EMMETSBURG, Iowa—Despite its grand scale, the event that marked the opening of the Project Liberty ethanol plant in northern Iowa last week at times felt a bit like a homey church function.

At a cavernous warehouse in this small Iowa town, nearly 3,000 people gathered at long tables swathed in red, white, and blue cloth to watch the ceremony. Speakers onstage talked about a vision—a "fantasy," as the event materials put it—finally made real. Then a minister blessed the plant before attendees, many of them farmers, lined up for a lunch of burgers and coleslaw. A country singer took the stage, which was bookended by stacked bales of the plant's straw-like fuel.

The so-called fantasy that the Liberty plant—a $275 million