The biofuels market in North America will earn revenues of $18.52 billion by 2012, almost double the $9.98 billion earnings for 2007, according to forecasts from Frost & Sullivan in its latest report, 'North American Biofuels Market: Investment Analysis'.

“Regulatory support coupled with the need to address the geopolitical risk posed by relying on the turbulent Middle East and Venezuela is driving the growth of the North American biofuels market,” notes Frost & Sullivan Research Analyst Shrikanth S. “Furthermore, there is a strong venture capital investment climate in the next-generation biofuels, which are expected to be more efficient, using algae, waste, straw, wood, and other forest-based inputs that can be found in abundance in the United States.”

The expanded Renewable Fuel Standard, Volumetric 'Blender' Tax Credit, Small Agri-biodiesel Producer Tax Credit, and Alternative Fuel Refueling Infrastructure Tax Credit provide the necessary regulatory support for the North American biofuels industry. Currently, the dependence on foreign oil continues to increase, and costs approximately $1 billion per day. Oil from Venezuela and the Persian Gulf accounted for 26.3 percent of the total imports in 2007. By 2012, biofuels are expected to account for 15.20 billion gallons of the total fuel source in the United States, up from the estimated 9.00 billion gallons in 2008.

However, the debate on food versus fuel remains a major challenge for the biofuel industry, says the company. Many respected organizations and media outlets believe that the focus on biofuels increases food prices, especially that of corn and soybean. The volatility of feedstock prices and their unpredictable profit margins has diminished the attractiveness for the market participants and the institutional investors for the first-generation biofuels.

“In the period between September 2006 and February 2008, corn prices rose by 83.6 percent and the soybean oil prices increased by 135.0 percent,” says Shrikanth. “It has been noted that economically disadvantaged people spend approximately 50 percent to 70 percent of their income on food, compared to 1 percent to 10 percent on energy.”

In the short term, only a significant improvement in the average yield of feedstock, such as corn and soybean oils, will mitigate this problem. While alternative feedstock such as jatropha is expected to help in the medium term, the next-generation biofuels will play a vital role in addressing the challenge by 2012-2013.