Global Biofuel Markets: A Socio-Economic Overview of Policy

INTRODUCTION

As the world comes together in a mission to mitigate the climate change crisis, the spotlight is drawn toward renewable energy sources. Especially biofuels like ethanol and biodiesel will play an important part in the global economy over the next decade.

Fossil fuel combustion accounts for the majority of air pollution worldwide.[1] It finds use in electricity production, heating, transportation, and industry. Biofuel production does have an environmental impact in terms of land and water resource depletion as well as groundwater pollution. Overall, the environmental impact of fossil fuel production and use is much higher, making biofuels a viable contender to replace them.

CURRENT GLOBAL BIOFUEL MARKET OUTLOOK AND PROJECTIONS

The global biofuel market was estimated to be worth $110 billion in 2021. These numbers are expected to balloon to $201 billion by 2030[2], as the global economy recovers from the aftershocks of the pandemic.

In 2021, the global demand for biofuel stood at 157 billion litres[3] and will grow by 28% to 186 billion litres by 2026. Biofuels will play an important role in achieving a Net-Zero Emission (NZE) scenario for the hypothesized target of 2050.

The demand for biofuels grew at a rate of 5% per year during 2010-2019.[4] However, the average rate of growth required to achieve NZE by 2050 stands at 14% per year to 2030. The demand growth is fuelled by the trucking, shipping and aviation transportation sectors.

Currently, the majority of biofuels are produced from food crops. Biofuel is also produced from feedstock and food waste, but this does not compete with food-crop-produced biofuel. As of 2020, only 7% of biofuels are produced from feedstock.[5] This will have to improve to 45% by 2030 to stay on track with the goal of net-zero emissions by 2050.

Biofuels replacing fossil fuels is a viable way to reduce the net carbon footprint, especially in the transportation sector. The biofuel consumption in 2019 was estimated at 4 exajoules (EJ), this would figure would have to triple to 12 EJ by 2030 to stay on track with the NZE scenario.

Currently, biofuel only accounts for 3% of the fuel demand in transportation. The demand was hit quite adversely during 2019-2020 due to supply chain and logistics concerns due to the COVID-19 pandemic. This also translated to various governments postponing the enactment of legislation and regulations for the biofuel market, which would have otherwise accelerated the demand for biofuel.

A COMPARISON OF GLOBAL POLICY AND REGULATION ON BIOFUELS

Many notable jurisdictions were set to impose regulations on biofuels, but the rising cost of raw materials like soy and corn has delayed their plans.

Brazil has reduced its biofuel blending mandate from 13% to 10%/. Indonesia was also about to introduce a mandate to increase biofuel blending to 40%. However, the rise in feedstock prices has caused them to postpone it to 2022/23.[6]

While logistics disruptions and high feedstock prices are still a concern, large biofuel markets like Europe, North America, the Middle East and North Africa, and Asia are still actively considering implementing pro-biofuel policies that would accelerate demand.

Europe

North America

Asia

The Middle East and North Africa (MENA)

As part of the European Green Deal and with the European Climate Law, the EU seeks to achieve climate neutrality or NZE by the year 2050.

In pursuit of this goal, the EU is working on a legislative package called ‘Fit for 55.’

North America is a large market for biofuels, especially since the United States is the largest producer of the renewable energy source. The USA’s Environmental Protection Agency has established a Renewable Fuel Standard.

Asia’s largest biofuels producers are currently Indonesia, Malaysia, the Philippines, Thailand, (the) People’s Republic of China and India.

The Middle East is an interesting market for biofuels considering that many economies in the region are dependent on fossil fuel reserves that are depleting quickly. This is prompting governments to invest in alternative and renewable energy sources to maintain the staggering level of growth they’ve had over the years.[7] It will also diversify their investment within the energy production sector.

This will help the region align its laws with its current climate restoration goals.

The government in the US launched another initiative named the Sustainable Aviation Fuel Challenge that targets 11 billion litres of sustainable aviation fuel by the year 2030.

India is mulling a target of 2025 for 20% ethanol blending. The target for this was originally 2030. To achieve this, the ethanol production capacity of the nation will have to increase by 100%.[8]

A study revealed that the Kingdom of Saudi Arabia, a leading market for biofuels in the region, could produce between 1.08 – 1.41 million tons of biodiesel that would generate between 0.043 EJ – 0.056 EJ of energy. However, the study did note that there are challenges associated with production such as infrastructure for waste collection, separation, impurities, reactor design and biodiesel quality.[9]

The package is expected to deliver a 13% decline in greenhouse gas intensity of transport fuels by 2030.[10]

Canada’s Clean Fuel Standard comes into force in 2022 and seeks to reduce greenhouse gas carbon intensity to levels 13% below that of those in 2016.

China has been planning to peak GHG emissions by 2030. This implies that liquid biofuel demand would have to increase by 300% by then to peak greenhouse gas emissions.

North Africa harbours a climate that is particularly suited to renewable energy projects. This coupled with the growing global need to diversify sources of energy has put the North African region in the spotlight when it comes to biofuel production. With numerous growing economies with a growing demand for energy in the region, it is clear that biofuels are one of the most promising avenues for government and private investment in the energy sector. In a 2018 survey, Sudan emerged as the largest producer of biofuels in the region.[11]

CONCLUSION

Bio-diesel production is on the rise day-by-day basis in India as well as foreign countries. The major reason behind the phenomenon is the limited amount of petroleum product reservoirs. Oil was the largest contributor to our global energy needs at 33% of total consumption, followed by coal (30%), natural gas (24%), hydroelectricity (6%), and nuclear power (5%). Cumulatively, fossil fuels provided 87% of the world’s energy in 2011, which was a tiny fraction higher than in 2010 (86.9%). However, if we add nuclear power, fossil fuels plus nuclear power provided 92.1% of all energy in 2010 and declined a tiny fraction to 92.0% in 2011 because of a slight decline in nuclear electricity.[12]

The demand and production capacity for biofuel are increasing, but not steadily enough to meet a 2050 net-zero-emission goal. It can be inferred that one of the major impediments to the growth of biofuel markets worldwide is the lack of favourable regulations.

As economies rise from the plundering effects of the COVID-19 pandemic, governments should employ regulatory measures that mandate the blending of biofuel, establish a carbon fuel standard and reduce GHG intensity targets. They can be coupled with financial incentives to promote adoption and use.

Over the next five years, the results of policy talks in the United States, Europe, India, and China will have a significant impact on the prospects for biofuel. In the expedited case, the global demand growth for biofuels might more than double to close to 9% annually. The policies being discussed in these nations would be responsible for two-thirds of this growth if they were put into action. The biggest gain in this scenario comes from Asia, which overtakes Brazil to become the world's second-largest producer of biofuels. The demand for biojet is also expected to increase significantly, rising by about 6 billion litres by 2026, exceeding the demand growth for renewable diesel over the previous five years.[13]

Governments should focus on ensuring sustainability, looking past the low levels of blending shares we use currently, and commercialising the production of advanced biofuels that are more efficient. Ultimately, governments should actively seek to employ positive legislation that would reduce the lifecycle carbon intensity of fuels and promote advanced fuels that have lower carbon intensities. Going forward, the demand for biofuels is slated to increase significantly. This will mark a milestone in our progress towards net-zero emissions and a better climate for all of humanity. Biofuels are undeniably an important alternative source of energy that governments around the world should look to adopt and promote as soon as possible.

[1] ]F. Perera, “Pollution from Fossil-Fuel Combustion is the Leading Environmental Threat to Global Pediatric Health and Equity: Solutions Exist - PMC,”?PubMed Central (PMC), Dec. 23, 2017. [Online]. Available: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5800116/#B14-ijerph-15-00016. [Accessed: Jul. 15, 2022]

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[2] “Biofuels global market size 2030 | Statista,”?Statista. [Online]. Available: https://www.statista.com/statistics/217179/global-biofuels-market-size/. [Accessed: Jul. 15, 2022]

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[3] IEA (2021), Transport Biofuels, IEA, Paris https://www.iea.org/reports/renewables-2021/executive-summary

[4] Supra 3

[5] Supra 4

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[6] Supra 3

[7] “Renewable Energy Across The MENA Region - Renewables - Worldwide,”?Renewable Energy Across The MENA Region - Renewables - Worldwide, Mar. 04, 2013. [Online]. Available: https://www.mondaq.com/uk/renewables/225058/renewable-energy-across-the-mena-region. [Accessed: Jul. 15, 2022]

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[8] Supra 3

[9] “Waste to biodiesel: A preliminary assessment for Saudi Arabia,”?Waste to biodiesel: A preliminary assessment for Saudi Arabia - ScienceDirect, Nov. 10, 2017. [Online]. Available: https://www.sciencedirect.com/science/article/abs/pii/S0960852417319983. [Accessed: Jul. 15, 2022]

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[10] “Fit for 55 - The EU’s plan for a green transition - Consilium,”?Fit for 55 - The EU’s plan for a green transition - Consilium, Jun. 30, 2022. [Online]. Available: https://www.consilium.europa.eu/en/policies/green-deal/fit-for-55-the-eu-plan-for-a-green-transition/. [Accessed: Jul. 15, 2022]

[11] “MENA: share of solid biofuels energy consumption by country 2018 | Statista,”?Statista. [Online]. Available: https://www.statista.com/statistics/1085394/mena-share-of-solid-biofuels-energy-consumption-by-country/. [Accessed: Jul. 15, 2022]

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[12] Swain, J Fundam Renewable Energy Appl 2014, 4:1

[13] [2]"Biofuels – Renewables 2021 – Analysis - IEA", IEA, 2022. [Online]. Available: https://www.iea.org/reports/renewables-2021/biofuels?mode=transport&region=World&publication=2021&flow=Consumption&product=Ethanol. [Accessed: 21- Jul- 2022].