KEY POINTS:
Arnold Schwarzenegger, the Governor of California, uses it in one of his Hummers. Sir Richard Branson, the Virgin boss, wants to fuel his planes with it. American President George Bush hopes it can wean his country off oil imports from the Middle East.
And next year, if tough new targets are met, it will be in every other litre of petrol sold at the pumps in Britain.
Biofuel is the latest green craze. It is made from crops such as wheat, rapeseed, corn and sugar; and less commonly from waste products such as used cooking oil and tallow (animal fat).
According to biofuel's many fans, blending conventional petrol and diesel with these crops or waste reduces the amount of crude oil needed and the overall amount of carbon released into the atmosphere.
In his State of the Union address in January, Mr Bush announced a 15 per cent target for the replacement of petrol by biofuels in US vehicles. The EU has set a less ambitious target of just under 6 per cent by the end of the decade; this could rise to 10 per cent.
But questions are starting to be raised about just how green biofuels really are. They encourage deforestation - causing around a quarter of the world's carbon emissions - as land is cleared to grow the crops.
Biofuels have also driven up food prices, hitting the world's poor the hardest. According to the International Grain Council, at the end of this financial year the world's grain stocks (corn, wheat and barley) will be the lowest since the 1970s, mainly because of soaring demand from biofuels.
Some of these "green" energy sources also use up more energy during the manufacturing and refining process than they save.
Politics - particularly the interests of big agricultural businesses - is starting to dictate the biofuel market.
The US has imposed punitive import tariffs on Brazilian-made ethanol - one of the world's most efficient biofuels - and subsidises the export of its domestically made corn-based ethanol, which is one of the least efficient.
How much deforestation takes place is hard to measure, but if new demand emerges - such as from biofuels - more land has to be found from somewhere.
Biofuel crops thrive best in tropical climates. For example, Brazil can make 6000 litres of ethanol from a hectare of sugar cane (the staple crop for Brazilian biofuels), which is five times the output of a hectare of rape seed in the UK. It is also cheaper to produce biofuels in countries such as Brazil.
Sugar cane production in Brazil rose by half between 1993 and 2003, from 2.8 million ha to 4.2 million ha, mainly to feed domestic demand. It is expected to increase by half again by the end of the decade to meet global demand.
The effect of sugar's advance is to displace other food production into the cerrado - tropical savanna covering a quarter of Brazil which, according to the World Wide Fund for Nature, is biologically the richest grassland in the world.
Deforestation caused by growing palm oil - another cheap biofuel staple - in Asia, principally Indonesia and Malaysia, is also causing concern. The Friends of the Earth estimates that 87 per cent of deforestation in Malaysia between 1985 and 2000 was to make way for palm oil plantations.
The British Government has admitted that a "significant proportion" of UK biofuel demand will be met by imports. Indeed, analysts at Goldman Sachs believe that to meet the 2010 target wholly from domestically grown plants would take over a quarter of all available crop land in the UK.
This means buying biofuel crops from places such as Brazil and Indonesia, with all the environmental consequences - direct and indirect - of deforestation.
Chris Brodie, a partner at the Krom River commodity fund, argues that agricultural prices will keep heading higher as more land is devoted to biofuel-crop production.
When American biofuel demand doubles - and when the EU targets kick in - grain prices will increase even further. "You really need to apply common sense. The further we impact grain inventories, the impact on grain prices will be multiplied."
Politicians and the industry are aware of the deforestation that can result from biofuels and are taking steps to try to address this. Earlier this month, the Dutch Government unveiled a framework to allow companies to measure the sustainability of the biofuels they are buying. Under World Trade Organisation rules, individual countries are not allowed to ban imports for being unsustainable, which is why these standards are voluntary only.
Industry executives believe that as public awareness of biofuels and how they are made grows, consumers will increasingly choose to buy petrol labelled as sustainably sourced.
Andy Hunter, the director of Argent Energy, which makes biodiesel with tallow and used cooking oil rather than crops, says this will gradually discourage the production of non-sustainable biofuels as they will have a lower value. "As companies look at [the issue], it will put pressure on some crops. In the future, biofuels which can be branded as sustainable will command a premium."
But it is debatable how effective such standards will be in practice. Even if the EU managed to source all its biofuels sustainably, the effect would be to displace other forms of food production or biofuels destined for less ethical markets, which could be grown on cleared rainforest instead.
Lord Oxburgh, the chairman of AIM-listed D1 Oils, says one of the reasons he took up his post was a desire to make biofuels using jatropha, a non-edible crop, which he says will only be grown on marginal land.
He, like the green lobby, holds out most hope for the second generation of cellulose-based biofuels, which use household waste and sewage, rather than crops, as feedstock, and promise to be much more efficient.
A spokesman for the World Wildlife Fund, which encourages greater investment in second-generation biofuels, argues: "It's dangerous to create the industry and then try to make it sustainable."
- INDEPENDENT
