The current boom in demand for biofuels could lead to a deterioration in water quality and even droughts, according to a new report from the US National Research Council.

The study into the environmental impact of the increased demand for so-called energy crops that can be refined to make transport fuels concluded that assigning more land to grow crops such as corn to produce ethanol and other biofuels would increase pressure on water supplies, while the increased use of fertilizers and pesticides would have a detrimental effect on water quality.

"If projected increases in the use of corn for ethanol production occur, the harm to water quality could be considerable, and water supply problems at the regional and local levels could also arise," the report said.

It added that the high rates of soluble nitrogen required by many energy crops could also lead to "significant health impacts" if the run off from fields affected water supplies.

Furthermore, the study predicted that the water required during the production process of biofuels could also contribute to water scarcity, noting that "a biorefinery that produces 100 million gallons of ethanol a year would use the equivalent of the water supply for a town of about 5,000 people".

The committee behind the report accepted that innovations in biofuel production and agricultural techniques could reduce the pressure on water supplies, but the study will still be seen as another blow to the environmental credentials of biofuels.

Both Europe and the US have heavily subsidised biofuel development in recent years and set targets for their use, with the EU requiring that 10 per cent of transport fuels come from biofuels by 2020 and the US aiming to produce 35 billion gallons of biofuels by 2017. Politicians on both sides of the Atlantic have argued that biofuels offer a carbon neutral alternative to fossil fuels and a relatively simple means of decarbonising road transport.

However, environmentalists have raised serious concerns about the knock-on impact of increased demand for energy crops, while a series of studies have claimed the trend is already leading to food shortages and even increased carbon emissions as a result of land being deforested to make way for biofuel plantations. One Dutch report concluded that biofuels made from palm oil had a carbon footprint 10 times greater than that of petroleum as a result of tropical rainforest being cleared to make way for plantations.

Advocates of biofuels argue that next-generation technologies capable of increasing the amount of energy generated from crops and exploiting waste materials such as woodchips will help resolve these problems, although the controversy has led to calls for a moratorium on biofuels and prompted some firms to reconsider plans to adopt biofuel-powered fleets.

Most notably, coach company National Express cancelled a biofuel trial earlier this year citing concerns about its environmental impact.