Total biofuel demand for transport declined 8% to 150 billion litres (2 590 kb/d) from 2019 to 2020, surpassing the Renewables 2020 forecast of 144 billion litres (2 480 kb/d) for 2020. The largest year-on-year drops in output were in Brazilian and US ethanol production, and in biodiesel production in Europe. Lower output in these markets accounted for 90% of biofuel production declines from 2019 to 2020.

Global biofuel production is expected to recover to the 2019 level in 2021, as forecast in Renewables 2020, but this recovery will be uneven. Biodiesel and hydrotreated vegetable oil (HVO) production increases globally and ethanol expands in India. HVO capacity is also expected to be 50% higher in 2021 than in 2020 if new projects are built on schedule. However, the ongoing effects of the Covid‑19 crisis on demand, as well as price uncertainty for ethanol relative to sweeteners in Brazil, continue to keep ethanol production in both the United States and Brazil below the 2019 levels.

In Brazil, sugar mill operators can produce either ethanol or sweeteners, depending on which promises the greatest return. The Covid‑19 pandemic has also delayed biofuel policy implementation in Indonesia, Malaysia, Thailand and Brazil, for which production growth had previously been anticipated. Nevertheless, biofuel production is expected to be 7% higher in 2022 than in 2021 owing to HVO and biodiesel expansion in the United States and Indonesia, and a return to 2019 ethanol production levels in Brazil. 

Although total biofuel production returns to the 2019 level in 2021, ethanol production is forecast to remain 3.6% below the 2019 amount, largely due to a slow rebound in the United States and Brazil. Production will remain lower by 8% in Brazil and 5% in the United States in 2021.

The US drop in production results from weaker gasoline demand and the absence of new policy drivers at the time of writing. In Brazil, a combination of reduced gasoline demand, a potentially less abundant sugarcane harvest and lower returns on ethanol relative to sweeteners will likely keep production below the 2019 level, at 33 billion litres (570 kb/d) in 2021. However, the impact of competition between ethanol and sugar production remains uncertain, as a change in the relative price of sweeteners in favour of ethanol would encourage greater ethanol production. These declines are partially offset by gains in India, which has already announced 7% ethanol blending in 2021, a 2.5 percentage-point increase from 2019.

Biodiesel production, including HVO, is 10% higher in 2021 than in 2019 thanks to significant capacity expansions. 

Policy implementation in Indonesia, Malaysia, Thailand and Brazil has been slower since the beginning of Covid‑19 crisis. In some cases, these policy delays are directly related to the pandemic’s disruption of fuel demand, government prioritisation of Covid‑19 concerns, and the drop in fossil fuel costs relative to biofuels early in the pandemic. However, while oil prices have recovered, the costliness of soybean and palm oil feedstocks continues to keep the price of biodiesel high relative to fossil diesel. 

US policies are behind 85% of HVO capacity additions globally, as the renewable fuel standard, California’s low-carbon fuel standard and a biodiesel blender credit make HVO projects economically attractive. Outside the United States, new projects will expand capacity 12% from 2020 to 2022 in Europe, and by 32% in the Asia-Pacific region. At full production capacity HVO facilities account for 11% of forecast global biofuel production in 2022, more than doubling the 2019 HVO share.

HVO projects offer other benefits as well, including providing new life for oil refineries (6 of the 18 projects and expansions are refinery conversions). HVO is also a “drop-in” fuel, meaning it can be directly substituted for diesel without the need for engine modifications, facilitating its broader use.