What's the deal with biofuels? The world's oil reserves are dangerously low and its temperatures dangerously high. And the search for alternative energy supplies aimed at reducing the damage caused by fossil fuels both to our environment and our wallets has, unlikely as it may sound, focused on cheese - Dubliner cheese.

Last week, Maxol started pumping a new biofuel for standard petrol vehicles out of its 150 petrol stations. Dubbed E5, the new fuel is a blend of 95 per cent unleaded petrol and 5 per cent bio-ethanol - a by-product of the Carbery cheese plant in Ballineen, Co Cork.

Unusually, perhaps, for an environmentally friendly product new to the market, the fuel will cost the same as standard unleaded petrol. Tom Noonan, chief executive of Maxol, says the company's embrace of bio-fuels should help Ireland meet its EU energy targets. He described it as "a win for consumers who benefit from lower emission fuel at no extra cost, a win for agriculture which can now develop interests in ethanol production and a win for the economy in that it could potentially reduce our imports."

The move, while commendable, is unsurprising. The Government wants 10 per cent of our energy needs to be met by biofuels, including petrol-ethanol mixes, biogas captured from sewage and other waste materials and biodiesels made from rapeseed or palm oil, by 2020 and will soon impose biofuel conditions on all oil companies. Maxol was jumping before it got pushed, but at least it jumped before its competitors.

The Government is also pushing farmers to take up the biofuel cause and grants of up to €125 an acre are available for those who switch to energy crops. Despite this financial support, the amount of land given over to such crops remains comparatively small. It's not the same in the US, where farmers are falling over themselves to grow fuel crops - nearly one-third of the land once used for food production has been diverted into the production of corn and maize for biofuels.

While this may be good news for the environment, it is not such good news for consumers. The widespread diversion of land from food production to energy production has already had a significant effect on the price of vegetable oils, livestock feed and food grains, and it is predicted that over the next decade the price of food on global markets will rise by between 20 and 50 per cent because of the growth of the biofuel industry.

This bleak assessment was contained in a recent joint report by the United Nations Food and Agriculture Organization (FAO) and the Organisation for Economic Co-operation and Development (OECD). The report, published this summer, said: "Growth in the use of agricultural commodities as feedstock to a rapidly increasing biofuel industry is one of the main . . . reasons for international commodity prices to attain a significantly higher plateau."

The environmental benefits of the move to ethanol have also been questioned, with reports of widespread deforestation as demand for land to grow crops to create biofuels increases. Most of these concerns have focused on Brazil, a world leader in ethanol production mainly through sugar cane production. Vast areas of its rainforest have been cleared to grow the crop.

Biofuels also have their critics from a humanitarian perspective. The journalist and environmental activist, George Monbiot, is one of many who have called for a freeze on their production to allow for an assessment of the impact on the developing world.

Monbiot says biofuels will create an inevitable competition for crops between cars and people and predicts that people will lose "because those who can afford to drive are richer than those who are in danger of starvation".

Sustainable Energy Ireland (SEI) is a strong advocate of a biofuel programme but admits that it is not without its problems. It stresses that biofuels are only "an element of the solution" and says that the development of second-generation biofuels - fuels derived from non-edible cellulosic materials such as wood and straw - is vital.

Noonan also accepts that biofuels "don't provide the total answer" to current energy concerns but said Maxol's move was a beginning. "While this is another relatively modest step along the path towards fossil fuel substitution, I can envisage a time in the not-too-distant future when the only fuels from Maxol service stations will be biofuels."

Bernard Rice, A biofuel researcher with Teagasc, told Pricewatch that the current drive to create fuel from food is problematic. He says it may have an inflationary affect on food prices but is optimistic that price increases will be short term. He says that the "holy grail" of biofuel production is the efficient conversion of non-food products into fuel, something he is optimistic will be achieved within a decade. When that happens, "it will shift the emphasis away from grain production".

Biofuels, says Rice, "are not going to be cheap, so if consumers are looking for a bargain they will be disappointed. The fuels will be more environmentally friendly, the security of supply will be better, and, as oil prices rise, they will eventually become more financially attractive.

"It is early days, especially in an Irish context. In the coming years we are going to come under so much pressure at an EU level that we are going to have to move forward at a faster pace whether we like it or not."