing field of large companies, including DuPont and Shell, and numerous startups racing to develop biofuel technology that is priced competitive with gasoline.

The announcement follows the signing in December of the latest U.S. Energy Bill, which calls for a sharp rise in the country’s use of biofuels.

The U.S. now produces about 7 billion gallons of mostly corn-based ethanol per year, representing less than 5 percent of America’s gasoline consumption. Analysts believe the corn-based industry must give way to new biofuel technology for long-term sustainability and growth.

Coskata believes it has an answer. The company claims it can turn biomass, such as switchgrass or wood chips, into ethanol for $1 per gallon. It also says it has overcome two major shortcomings in ethanol production—questionable net energy benefits and large water consumption.

But these claims have not been tested on a large scale. The company said it is building a 40,000-gallon demonstration facility this year, and it aims—with GM’s help—it will have its first commercial plant ready by 2011.

In the meantime, Warrenville, Illinois-based Coskata and Detroit, Michigan-based GM will cooperate on research and development. GM will receive ethanol from Coskata’s pilot plant and test it in its flex-fuel vehicles.

But success in the biofuel sector is far from certain. Not only will Coskata be in a packed race, but also the company will face  big uncertainties in the larger market.

“How do you transport it? How do you store it? And what will those costs be?” asked DTN analyst Rick Kment.

Many next-generation biofuel startups have not come through on their claims, said Mr. Kment. Still, the combination of a new technology with GM’s worldwide reach and experience is promising.

GM stressed that it is not moving into the fuel industry. It said it wants to see the biofuel market grow so it can sell more flex-fuel vehicles. And if it can have a partner to help it test those ethanol-powered cars and trucks, all the better.

“GM will see the technology first. They’ll be testing it on a GM drive train and not a Ford,” Soleil Securities analyst Mike Ward said. “It makes good business sense.”

As part of the deal, GM has taken an undisclosed equity stake in Coskata. Founded in 2006, the startup was initially backed by Khosla Ventures, Advanced Technology Ventures, and GreatPoint Ventures.