Bio-fuel is an attractive source of renewable energy. This is one of the few methods you can directly replace a fuel without making many changes to the system as a whole. This basically involves converting bio-mass directly to liquid fuels. Ethanol and Bio-Diesel are the most common types of Bio-fuels today.
Ethanol is an alcohol, the same one in alcoholic beverages such as beer and wine. The ethanol fuel however is made to be undrinkable. The process of making bio-fuels involve fermentation of biomass that is high in carbohydrates e.g starches and sugars. However scientists are working to produce ethanol from cellulose and hemi-cellulose which are abundant wastes and do not compete with edible crop.
Ethanol is also produced by gasification of biomass under high temperature and low-oxygen environment to produce synthetic gas that can e combined to produce ethanol and other fuels. Synthetic gas is a mixture of carbon monoxide and hydrogen and with oxygen has all the components of a hydrocarbon.
Ethanol is also used as a blending agent with gasoline to increase the octane value of gasoline and reduce carbon monoxide and other smog causing emissions from engines. Biodiesel is used by combining alcohol (methanol) and vegetable oil, animal fat, recycled cooking grease etc. It can be used as an additive (typically 20%) to reduce vehicle emissions or just wholly as a renewable fuel for diesel engines.
Other strong direction of research is in algae or micro-algae as a source of Bio-fuels. The algae use suns energy with carbon dioxide and water to create biomass more efficiently than purely terrestrial plants. Algae can produce all sorts of fuels while mitigating the effects of carbon dioxide in the atmosphere. Scientist can genetically modify algae to produce more oil than in its naturally found form.