Bio-fuel is the new green, completely clean fuel source. It’s also known as “agro-fuel” and can be broadly defined as any solid, liquid or gas fuel consisting of or derived from biomass. Biomass is nothing more than materials that were recently living organisms—in this case, plants and their by-products.

Even better, it is a renewable energy source, unlike petroleum and coal, which once used are gone forever.

Thanks to a new miraculous feat of engineering and science, this energy source has suddenly become competitive with oil, catapulting it from a backyard business into a global economic phenomenon.

Right now, bio-fuels are capturing about $23 billion of the $1.3 trillion we spend each year to power our cars, trucks, airplanes, trains and ships. That’s just two percent of the market with an astounding 98 percent upside. To say we’re at the forefront of a growth curve is an understatement.

Is the bio-fuel market set to grow by 1,000 percent? One Brazilian company planning to spend $54 billion on this new fuel by 2010 sure thinks so.

The fact is that major governments from the world over have practically guaranteed this revolution by writing it into law. The U.S., the E.U., Japan and China have all passed statutes mandating that bio-fuel be increasingly used to replace crude oil products in order to reduce emissions and to reduce dependence on foreign crude.

The market for bio-diesel is also growing at a phenomenal rate. Consumption in the U.S. grew from 25 million gallons in 2004 to 78 million in 2005, a 300 percent increase in one year! In the U.S. alone, more than 80 percent of commercial trucks and city buses run on diesel, making the potential U.S. market for biodiesel huge.

Ethanol fuel, made from ethyl alcohol, is one such bio-fuel alternative to gasoline. It is easy to manufacture and process and can be made from very common crops grown in the United States such as sugar cane and corn, which reduce the need for imported foreign crude.

In fact, with ethanol, billions of gallons of production capacity are under construction right now. The Renewable Fuels Association counts 113 U.S. ethanol distilleries in operation and another 78 under construction.

Ethanol production should increase dramatically over the next couple of years because of the Energy Policy Act of 2005, which set a renewable fuels standard mandating 7.5 billion gallons of annual domestic renewable-fuel production by 2012. Furthermore, refiners will be required to blend bio-fuel into diesel and gasoline supplies.

Even more promising, many U.S. cities and auto manufacturers are taking steps to make ethanol more available. In 2007, Portland became the first U.S. city to require all gasoline sold within the city limits to contain at least 10% ethanol. As of January 2008, Missouri, Minnesota and Hawaii require ethanol to be blended with gasoline motor fuel.

Like with anything else, the bio-fuel industry has its share of critics too. Some of the more common complaints you’ll hear:

• Ethanol cost too much to produce
• Switching to Ethanol is Expensive
• Vehicles running on Ethanol don’t get good mileage

Ethanol cost about $1 a gallon to produce at most facilities. Corn based ethanol is the most common form of ethanol in the United States. Corn is broken down into a useable fuel through a multi-step process of adding water, yeast and other enzymes. The price for corn has increased, but the more we turn to ethanol and other bio-fuels, we’ll start to see greater savings at the pump. The National Resources Defense Council calls corn ethanol “energy well spent.” Furthermore, Japanese scientists are experimenting with other vegetable oil-based fuels to help keep the cost of corn down.

A new car can be made flex-fuel capable for about $35. Ethanol is already being mixed in with the gasoline you put in your car. Auto-makers realize the importance of bio-fuels and are producing more flex-fuel models.

Right now, ethanol-run vehicles get about a quarter less mileage compared to traditional gasoline vehicles. As auto-makers focus on keeping vehicles cleaner and greener, we’re seeing the production of better engines that are able to support and run more efficiently on ethanol and other bio-fuels.

Ford, DaimlerChrysler and General Motors sell flexible-fuel vehicles that can use gasoline and ethanol blends ranging from pure gasoline all the way up to 85% ethanol (E85). By mid-2006, there were approximately six million E85-compatible vehicles on U.S. roads.

Some very prominent names have also shown an interest in the bio-fuels market. Bill Gates recently injected $84 million into one of America’s very few publicly traded bio-fuel pure-plays. Willie Nelson recently launched his own brand of bio-fuel called Bio-Willie. Richard Branson soon followed with his version called Virgin Fuel. Even Larry Page and Sergey Brin, the Google billionaires, recently toured the operations of Brazil’s largest bio-fuel producer.

President Bush was quoted in 2005 as saying, “What people need to hear loud and clear is that we’re running out of energy in America.” With crude oil prices as unpredictable and steep as ever, turning to bio-fuel as an alternative fuel source, one that is clean and can be used over again, is the way to go.”

While little has been done during the current administration and previous ones, the volatility of the oil markets today has resulted in politicians finally giving more than lip service to alternative energy sources.

James DiGeorgia is editor and publisher of the Gold and Energy Advisor Newsletter (www.goldandenergyadvisor.com) and the author of the popular book, The Global War for Oil.