It was another strong year for green transportation, but a lot of potential pitfalls in the industry became more apparent.

Just ask ethanol producers for the evidence. In 2005 and 2006, investors flocked to traditional ethanol makers, allowing companies like VeraSun Energy to go public. The high prices for the fuel, combined with the relatively low price of feedstocks it's made from, made the industry look attractive.

Then the price of corn shot up, budding profits turned to losses, and ethanol makers started to merge.

GreenFuel Technologies, meanwhile, had problems of a different kind. The company wants to capture carbon dioxide, feed it to algae, and then turn the algae into biodiesel. A pilot plant in Arizona proved adept at capturing carbon dioxide and growing algae. The problem was that it grew more algae than it could handle, and scientists are still trying to figure out ways to economically convert the green slime into fuel.

Makers of electric cars didn't have it as rough, but the story was similar. Consumers and investors got intrigued by the category in 2006. In 2007, though, Tesla Motors, Think, and Phoenix Motorcars had to push back the release of their cars until 2008. Tesla also changed CEOs and postponed its battery business.

But let's look at the bright side of the green-car business. Biodiesel refiners, both large and small, began construction on large-scale plants. Biodiesel still requires subsidies to stay competitive in the U.S., but larger plants and new feedstocks will help eliminate the price gap over time. Scientists and venture investors also continued to collaborate on concocting cellulosic ethanol start-ups.

And the auto industry saw a wave of new entrants on the manufacturing side, including Venture Vehicles, Fisker Automotive, and Miles Automotive. More importantly, large, established manufactures like Nissan and Mitsubishi announced plans for eco-friendly cars. If history is a guide, the eco car market could follow the path of the PC market. Although most will fail, a few of the start-ups and some of the established manufacturers will make it and transform an industry.