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FACTBOX-Rising global demand for biofuels

Source: Thomson Reuters Foundation - Wed, 15 Aug 2012 12:07 GMT
Author: Reuters
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Aug 15 (Reuters) - The European Union in 2009 adopted the Renewable Energy Directive with a target of 10 percent of renewables in the transport sector by 2020, most of which will be biodiesel.

A 2003 EU law had already promoted biofuels for transport.

The U.S. renewable fuel standard was created under the Energy Policy Act of 2005 and established the first renewable fuel volume mandate in the United States.

The U.S. mandate insists that a certain amount of renewable fuel (ethanol) be blended with traditional gasoline.

The European Union has an overall percentage of energy that must be renewable, and most takes the form of biodiesel, which is helping partly to make up for a current diesel deficit in the EU refining sector.

VALUE AND SCALE

The global market for biofuels in 2011 was worth ${esc.dollar}83 billion, according to estimates from U.S.-based research and advisory firm Clean Edge. That was up from ${esc.dollar}56.4 billion the previous year. Clean Edge attributed the rise in part to a 10-20 percent increase in ethanol and biodiesel prices.

Supply is concentrated in a small number of countries.

The United States (43 percent of output) was the single largest market player, according to 2010 data from oil major BP, followed by Brazil (26 percent), Germany (4.9 percent), France (3.9 percent) and Spain (2 percent).

For now, biofuels provide about 2 percent of all transport fuel.

DEMAND

In 2010, world biofuel use was 1,768.3 thousand barrels a day, or 27 billion U.S. gallons a year, according to the U.S. Energy Information Administration (EIA). Demand was concentrated in the European Union, the United States and Brazil, but China's and India's use is expected to grow rapidly.

According to EIA estimates, EU biofuel consumption will reach 8.87 billion barrels in 2020 from 5 billion in 2010. For the United States, use will rise to 30 billion from 13.1 billion.

National Renewable Energy Action Plans by EU countries, predict a doubling in biodiesel use to 19.95 million tonnes of oil equivalent (mtoe) in 2020 from around 10 mtoe in 2010.

The EU was the biggest producer of biodiesel in 2008, accounting for more than 50 percent of output, but analysts say it is unlikely to be able to expand much more. Refining capacity exists, but feedstock could be a problem.

The principal feedstock for U.S. ethanol is corn (maize). The main feedstock for EU biodiesel is rapeseed oil (77 percent, according to study carried out for the Commission). Other oils used are soybean, palm and sunflower, imported from Indonesia, Malaysia, Argentina and the United States.

ADVANCED BIOFUELS

Progress towards second-generation biofuels, which in theory do not compete with food demand, has been slow.

The United States is introducing a cap on conventional corn-based biofuels from 2015, making way for advanced biofuels that must reduce lifecycle greenhouse gas emissions by 50 percent.

The EU has agreed on sustainability criteria, according to which biofuels have to achieve minimum emission cuts against fossil fuels in order to count towards renewable energy targets and be eligible for subsidies.

For the EU Emissions Trading Scheme (ETS), from 2013 biofuel used in aviation (the only transport so far included in the ETS) will be ranked carbon-neutral only if it meets sustainability criteria. Otherwise, airlines will have to offset emissions by buying carbon allowances on the ETS.

In addition, the EU has been struggling to agree on ILUC - or indirect land-use change - factors to quantify the amount of disruption caused by biofuels. Further debate is expected later this year.

IMPACT ON FOOD PRICES

Non-governmental and some inter-governmental organisations say that the biofuel goals drive commodity volatility because they add to inelasticity of demand in times of crisis, such as drought.

Biofuels have also become embroiled in oil price movements because of the link to transportation, so high oil prices stoke biofuel prices, which increases the pressure on corn, vegetable oil and sugar supplies.

Biofuel crops can also require a lot of water, adding to the strain on water systems, with implications for food markets.

Canadian-based public policy body the International Institute for Sustainable Development drew a link between the 2006-2008 food price spike and the introduction of biofuel consumption mandates in the United States and Europe.

Food prices decreased in 2009 but then resumed growth. Corn futures hit a record high last Friday.

The G20, U.S. regulators and the Commission have spoken out against commodity price speculation.

"We are concerned about speculation around food prices and look favourably on initiatives restricting such speculation. We are ourselves putting in place a regulatory framework to this end," Commission spokesman Olivier Bailly said. (Reporting by Barbara Lewis, editing by Jane Baird)

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