R. Dominguez-Faus and others analyze the impact of different biofuels on water in the USA in their article in Envir. Science and Technology, The Water Footprint of Biofuels: A Drink or Drive Issue? (doi:10.1021/es802162x). The figure below, from the paper, shows the substantial ecological requirements (and variation) among biofuels.
The current and ongoing increase in biofuel production could result in a significant increase in demand for water to irrigate fuel crops, which could worsen local and regional water shortages. A substantial increase in water pollution by fertilizers and pesticides is also likely, with the potential to exacerbate eutrophication and hypoxia in inland waters and coastal areas including Chesapeake Bay and the Gulf of Mexico. This in turn would cause undue financial hardship on the fishing industry as well as negative impacts to these vital, biodiversity-rich, ecosystems. Such threats to water availability and water quality on local and national scales represent a major obstacle to sustainable biofuel production and will require careful assessment of crop selection and management options. It is important to recognize that certain crops such as switchgrass and other lignocelluosic options deliver more potential biofuel energy with lower requirements for agricultural land, agrichemicals, and water.
Climatic factors such as frequency of droughts and floods are beyond human control, but as the wide range of estimated nutrients discharged to surface waters shows, clearly some important variables are within our control. These include crop selection, tillage methods, and location. As more biofuel production is integrated into the agriculture sector it will be important to adopt land-use practices that efficiently utilize nutrients and minimize erosion, such as co-cropping winter grains and summer biomass crops. These land use choices should also focus on establishing riparian buffers and filter strips to serve a dual purpose in erosion control and biomass production. Similarly, a CRP-like program should be considered to promote cellulosic biofuel crop planting in marginal lands to prevent excess erosion and runoff while allowing producers to benefit from historically high commodity prices. CRP-like payments would then help to balance societal goals with ecological benefits and provide financial viability for the farmers making the land use choices. Finally, increasing charges for irrigation water for biofuel crops to market rates should be considered to promote fuel crop agriculture in areas where rainfall can supply the majority of the water requirements and to reflect the true value of water resources in the price of biofuels. Policies and programs should be coordinated to avoid the current situation where some efforts (ethanol subsidies, mandates) bid against other programs (CRP) though both are funded by taxpayers with the common goal of environmental protection.