The Air Force has turned its attention to making fuel from other fossil forms, including natural gas and coal, and almost (but not quite) constructed a CTL fuel facility at Malmstrom AFB (covered here).
The problems with CTL processes to date are several, and include price and the amount of pollution (including CO2) created by the process, even before the fuel is burned. This Wired magazine article describes a breakthrough made by Professor Ben Glasser in Johannesburg, South Africa. Here's the short take:
The traditional process uses carbon monoxide, carbon dioxide, and hydrogen as the ingredients in the molecular soup that gets turned into hydrocarbons. The process uses just CO2 and hydrogen. Glasser's new production method allows them to set a lower limit on the amount of energy that would be needed to transform solid coal into fuel. The very best possible CTL process would require 350 megawatts of input to make 80,000 gallons of fuel; the current process uses more than 1,000 megawatts.
Glasser's work may make CTL more cost competitive with regular oil ... and thereby make things harder on biomass-based fuels from an economic point of view. But it's important to keep things in perspective. Whenever renewable energy or synthetic fuels come up, oil industry types like to keep things real by invoking the S word. S stands for Scale. The Air Force uses 2.5 billion gallons of jet fuel per year, and that's only 10% of US yearly jet fuel use. You do the math.