Biofuels have a long history ranging back to the beginning on the 20th century. As early as 1900, Rudolf Diesel demonstrated at the World Exhibition in Paris, France, an engine running on peanut oil. Soon thereafter, Henry Ford demonstrated his Model T running on ethanol derived from corn. Petroleum-derived fuels displaced biofuels in the 1930s and 1940s due to increased supply and efficiency at a lower cost.
Market fluctuations in the 1970s, due the Arab oil embargo and the Iranian revolution, coupled to the decrease in U.S. oil production led to an increase in crude oil prices and a renewed interest in biofuels. Today, many interest groups, including policy makers, industry planners, aware citizens, and the financial community, are interested in substituting petroleum-derived fuels with biomass-derived biofuels. The leading motivation for developing biofuels is of economical nature, namely, the threat of ‘peak oil’, the point at which the consumption rate of crude oil exceeds the supply rate, thus leading to significantly increased fuel cost, and resulting in an increased demand for alternative fuels.
Biofuels tend to be produced with local agricultural resources in many, relatively small facilities, and are seen as a stable and secure supply of fuels independent of geopolitical problems associated with petroleum. At the same time, biofuels enhance the agricultural sector of national economies. In addition, environmental concerns relating to the possibility of carbon dioxide related climate change is an important social and ethical driving force which is starting to result in government regulations and policies such as caps on carbon dioxide emissions from automobiles, taxes on carbon dioxide emissions, and tax incentives for the use of biofuels.
The acceptance of biofuels depends primarily on economical competitiveness of biofuels when compared to petroleum-derived fuels. As long as biofuels cannot compete in cost with petroleum-derived fuels, use of biofuels will be limited to specialty applications and niche markets. Today, the use of biofuels is limited to ethanol and biodiesel. Currently, ethanol is made by fermentation from corn in the US and from sugar cane in Brazil and is competitive with petroleum-derived gasoline, exclusive of subsidies or tax benefits, if crude oil costs above $50 USD per barrel and $40 USD per barrel, respectively. Biodiesel has a breakeven price of crude oil of over $60 USD/barrel to be competitive with petroleum-based diesel (Nexant Chem Systems. 2006. Final Report, Liquid Biofuels: Substituting for Petroleum, White Plains, N.Y.).