While ethanol and biodiesel already are fueling cars and buses, the next frontier for these biofuels could be the sky.

At a Mortgage Bankers Association meeting Monday, Virgin Group CEO Richard Branson said the company will test fly a jet plane using renewable fuels next year -- without passengers, according to Reuters.

Branson also said the company hopes to produce biofuels for buses, trains and cars in the next three to four years.

While biofuels production has grown rapidly in the last few years, companies have been squeezed by high prices for the crops needed to make biofuels and demand that has not kept pace with supply. BioFuel Energy and VeraSun Energy, among others, have cancelled plants.

But funding for biofuels keeps growing and companies such as Virgin could boost demand.

Air travel is a large market and some companies expect stricter environmental regulations are coming, said Rick Kment, biofuels analyst at DTN Research.

"I really think that a lot of the forward-thinking processors are looking more at higher regulations coming down the pike in the next five to 10 years, and this will also probably include emissions from the airplane and jet industry," he said.

He said bio jet fuel could act as a hedge to higher oil prices as well.

Still, materials to make biofuels have not grown rapidly enough to meet even the current demand, and -- unless new technologies take hold -- will not be able to fill a large portion of the world's airplane fuel needs.

So it's unlikely that bio jet fuel will be able to fully replace traditional jet fuel any time soon. But blending in even a small percentage could boost demand and help biodiesel manufacturers' margins.

Virgin isn't the only one working on bio jet fuel.

Earlier this year, a team of researchers at North Carolina State University at Raleigh said they had developed a high-temperature process to turn low-grade fats and oils into jet fuel.

The team said it could result in cleaner-burning aviation fuel that wouldn't compete with the food supply, but could take up to five years to enter even pilot production.

Still, Kment said the technology challenges to producing jet fuel aren't a big problem.

"It's really in the diesel-fuel family, so it isn't really that big of a jump," he said, adding that biodiesel would need more refinement to make cleaner-burning jet fuel. "It is going to utilize a lot of the same technologies as the current biofuels production has now."

The main key to success will be cost, he said.