Biofuels

In 2021 biofuels represented 3.6% of global transport energy demand, mainly for road transport. In the Net Zero Scenario, biofuels’ contribution to transport quadruples to 15% in 2030, accounting for almost one-fifth of fuel demand for road vehicles alone. Although overall biofuel demand bounced back to 2019 levels after a decline due to the pandemic, the rebound has been uneven across specific biofuels. Ethanol demand grew by 6% from 2020 to 2021, yet remains 7% lower than 2019 demand. Biodiesel (referring to FAME) inched past 2020 demand by 0.3% to reach 1.4 EJ. Renewable diesel (referring to HVO), however, continued its exponential growth to reach 65% higher consumption in 2021 compared to 2019, reaching over 0.3 EJ. Biodiesel and renewable diesel compete for the same feedstock, further complicating relative growth between the two biofuels. 

Aviation biofuels, also known as biojet kerosene, would need to make the most dramatic strides between now and 2030 to align with the Net Zero Scenario, increasing from 0.1% of aviation fuel demand in 2021 to more than 5% in 2030. The successful take-off of biojet kerosene hinges on several key factors, including reducing the cost gap between biojet fuel and fossil jet fuel, governments implementing clear regulatory schemes and policies, and diversifying sustainable feedstock supplies beyond waste oils and edible oils.

The vast majority of biofuel production currently uses so-called conventional feedstocks, such as sugar cane, corn and soybeans. However, expanding biofuel production to advanced feedstocks is critical to ensuring minimal impact on land-use, food and feed prices and other environmental factors. In the Net Zero Scenario, biofuels produced from wastes, residues and dedicated crops that do not compete with food crops (e.g. crops grown on marginal land) make up roughly 50% of the biofuels consumed in 2030, up from an estimated 8% in 2021. 

Used cooking oil and waste animal fats provide the majority of non-food crop feedstocks for biofuel production today. Given that these feedstocks are limited, new technologies will need to be commercialised to expand non-food crop biofuel production. For instance, cellulosic ethanol and biomass-based Fischer-Tropsch (bio-FT) technologies can use non-food feedstocks to produce low-carbon biofuels for use in the transport sector. While the average production cost of such biofuels is still double to triple that of fossil fuel equivalents, it could decline by as much as 27% over the next decade, with any remaining cost gap covered by policy measures to spur production and demand.

Many biofuel production pathways have achieved commercial status, including ethanol production from corn and sugarcane, FAME biodiesel, HVO renewable diesel and HEFA biojet kerosene from vegetable oils and waste oils. Yet an innovation gap remains in converting woody and grassy biomass to liquid biofuels, for example via thermochemical routes such as biomass gasification followed by bio-FT synthesis, hydrothermal liquefaction and fast pyrolysis with upgrading. These routes can tap into different and more abundant biomass waste and residue resources than HVO and HEFA, allowing renewable diesel and biojet kerosene to sustainably scale up to the quantities required in the Net Zero Scenario. 

While bio-FT is currently at the demonstration phase, several commercial-scale projects are now in the pipeline, mostly in the United States, but also in Europe and Japan. The projects encompass a wide selection of feedstock choices (forestry residues and municipal solid waste) and end products (renewable diesel and biojet kerosene). One project, the Bayou Fuels biorefinery in the United States, will even include carbon capture and storage to produce negative emissions, also known as carbon dioxide removal.

Both hydrothermal liquefaction and fast pyrolysis with upgrading are at a lower level of technology readiness than bio-FT, hindered by challenges in pre-treating the bio-oils for further hydroprocessing into renewable diesel. But once pre-treated, the bio-oil can be co-processed with petroleum products (up to around 10%) at existing oil refineries in the near term and thus avoid costly capital expenditure related to scaling up. Currently, only a handful of pilot projects exist, such as the EU HyFlexFuel project and Sweden’s Pyrocell, a joint partnership between a sawmill and an oil refinery.

Several biofuel production pathways emit an essentially pure stream of CO₂ as an inherent part of their process. Such routes include ethanol fermentation (both crop-based and cellulosic) and bio-FT. The high concentration of CO₂ means that the cost of capturing the CO₂ is low, since no additional purification is required apart from dehydration. Once the CO₂ is captured, it can be compressed and transported via pipeline, truck or ship to a storage site or be used in some way. CO₂ has been captured from ethanol plants since 2010, with the first projects selling the CO₂ for use in enhanced oil recovery or within the food and beverage sector. In 2017 the world’s first bioenergy carbon capture and storage (BECCS) plant was instated in the United States at an ethanol facility, capturing 1 Mt CO₂ per year.  

As of 2021 there were several ethanol plants capturing carbon with a combined capture capacity of 2.21 Mt CO₂ per year, split roughly equally between CO₂ storage and use, with 1.65 Mt CO₂ per year from projects destined for enhanced oil recovery or storage. Around 40 ethanol facilities (including around 30 as part of the Midwest Carbon Express project in the United States) are planned to start capturing CO₂ before 2030, totalling over 15 Mt of biogenic CO₂ capture capacity. However, well over 50 times the amount of CO₂ captured today would need to be captured by 2030 in the Net Zero Scenario, leaving a sizable gap to be addressed.

Collectively, biofuels avoid 4.4% of global road transport oil use on an energy basis. Nearly 60% of biofuel demand is in OECD countries and 40% in non-OECD countries. Existing and new policies are expected to expand biofuel demand by 5% from 2021 levels by the end of 2022. For instance, in August 2022 the United States approved the Inflation Reduction Act which includes incentives for biodiesel, renewable, sustainable aviation fuel and advanced fuels as well as support for biofuels infrastructure, production. In addition, India (higher ethanol blending), Canada (clean fuel standard), Brazil (RenovaBio), Europe (new targets under Fit for 55) and the United States (California and Oregon low carbon fuel standards [LCFS] and other states considering LCFSs) continue to support expanded biofuel demand in the coming years. However, higher oil prices and weaker GDP are slowing growth in 2022.

Russia’s invasion of Ukraine has sent shock waves through energy and agriculture markets, worsening already high prices. In response, governments are considering whether biofuels help or hinder their efforts to keep pump prices low, ensure energy and food security, and reduce GHG emissions.  

Several governments have, or are proposing, relaxed, delayed or postponed biofuel blending requirements or GHG emission reduction quotas this year, in addition to actions taken in 2021 because of already high prices. The stated rationale for many of these changes is to reduce additional fuel costs borne either by consumers or by governments. The two exceptions are a proposal in Belgium, which specifically targets crop-based feedstocks, and a working paper from Germany’s Minister of Environment that proposes to reduce crop biofuel use in Germany. Conversely, the United States is proposing increases to help reduce fuel prices, as is Argentina to make up for potential fossil diesel shortfalls. In other countries, such as India, ethanol policies are moving ahead as planned since its sugar-based ethanol is less exposed to price increases and helps offset oil demand.

Global investment in liquid biofuels more than doubled in 2021, reaching just over USD 8 billion. Two-thirds of this growth was in bio-based diesel, spurred by rising investment in HVO renewable diesel, although ethanol investment also nearly doubled. The United States and Brazil each contributed around 30% to global investment in 2021. The planned expansion of capacity at HVO renewable diesel and biojet kerosene projects, such as Neste’s USD 1.98 billion investment in Rotterdam, is likely to create further supply in the near term.  

Food supply chain disruption and soaring prices in part due to Russia’s invasion of Ukraine are throwing energy prices into turmoil. Counter to prior trends, higher fossil oil prices may not necessarily encourage more investment in biofuels in some markets, as biofuel feedstock prices have similarly increased. However, capital spending on biofuels in 2022 is likely to rise in aggregate, pushed up by significant growth in HVO renewable diesel and biojet kerosene projects.

International collaboration can help accelerate biofuel deployment by developing best practices, coordinating research, policy and deployment, and promoting common sustainability standards. It includes:   

• The Biofuture Platform Initiative: a 22-country initiative to promote an advanced low-carbon bioeconomy that is sustainable, innovative and scalable, established under the Clean Energy Ministerial in 2021. It aims to foster consensus on biomass sustainability, promote best practices, enable financing and promote international cooperation.  
• IEA Bioenergy: a Technology Collaboration Programme (TCP) established in 1978 to facilitate cooperation and information exchange between countries that have national programmes in bioenergy research, development and deployment. It provides leading analysis on bioenergy technology development, demonstration, market deployment, sustainability and policy frameworks.  
• Global Bioenergy Partnership: an initiative focusing on developing countries to support a range of activities including national and regional policy making and supporting sustainable practices. This includes the development and implementation of 24 sustainability indicators.  
• Clean Skies for Tomorrow Coalition: an industry-led coalition working to advance the commercial sale of viable, low-carbon sustainable aviation fuel (SAF) – of which biojet kerosene is one type - for broad adoption by industry in 2030.

Sustainability governance is essential to ensure that higher biofuel consumption provides tangible social, economic and environmental benefits, including life cycle GHG emission reductions. Policy makers must establish frameworks to ensure that only biofuels that meet stringent sustainability requirements receive policy support. Adherence to sustainability criteria should be verified by third-party certification of biofuel supply chains. The European Union (through requirements in its Renewable Energy Directives), the United States (through minimum GHG thresholds in the federal RFS programme and the incorporation of indirect land-use change into the state of California’s LCFS) and Brazil (through its RenovaBio programme) have established frameworks to codify some aspects of biofuel sustainability, but other countries must also ensure that rigorous sustainability governance is linked to biofuel policy support.

Within sustainability safeguards, national governments can employ a combination of regulatory measures such as mandates, GHG emission intensity reduction targets (also known as low-carbon fuel standards), and carbon pricing and financial incentives to help raise biofuel demand. These regulatory measures must be aligned with net zero targets to support investment. In all cases, policies should include rigorous sustainability criteria and promote life cycle GHG emission reductions. Incentives, standards and other efforts to remove barriers to uptake can also support demand policies.

The Net Zero Scenario requires the expansion of both waste- and residue-based fuels and fuels with lower GHG emissions that use technologies such as carbon capture and storage. Relevant policies include de-risking measures like loan guarantees and specific biofuel quotas for emerging fuels. The European Parliament, for example, formally adopted SAF blending targets in July 2022 to expand the market for these fuels.