Biofuels

Countries and regions making notable progress to boost biofuels include: 

• India achieved 10% ethanol blending in 2022, ahead of schedule, in its pursuit of a 20% blending target by 2025.  
• Brazil is planning to increase biodiesel blending to 15% by 2026, up from 10% in 2022.  
• The United States Inflation Reduction Act (IRA) provides production and investment support for biofuels estimated at USD 9.4 billion to 2031.  
• Canada is implementing its Clean Fuel Regulations in 2023, which require a 13% reduction in GHG emissions intensity for transport fuels by 2030.  
• The European Union is approaching agreement on its updated Renewable Energy Directive (RED III), which would double the requirements for renewables content in transportation fuels, including biofuels, compared to existing targets.
  

In 2022 biofuels represented over 3.5% of global transport energy demand, mainly for road transport. Use of biofuels has expanded at nearly 6% a year for the past 5 years, except in 2020 when use declined due to the impacts of the Covid-19 pandemic. In the NZE Scenario, the contribution of biofuels to transport more than doubles to 9% in 2030, accounting for a similar share of fuel demand for road vehicles alone.  

Aviation biofuels, also known as biojet kerosene, would need to make the most dramatic strides between now and 2030 to align with the NZE Scenario, increasing from less than 0.1% of aviation fuel demand in 2022 to around 10% 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 while tripling biofuels production in line with the NZE 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 40% of the biofuels consumed in 2030 in the NZE Scenario, up from an estimated 9% in 2021. 

Used cooking oil and waste animal fats provide most 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, fatty acid methyl esters (FAME) biodiesel, hydrotreated vegetable and waste oil (HVO) renewable diesel and hydrotreated esters and fatty acids (HEFA) biojet kerosene from vegetable oils and waste oils. Others are on the cusp of commercialisation: the alcohol-to-jet (ATJ) route from ethanol production is expected to become commercial at the end of 2023, while other companies are exploring novel oilseed crops that avoid competition with arable land.  

Yet an innovation gap remains in converting woody and grassy biomass (e.g. agricultural and forestry residues) to liquid biofuels, for example via thermochemical routes such as biomass gasification followed by FT synthesis (bio-FT), 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 envisaged in the NZE 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 for these two pathways. The EU HyFlexFuel and NextGenRoadFuels projects completed in 2021 and 2022, respectively, while fuel production began in 2021 for 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 established in the United States at an ethanol facility, capturing 1 Mt CO2 per year.  

As of 2022, several ethanol plants were capturing carbon with a combined capture capacity of around 2 Mt CO2 per year, less than 1 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 more than 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 NZE Scenario (over 130 Mt), and the vast majority of it destined for permanent storage, leaving a sizeable gap to be addressed.

Overall, more than 80 countries have policies that support biofuel demand. Collectively, biofuels avoided 4% of global road transport oil use (2 million barrels of oil) on an energy basis in 2022. The United States, Brazil, Europe and Indonesia remain the dominant markets, accounting for 85% of total demand. Nearly 60% of biofuel demand is in advanced economies and 40% in emerging economies. Biofuel demand is expected to increase by 11% to 2024, with two-thirds of growth occurring in emerging economies.  

Argentina, India and Indonesia all accelerated biofuel use in 2022. Argentina increased its biodiesel blending target, India moved more quickly towards its ethanol target and Indonesia allocated higher biodiesel volumes for the year. However, while biofuels offered energy security benefits, their prices climbed more quickly than those of gasoline and diesel in many countries. To mitigate increases in transport fuel costs, Brazil, Sweden and Finland delayed planned increases to biofuel blending obligations in 2022. 

In the near term, biofuel demand is to expand by 11% by 2024, supported by existing policies targeting energy security objectives. However, only Indonesia and Brazil are accelerating deployment by 2024. Indonesia is expanding its biodiesel blending target to 35% from 30%, and Brazil is expanding biodiesel blending to 15% by 2026 from 12% in 2023. In advanced economies, new policies are not likely to influence production until after 2024 as high prices, feedstock concerns and technical constraints limit additional growth potential.

Global transport biofuel capacity expanded by 7% in 2022, its largest annual increase in over a decade. Biorefineries focused on renewable diesel made up the bulk of the growth, thanks to attractive policies in the United States and Europe, while ethanol capacity saw notable increases in Brazil, Indonesia, India and China. 

Biofuels investment saw a large uptick in 2022 as capacity additions reached a decade high of around 260 kb/d. Large investments were announced in renewable diesel refining, notably the Marathon-Neste USD 1.2 billion joint venture in California and Imperial’s USD 720 million investment in Canada. Several large companies are also making forays into sustainable aviation fuels (SAFs); this underpinned Neste’s USD 2.2 billion expansion of its renewable fuels plant in Rotterdam, the Netherlands. In the European Union alone there are over 30 advanced biorefinery projects in operation, and a further 10 are slated for operation before 2025; several are developing SAFs and renewable diesel production capabilities. The United States is likely to lead growth in this sector in the near term, thanks to generous fiscal incentives; the IRA includes an estimated USD 9.4 billion in tax credits and financial support for new production capacity and biofuel infrastructure generally. However, annual investment needs to increase more than 7-fold to get on track with the NZE Scenario.

International collaboration can help accelerate biofuel deployment by developing and sharing best practices, co-ordinating research, policy and deployment, and promoting common sustainability standards. Current efforts include:  

• 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 co-operation.  
• IEA Bioenergy: a Technology Collaboration Programme (TCP) established in 1978 to facilitate co-operation 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.  
• Clean Skies for Tomorrow Coalition: an industry-led coalition working to advance the commercial sale of viable, low-emission SAF – of which biojet kerosene is one type – for broad adoption by industry in 2030. 
• 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.  
• ICAO Assistance, Capacity-building and Training for Sustainable Aviation Fuels (ACT-SAF): A programme of the International Civil Aviation Organization (ICAO) launched in June 2022. The programme aims to support knowledge exchange, development and deployment of SAF supply and policy among its 77 participating member states and 35 aviation organisations.
  

Refiners traditionally focused on oil and gas refining operate 80% of today's renewable diesel production capacity and are involved in half of planned capacity additions, including co‐processing facilities, facility conversion or building new facilities. Refiners, such as TotalEnergies, Eni, Neste and Valero, currently own the majority of operating capacity for renewable diesel, and they also account for a sizeable share of planned capacity. This is the case for SAFs as well, although there are now a growing number of dedicated producers.

Policies such as the EU Renewable Energy Directive and the US Blenders Tax Credit are helping drive these investments. For example, TotalEnergies is now converting its Grandpuits refinery in France to a bio‐refinery to support growing demand for biofuels driven by EU and French policies.