Arnold Schwarzenegger has jumped on the biofuels bandwagon. Photo / Reuters

Arnold Schwarzenegger has jumped on the biofuels bandwagon. Photo / Reuters

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.