Governments around the world continue to support corn-based ethanol and soy-based biodiesel with mandates and subsidies, despite their increasingly visible flaws. So production will continue to rise, and new plants will continue to be built. But soaring food prices and the realization that first-generation biofuels are not environmentally benign have forced a rethinking of the whole enterprise that will likely lead most governments to withdraw some of their support. The future lies with the next generation, and soon, the data flowing from pilot plants should make it possible to identify some potential winners.

Given the progress that's being made on multiple fronts, it's likely that a decade hence, some combination of cellulosic ethanol, biodiesel, and biomass (along with other biofuels like butanol) will supply a significant part of humanity's energy. But the investment angle is not yet clear. First-generation biofuels aren't worthy of much enthusiasm, even though government mandates appear to guarantee a few more years of strong demand. And none of the half dozen promising next-generation biofuel processes and feedstocks have proven themselves commercially. This market, in short, is yet another work in progress, but a potentially big one. By 2010, it should be possible to build a portfolio of high-growth, moderate-risk biofuel stocks. In the meantime, Figure 9.1 presents some of the biofuel stocks that were available in mid-2008.

Table 9.1 Biofuel Stocks