Ethanol can be distilled from corn, sugarcane or even straw and other cellulosic plant materials such as wood chips or grasses. Biodiesel is produced from vegetable oil crops such as palm, soybeans or rapeseed, or animal fats and leftover restaurant grease.

High oil prices, technological advances, concerns about energy security and the environment, and efforts to revitalize rural economies have all intersected to drive the biofuels boom. Ethanol has been used as a gasoline additive or stand-alone fuel in the United States and Brazil since the 1970s, but in recent years there has been an explosion of interest, resulting in substantial investment and steeply increased production.

Biodiesel is relatively new in the U.S., but has attracted strong interest and investment as well. There are 113 ethanol plants producing today in the U.S., with a capacity of 5.6 billion gallons per year or 365,000 barrels per day (bd).

Another 84 ethanol plants are either under construction or expanding, which could add another 6.1 billion gallons of annual production capacity (400,000 bd) in the next few years. A barrel of ethanol contains 3.54 million British Thermal Units (BTUs) of energy, while a barrel of gasoline contains 5.25 million BTUs. This means that a gallon of ethanol only provides about 70 percent of the energy that one gets from a gallon of gasoline. A state-of-the-art ethanol plant today can convert a bushel of corn into about 2.8 gallons of fuel ethanol. Two decades ago, this figure was closer to 2 gallons.

n the United States, blenders of ethanol receive a 51 cent-per gallon tax credit for every gallon of ethanol used in gasoline; for biodiesel, the equivalent credit is $1.00 per gallon. In 1980, the U.S. consumed a grand total of 11,000 barrels of ethanol per day. By early 2007, that demand had reached about 400,000 barrels per day, or over four percent of the total gasoline market by volume.

Current federal legislation requires 7.5 billion gallons (490,000 bd) of biofuel use by 2012. The Bush administration recently proposed a target of 35 billion gallons (2.3 million bd) of renewable and alternative fuels by 2017-a goal that would likely require major advances in cellulosic ethanol technology.

In 2006, the ethanol sector consumed nearly 2.2 billion bushels of corn-about 20 percent of the total U.S. harvest of 10.7 billion bushels. Ethanol can be produced from non-food crops, such as switchgrass and straw. But this approach can't yet compete in the marketplace. There is currently intense interest in making this process-"cellulosic ethanol"-commercially viable.

The US biodiesel industry is much smaller than the ethanol industry. Current annual production is estimated at 250 million gallons (16,000 bd), although it is growing quickly. Europe is currently the world leader in biodiesel production and use. Annual production is currently over 1.5 billion gallons (100,000 bd) with substantial new capacity under construction.