The Government has ordered a study to see whether biofuels are sustainable, after debate about their indirect impact on the environment.
Some car manufacturers, particularly Saab and Ford, already offer cars which run on bioethanol, a form of alcohol derived from fermented crops.
The crops absorb carbon dioxide while they grow, so they are said to release less carbon dioxide overall than petrol. E85 bioethanol is estimated to emit up to 60% less harmful greenhouse gases.
However, environmentalists challenge these figures, saying the carbon dioxide emitted in their production, refinement and transportation severely reduces any benefits they may offer.
Also, a UN report from last May says that demand for the fuel could accelerate the clearing of primary forests and put substantial demands on the world's water resources.
The UN believes biofuels do have the potential to improve the lives of the world's poorest people and reduce greenhouse gases, but only if used for heating and power generation instead of transport.
These are the items that the Government wants to establish in its study, because it is committed to a target of making sure that at least 5% of all fuels on sale in the UK are biofuels.
Ruth Kelly, Transport minister, said: 'We are not prepared to go beyond current UK target levels for biofuels until we are satisfied it can be done sustainably.'
The study will be carried out by the Renewable Fuels Agency, and will help to inform biofuel policy in both the UK and the EU.