Biofuel demand is set to expand 38 billion litres over 2023-2028, a near 30% increase from the last five-year period. In fact, total biofuel demand rises 23% to 200 billion litres by 2028, with renewable diesel and ethanol accounting for two thirds of this growth, and biodiesel and biojet fuel making up the remainder. 

Most new biofuel demand comes from emerging economies, especially Brazil, Indonesia and India. All three countries have robust biofuel policies, rising transport fuel demand and abundant feedstock potential. Ethanol and biodiesel use expand the most in these regions. Although advanced economies including the European Union, the United States, Canada and Japan are also strengthening their transport policies, volume growth is constrained by factors such as rising electric vehicle adoption, vehicle efficiency improvements, high biofuel costs and technical limitations. Renewable diesel and biojet fuel are the primary growth segments in these regions.

In the accelerated case, demand growth is nearly triple the main case over the forecast as existing policies are strengthened and biofuel demand expands in new markets.

Biofuels and renewable electricity are set to reduce transport sector oil demand by near 4 mboe/d by 2028, more than 7% of forecast transport oil demand, and when electricity from non-renewable sources such as nuclear, natural gas and coal is taken into account, this value rises to nearly 9%. Renewable electricity leads growth by avoiding an additional 1.3 mboe/d of oil consumption over the forecast period, while biofuels avoid another 0.7 mboe/d. By 2028, biofuels account for near 60% of avoided oil demand and renewable electricity for the remainder.

Both biofuels and renewable electricity help meet the targets of domestic transport policies such as low-carbon fuel standards in the United States and the RED in the European Union. Historically, biofuels have reduced oil demand the most, but during the forecast period, electric vehicles claim a larger share of reductions in the gasoline segment. Nevertheless, biofuels continue to be the dominant option for reducing oil demand in the diesel and jet fuel segments.

In the United States, Europe and the People’s Republic of China (hereafter “China”), renewable electricity use in transport is forecast to expand eightfold over the forecast period, albeit from a small base. In total, electric vehicles using renewable electricity will avoid 1.3 mboe/d of oil consumption in 2028 in these regions, about the same as biofuels. In the United States and Europe, large-scale electric vehicle growth contributes to declining gasoline demand over the forecast period.

In much of the rest of the world, however, biofuels remain the primary decarbonisation option, accounting for near 90% of avoided oil demand in 2028. In Brazil, India and Indonesia, electric vehicles and efficiency improvements pose little threat to liquid fuel demand, given the high growth prospects for overall transport demand. These regions also mandate biofuel shares, avoiding direct competition with electric vehicles. 

Globally, biojet fuel use is expected to expand by nearly 5 billion litres, making up almost 1% of global jet fuel supplies by 2028. We have revised the forecast upwards 20% in the main case and 40% in the accelerated case to reflect new policy announcements and a robust project pipeline.

The United States, Europe and Japan are at the forefront of this growth, propelled by strong policy support. Ongoing policy discussions in Brazil, India, Indonesia, Singapore, the United Arab Emirates, Malaysia and the United Kingdom, coupled with significant capacity potential in the United States, could boost demand to 15 billion litres, or to 3.5% of global jet fuel demand in 2028 in our accelerated case. However, realising this growth will hinge on policy implementation and feedstock diversification. 

In the main case, incentives such as IRA credits, the Renewable Fuel Standard’s Renewable Identification Numbers (RINs), and Low Carbon Fuel Standard (LCFS) credits help raise US biojet fuel demand to nearly 2 billion litres by 2028. These credits, potentially worth near USD 1/litre,1 narrow the price gap with fossil jet fuel. Meanwhile, European Union ReFuelEU Aviation legislation, which sets blending obligations of 2% for 2025 and 6% for 2030, is forecast to increase the biojet fuel share to 4% of Europe’s jet fuel demand by 2028. In the Asia-Pacific region, Japan is the main source of demand growth with its goal of 10% sustainable aviation fuel by 2030.

The accelerated case is predicated on the implementation of planned policies and feedstock diversification. Active policy discussions in Singapore, Malaysia, Indonesia, India, the United Arab Emirates, Brazil and the United Kingdom would help trigger an additional 30% increase in biojet fuel demand to 2028. However, the United States has the most significant upside potential in the accelerated case. Under a more stringent Renewable Fuel Standard, higher state-level LCFSs and extended IRA credits, biojet fuel production could triple, advancing the country two-thirds of the way to achieving its SAF Grand Challenge goal.

Beyond implementing new policies, it is critical to establish new feedstock sources, as residue fat, oil and grease supplies are limited and European Union policies require non-food/-feed feedstocks. In the accelerated case, planned alcohol-to-jet projects deliver almost 2 billion litres of new capacity, and the gasification of woody residues and municipal solid waste offer another 2 billion litres of potential.

Biofuels typically cost more than the fossil fuels they are blended with. However, the impact on fuel prices is relatively small, in the range of 0.01-0.04 USD per litre-eq of blended fuel (on an energy-equivalency basis)2 over the past 13 years in the United States, Brazil, Europe, Indonesia and India. This has equated to a 2-7% increase in pre-tax gasoline and diesel prices.

Governments accept these additional costs to meet energy security, GHG emissions reduction and agricultural support objectives. However, variables such as feedstock costs and fluctuating oil prices can disrupt these averages, requiring flexible support mechanisms that can adapt to changing prices and mitigate high costs.

Governments deploy various tools to bridge biofuel cost gaps, stimulate production and shield consumers from cost increases. In Indonesia, palm oil export levies subsidise biodiesel costs, while the United States offers a biodiesel blending tax credit of USD 0.26 per litre. It plans to extend the tax credit through the IRA, with added incentives for lower GHG emissions. India has set ethanol purchase prices at a level that enables ethanol producers to cover their costs and has lowered tax rates for ethanol and ethanol-blended fuels. Meanwhile, policy approaches across Europe differ, with some countries providing tax benefits (such as France’s tax breaks on 85% ethanol blends) and many others passing the costs on to consumers.

Biodiesel-blend fuel costs are forecast to rise with higher blending levels and increasing feedstock prices, particularly in the United States and Indonesia. Conversely, ethanol-blend fuel costs are likely to remain steady or even decline in some regions thanks

In our accelerated case, biofuel production falls short of Net Zero Scenario goals. Strengthening existing policies, establishing new targets, expanding feedstock supplies and raising biojet fuel use are essential to close the gap. While the main case achieves only 15% of the growth needed, the accelerated case still raises global biofuel production to just 36% of Net Zero ambitions.

In the accelerated case, compound annual growth could reach over 8% over the forecast period, more than double historical rates. Nearly half of this additional growth, 29 billion litres of new demand, results from strengthened policies in existing markets such as the United States, Europe and India (for ethanol), and an additional 21 billion litres comes from new markets (biodiesel in India and ethanol in Indonesia). Biojet fuel offers a third growth avenue, expanding to cover nearly 3.5% of global aviation fuels – up from 1% in the main case. 

In the United States, additional growth is premised on a quicker rollout of E15 ethanol pumps and a permanent allowance for E15 blending, bringing average ethanol blending to nearly 13%. As with Europe, accelerating renewable diesel production will require quicker deployment of processing technologies that can make use of wastes and residues, and innovative agricultural practices to produce plant feedstocks that do not compete with food or feed production. In the accelerated case, high-ethanol blends and increased feedstock availability allow for higher RFS requirements post-2025. India meets its 20% blending target by expanding ethanol production, increasing the number of E20 pumps and diversifying feedstocks beyond sugarcane and molasses.

New, comprehensive policy packages will be necessary to expand biodiesel production in India, ethanol in Indonesia and renewable diesel in Brazil and Indonesia. Developing biodiesel production in India, for instance, will require capacity expansion, closing of the cost gap with diesel, and feedstock mobilisation. Since India imports 60% of its vegetable oils, feedstock growth should be based on used cooking oils and animal fats, or vegetable oils grown as cover crops or on marginal land. In Africa as well, eight countries have biofuel blending targets at various levels of development, which could raise the continent’s demand more than 2 billion litres by 2028.

Meanwhile, Indonesia will need clear targets, sustainability guidance, expanded sugarcane production and financial support to increase its ethanol production. Likewise, for Brazil and Indonesia to expand their renewable diesel supplies, they will have to establish technical specifications, pricing support and guidance on how renewable diesel production will complement existing biodiesel production.

To align biofuel production with the IEA Net Zero Scenario, it will be necessary to enter new markets; increase feedstock supplies; accelerate technology deployment; and reduce GHG emissions intensity. In the Net Zero Scenario, biofuels make up 8% of shipping fuel and 10% of aviation fuel by 2030, up from nearly zero in 2022 and well above accelerated case projections.

As over 80% of biofuel demand is concentrated in just four markets – the United States, Brazil, Europe and Indonesia – which account for only half of global transport fuel demand, policy lessons from these markets can be used to expand production in other regions. At the same time, conventional and waste-based feedstock supplies will have to be enlarged through enhanced land productivity and residue collection, underpinned by robust sustainability frameworks.

New processing technologies to access a large agricultural and forestry residue base must also quintuple by 2030, necessitating significant developmental support, as most remain pre-commercial. Finally, to address GHG emissions intensity, technologies such as CCUS applied to biofuel projects can very effectively reduce GHG emissions, with lower feedstock demand. In all cases, predictable long-term policies are crucial to minimise uncertainty and stimulate investment.