Environmental concerns, high oil prices, and limited resources are just some of the factors that will help push biofuel consumption to 135 billion gallons by 2018, according to a new report.

The report, from Global Industry Analysts Inc., points to lingering doubts over the use of fossil fuels, due to the environmental problems they create, rising oil prices, dependency on foreign oil, and market volatility, among other factors.

The rise of emerging market countries, including China, also provided an increased opportunity for the biofuels market, as well as supporting energy security and the need for a cleaner-burning fuel.

The value of the global biofuels market in 2011 was $83 billion, according to Clean Edge, author of the report.

Global government support in research and development (R&D), production, public policy, and the push to use it in transportation industries is also providing some important underlying support for biofuels growth, the statement said

The report also gave some encouraging news for the US, the world’s largest consumer of biofuels, in terms of exports. It’s expected the USA will be the world’s #1 exporter of biofuels, thanks to short supply and higher sugar prices in Brazil.

All the factors mentioned above have increased interest in advanced biofuels, including algae, palm oil, and jatropha seeds, according to the report. These advanced biofuels are catching the eye of various stakeholders, including policymakers and investors. That is resulting in increased government backing and manufacturer investments, which is helping to create more innovation and boost the growth of the biofuels market,.

However, while advanced biofuels have caught the eye of many, next-generation biofuels will face some hurdles, as mentioned below:

Next-generation biofuels, including second and the third generation biofuels, which are currently under development, are predicted to offer more benefits when compared to first generation biofuels. These include cellulosic ethanol, BTL from solid biowaste, and renewable diesel, to name a few. However, with the process of conversion of cellulose into sugars for fermentation being quite difficult, research is underway for developing microbes, enzymes, and fungi that could breakdown different types of cellulose into sugars. Nevertheless, despite significant investments in research and development, commercialization of next-generation biofuels is not expected to happen anywhere in the next 8-10 years, owing to the several technical barriers on the way.

The report acknowledged the US and Brazil will have an advantage in overall global supply in the medium term. However, in the long term, cheaper raw materials in the developing countries in Asia will help to advance their production, while taking some market share away from other top-producing countries.

Asia is expected to show some real growth potential, increasing by a compound annual growth rate of 28.8% during the reporting period.

Despite the positive opportunities for biofuels, challenges will face this industry. Issues like environmental side-effects, prices, food vs. fuel concerns, and fuel efficiency of biofuels, may create some problems.

In fact, the current drought in the US has raised further concerns over the industry, as a spike in global food prices will already occur simply from this.

Only time will tell if biofuels can overcome some of these challenges and supplant fossil fuels as a firm transportation fuel solution.