Rising prices are slowing biofuels’ growth, but according to our forecast, demand in 2021 nevertheless recovers from the lows seen in 2020 during the Covid-19 crisis. Brazil, Argentina, Colombia and Indonesia are managing climbing feedstock and biofuel costs by temporarily reducing or delaying blending mandates. We estimate these actions to reduce demand by 3%, or 5 billion litres, in 2021 compared to a scenario where mandates remained unchanged or were increased as planned. By August 2021 biofuel prices had increased by between 70% and 150% across the United States, Europe, Brazil and Indonesia,2 depending on the market and fuel, from average 2019 prices. For comparison, crude oil prices increased by 40% over the same time period.

While overall biofuel demand returns to 2019 levels this year even with slower growth, the recovery is uneven. Ethanol demand remains 4% below 2019 levels in 2021 and does not fully recover until 2023. High ethanol prices in Brazil and lower gasoline demand in the United States relative to 2019 levels are both driving lower ethanol volumes in 2021. By 2023 US and European gasoline demand has recovered from Covid-19 disruption, but remains well below 2019 levels (IEA, 2021c). Increasing energy efficiency, surging electric vehicle sales and behaviour change all contribute to lower demand. Lower gasoline demand reduces ethanol volumes under current policies. However, ethanol demand recovery in Brazil and growing demand in Asia eventually offset declines in the United States and Europe in 2023.

By comparison, in 2021 biodiesel, renewable diesel and biojet, expand well beyond 2019 levels, albeit from a low base for biojet. The combined demand for these fuels in 2021 is up 15%, or 7 billion litres, from 2019 levels. Renewable diesel demand in the United States and Asian biodiesel demand are responsible for the majority of this growth.

Renewable diesel demand nearly triples between 2020 and 2026, primarily thanks to policies in the United States and Europe. However, in absolute volume, ethanol demand growth surpasses that of renewable diesel. The majority of renewable diesel growth is concentrated in the United States and Europe. In both regions renewable diesel competes well in a policy environment that values GHG reductions and places limits on some biofuel feedstocks, as it can be produced with a low GHG intensity using wastes and residues. It has a further benefit in that it can be blended at higher levels than biodiesel.

Ethanol and biodiesel growth remains robust, however, thanks to demand in Latin America and Asia, and recovery from Covid-19 declines. In Asia, India’s efforts to reach 20% ethanol blending by 2025 support global ethanol demand growth, while Indonesia’s 40% blending mandate planned for 2022 stimulates biodiesel expansion. In both countries, growing transport fuel demand over the forecast period, in combination with mandates, accelerates biofuel demand. Similarly, in Latin America, Brazil’s biofuel policies combined with growing gasoline and diesel demand drive up biofuel use. 

Biofuel demand must nearly double from our main case or expand by over 40% from the accelerated case to align with the IEA Net Zero Scenario. Liquid biofuels expand in the Net Zero Scenario to 2026 primarily to reduce emissions in road transport and to a lesser extent for planes and ships. 

To align with the Net Zero Scenario, countries would need to implement existing and planned policies, and then strengthen them before 2026. These policies must also ensure that biofuels are produced sustainably and avoid the risk of negative impacts on biodiversity, freshwater systems, and food prices and availability. In addition, policies must incentivise GHG reductions, not simply biofuel demand, so that every litre of biofuels used reduces emissions relative to fossil fuels as much as possible.

The following policy summary table provides details for major biofuel markets, including notable policy changes for selected countries in the main and accelerated cases. The analysis is based on policy assumptions for demand, supply and trade for 61 countries.