Initial efforts to produce biofuels date back to the early days of the automobile. However, they were quickly replaced as the fuel of choice by cheap petrol, which continued relatively unchallenged until the oil crisis of the 1970s, inducing governments to explore alternatives sources of fuel. In 1975 the Brazilian Government launched the PROALCOOL Programme to replace imported gasoline with bioethanol produced from locally grown sugarcane. It was then that biofuels started to be seen as a serious alternative to petrol. However, once the oil crisis ended in the late 1970s to early 1980s, interest in biofuels diminished.

Renewed interest in biofuels has been reflected in the rapid expansion of global biofuel markets in the last five years or so. Commonly cited driving forces behind the current market development of biofuels include: current high oil prices, opportunities for greater energy security, and currency savings through a reduced oil bill. But what is new about this renewed interest and what makes biofuels a serious option for partially replacing oil as a transport fuel are their alleged reduced greenhouse as (GHG) emissions. This would help countries to combat the global warming problem and would enable them to comply with the commitments under the Kyoto Protocol. In addition, the Brazilian experience shows that biofuels can deliver export opportunities and rural development.

Biofuels are a serious option to compete with oil in the transport system compared to other technologies such as hydrogen, because biofuel technologies are already well developed and available in many countries. Bioethanol and biodiesel can be mixed with the petroleum products (gasoline and diesel) they are substituting for and can be burned in traditional combustion engines with blends containing up to 10 per cent biofuels without the need for engine modifications. Flexi-fuel vehicle (FFV) technology5 is now sufficiently well developed to allow the gradual introduction of biofuels in any country.6 FFV cars can run with any type of fuel blend from pure gasoline to up to 85% biofuel blend. In addition, the distribution of liquid biofuels can easily be accommodated by the existing infrastructure for petroleum fuel distribution and retailing.8 Furthermore, the current level of oil prices makes production from the most efficient producing countries competitive.

The above factors indicate that biofuels are an important challenge to the oil industry, and explain the rapid increase in global production and use in recent years. Global biofuel production is estimated to be over 35 billion litres. This figure is howeververy small compared to the 1,200 billion litres of gasoline produced annually worldwide.

Bioethanol and biodiesel are both produced around the world, but more bioethanol is produced than biodiesel. The former is mainly produced and consumed in the Americas while the main market for the latter is the EU.