According to International Energy Agency (IEA) website publication on Renewables 2022 Analysis and forecast to 2027 report:
Biofuel use expands in 2022 despite rising costs
Global biofuel demand is expected to be 6% or 9 100 million litres per year (MLPY) higher in 2022 than in 2021. Renewable diesel makes up the largest share of this year-on-year expansion, thanks to attractive policies in the United States and Europe. Blending requirements and financial incentives support demand growth in India and Brazil, and Indonesia’s 30% biodiesel blending requirement also boosts biodiesel use in that country.
Nevertheless, we have revised year-on-year growth downwards 25% from our 2021 forecast, with price and market developments in Brazil, Finland and Sweden responsible for 80% of this downward revision. While high biodiesel prices led the Brazilian government to reduce its biodiesel blending requirements for 2021/22, in Finland high fuel prices prompted the government to temporarily lower its renewable distribution obligation for 2022/23. Sweden froze 2023 greenhouse gas targets for transport fuels at 2022 levels. However, 2030 targets remain unchanged.
Renewable diesel demand expanded 3 800 MLPY or 40% over 2021-2022. The United States accounted for most of this growth, with state-level low-carbon fuel standards, the federal Renewable Fuel Standard and the biodiesel production and blending tax credit driving consumption. Domestic production thus expanded 2 800 MLPY to help meet rising demand. In Europe, existing policies in Germany, Spain and France helped boost renewable diesel uptake.
Ethanol demand rose 3 100 MLPY or 3% during 2021-2022, with India accounting for more than one-third of this growth. In 2022, India continued to provide guaranteed pricing for ethanol in pursuit of its 20% ethanol blending target. Meanwhile, consumer ethanol purchases supported a 4% demand increase in Brazil, where the large flex-fuel vehicle fleet allows consumers to choose ethanol over gasoline when prices are advantageous. To date in 2022, the consumer price for ethanol has been 30% lower than for gasoline on average.
Indonesia accounts for almost all the 1 800 MLPY of new biodiesel demand. Its 30% blending target for biodiesel in 2022 and an overall 4% increase in diesel demand have been driving growth.
Nonetheless, while stronger policies are encouraging demand growth, high prices are slowing its pace. We have therefore reduced this year’s demand forecast by 3 100 MLPY compared with last year’s. In the first half of 2022, diesel prices more than doubled, raising consumer prices and putting pressure on governments to reduce costs. At the same time, biodiesel prices went up in the United States, Europe and Brazil, making it increasingly more expensive than regular diesel.
Biodiesel price increases resulted from vegetable oil export losses from Ukraine, weather-related supply disruptions, high energy prices, high fertiliser costs and export restrictions that pushed agricultural commodity prices to record highs in 2022. In response, Brazil, Finland and Sweden reduced their blending mandates. This evolution accounts for a 2 600 MLPY downward revision to our forecast.
Finland plans to reinstate ascending blending requirements in 2023 and Sweden in 2024. Brazil has not announced when it will re-establish higher biodiesel blending. It had initially targeted 14% blending in 2022.
Robust growth over the next five years will help meet climate and energy security goals
Total global biofuel demand expands by 35 000 MLPY or 20% over 2022-2027 in the main-case forecast. Growth in renewable diesel and biojet fuel consumption is almost entirely in advanced economies. Here, policies designed to reduce GHG emissions are driving demand because these fuels can be produced with low GHG emissions, blended at high levels and made from wastes and residues. In fact, nearly 70% of renewable diesel and biojet fuel came from wastes and residues in 2021.
Meanwhile, rising ethanol and biodiesel use occurs almost entirely in emerging economies aiming to reduce oil imports while also maximising the use of indigenous resources to benefit the local economy. Plus, biofuel use helps reduce GHG emissions in these countries.
While demand for ethanol is higher than for biodiesel, renewable diesel and biojet on a volume basis, total energy demand met by ethanol is similar in 2021 because the energy content of the three other biofuels, are 60% higher than that of ethanol. By 2027, biodiesel, renewable diesel and biojet fuel demand is expected to reach 2.5 EJ, ahead of 2.4 EJ for ethanol.
The United States, Canada, Brazil, Indonesia and India make up 80% of global expansion in biofuel use, as all five countries have comprehensive policy packages that support growth. In Brazil, Indonesia and India, rising gasoline and diesel use also accelerates demand for biofuels, while in the United States and Canada declining gasoline and diesel demand slow biofuel growth and even reduce the use of some fuels. In Europe, falling transport fuel demand nearly stalls volume growth even though state-level policies are increasingly stringent. Globally, the biofuel share in transport fuel consumption climbs from 4.3% to 5.4% during 2022-2027.
Biofuel demand across Brazil, Indonesia and India expands by 19 000 MLPY over 2022-2027, as all three countries intend to raise blending requirements during this period. In Brazil, we also expect the RenovaBio programme to help reduce the price of ethanol relative to gasoline, prompting greater consumer use. Furthermore, overall gasoline and diesel demand is also expanding in all three countries, accelerating biofuel consumption growth.
The United States and Canada have introduced new national policies to support 9 500 MLPY of new biofuel demand in 2022-2027. In the United States, the Inflation Reduction Act includes an estimated USD 9.4 billion in tax credits and financial support for new production capacity and biofuel infrastructure generally. The tax credits have no financial cap, and we expect these incentives to boost biojet and renewable diesel fuel use over the forecast period. For ethanol, however, an expected 8% decline in gasoline demand over 2022-2027 and static blending levels will cause its use to drop by 4 200 million litres. Overall, the biofuel share in transport energy demand climbs from 6% to 8%.
Canada published its Clean Fuel Regulations in July 2022, requiring suppliers of liquid road transport fuel to progressively reduce their fuel carbon intensity by 14 g CO2-eq/MJ by 2030. We expect greater biofuel use will be required for the regulations to be met. Thus, the total share of biofuels in transport energy demand increases from near 4% to 7% over the forecast period.
Meanwhile, biofuel demand in Europe expands 1 400 MLPY or 5% during 2022- 2027, driven by the increasing stringency of existing country-level policies. For instance, blending requirements in France, Finland, Italy, the United Kingdom and Spain – as well as GHG emissions reduction targets in Germany – propel most of the expansion. However, as gasoline and diesel sales decline across Europe, less biofuel will be needed to meet blending mandates and GHG emissions reduction requirements. Still, the biofuel share in transport energy demand expands from 5.9% to 6.5% over the forecast period. This main-case forecast does not include the Fit for 55 programme or the European Commission’s REPowerEU proposal.
Biojet fuel to make up 1-2% of jet fuel globally by 2027
Biojet fuel demand expands to 3 900 MLPY in our main-case forecast – 37 times the 2021 level – to account for nearly 1% of total jet fuel consumption. Recent US and EU policies prompt most of this growth. In the United States, tax credits included in the IRA and measures in the Sustainable Aviation Fuel Grand Challenge Roadmap boost consumption, while in Europe we expect the ReFuelEU target of 2% by 2025 to come into force during the forecast period.
Planned capacity additions in Europe and the United States meet most of this increased demand, with additional supplies coming primarily from Singapore. Biojet fuel production depends primarily on the availability of waste and residue oils and fats (52%) and vegetable oils (36%). Ethanol, woody residues and wastes provide the remainder. In Europe, the European Commission is likely to limit the amount of eligible feedstocks available to produce sustainable aviation fuel (SAF), while vegetable oils such as soybean oil will support SAF manufacturing in the United States. In our accelerated case, demand swells to 8 100 MLPY (2% of global jet fuel use) if existing policies as well as those under discussion drive faster growth.
Biojet fuel demand in the United States expands to 2 000 MLPY over 2022-2027, bringing blending levels to 2% for domestic jet fuel in the main case. This forecast includes plans to provide USD 3.3 billion during 2023-2031 for SAF support, as outlined in the IRA. SAFs include a range of non-fossil fuels such as biojet and non-fossil synthetic fuels made from hydrogen and CO2. The majority of this funding (an estimated USD 3 billion) supports a dedicated SAF tax credit that transitions into a clean fuel tax credit, which SAFs are also eligible for.
The dedicated SAF credit provides up to USD 1.75 per gallon of fuel produced and sold in the United States in 2023 and 2024, depending on the GHG emissions intensity of the fuel. From 2025 to 2027, SAFs will be eligible for a clean fuel credit of up to 1.75 per gallon – a 75% premium relative to other fuels – if they fall below the maximum GHG emissions intensity. Plus, a further USD 0.3 billion is available to fund new projects and infrastructure, such as blending and storage facilities. The US Sustainable Aviation Grand Challenge Roadmap aims to remove barriers to SAF deployment by co-ordinating government actions, supporting the collection of agricultural, waste and residue feedstocks, promoting production innovation, and strengthening supply chains.
In Europe, biojet fuel demand grows to 1 300 MLPY by 2027 to meet existing SAF blending targets in France and Norway, planned targets in the United Kingdom (planned for 2025) and a GHG emissions intensity reduction target in Sweden (see Policy and Assumption table below). However, the majority of growth depends on the European Union implementing its ReFuelEU targets of 2% SAF use by 2025 and 5% by 2030 (the proposal disallows the use of food and feed crops as feedstock). Biojet fuel is already being produced in Finland, France and Spain, and production is expected next in the Netherlands and Italy.
Elsewhere, Japan aims for SAFs to make up 10% of the aviation fuel used by its airlines by 2030, and in China the Civil Aviation Administration of China targets SAF use of 65 MLPY and lower GHG emissions intensity in 2025. Beyond government programmes, airlines have signed agreements to use nearly 35 000 MLPY of SAFs over the next 20 years. The International Civil Aviation Organisation (ICAO) has also established a Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), and in October 2022 it adopted an aspirational goal of net zero emissions by 2050.
Although airline commitments, the CORSIA initiative and the ICAO pledge are not considered direct drivers and thus do not affect our forecast, these actions do enable broader SAF development. For instance, airline commitments to purchase SAFs reinforce the business case for new facilities by guaranteeing sales. At the same time, CORSIA aims to establish a global market to reduce GHG emissions from aviation, and SAF use is an effective option.
While SAF production is rapidly expanding, high costs, limited policy support and low feedstock availability may slow growth. Biojet fuel production costs remain more than double those of fossil jet fuel, restricting expansion to just a handful of countries that have tax incentives or mandates. Most SAF production to 2027 will rely on waste and residue oils and fats and vegetable oils. Demand for these products for the manufacture of all biofuels is thus expected to increase 50% over 2022-2027, which will likely keep feedstock costs high (see Chapter 4, Question 4, for more on feedstock availability).
In the accelerated case, demand expands to 8 000 MLPY, bringing the biojet fuel share to nearly 2% of global jet fuel use. The United States has the most significant growth potential in the accelerated case, as we assume existing policies will favour biojet fuel over renewable diesel, enlarging growth prospects. In fact, biojet fuel makes up 4% of US domestic jet fuel use by 2027 in this case.
Meanwhile, development in China is uncertain. The National Development and Reform Commission says it will “promote the demonstration and application of bioaviation fuel”, but it has not released targets or policies beyond the 65-million-litre target for 2025. New policies in Brazil and Indonesia, and more stringent policies in Europe, would also help accelerate production, as planned capacity is sufficient to support growth. Although announced biojet fuel plants would raise production capacity to 17 000 MLPY by 2027, this level of expansion is contingent on all facilities being built and feedstock being available.
The United States, China, Europe and India account for 80% of biofuel consumption growth in the accelerated case
Total biofuel demand reaches 240 000 MLPY in the accelerated case, up 25% from the main case. This level of growth is premised on China, Europe, India and the United States implementing more stringent policies to drive demand, and also assumes that efforts to increase ethanol blending in the United States and India are successful. Furthermore, all four countries must enlarge their supplies of feedstocks, especially wastes and residues, to expand renewable diesel, biojet fuel and biodiesel production.
For the United States, demand growth in the accelerated case is more than three times that of the main case, with increases to the Renewable Fuel Standard’s blending requirements and strengthening of California’s Low-Carbon Fuel Standard boosting biofuel consumption and providing broad support for higher demand. We also assume that 15% ethanol blending is allowed year-round and that fuel dispensers make use of IRA grants to make higher biofuel blends more available. Additionally, greater access to vegetable, waste and residue oils means renewable diesel and biojet fuel production can expand without reducing biodiesel production.
The forecast for China includes new blending requirements to help the country meet its net zero target. However, the National Development and Reform Commission has committed to “actively promote the use of advanced biofuels” but has yet to release targeted measures. Even modest aims for 2027 would produce significantly higher biofuel consumption, given China’s sizeable gasoline and diesel demand. With China focused on advanced fuels, most production growth will likely be based on wastes and residues, or on energy crops that do not compete with food and feed crops.
Meanwhile, European biofuel demand growth in the accelerated case is six times higher than in the main case because the accelerated case includes the EU-level Fit for 55 target of cutting transport GHG emissions 13% across all countries. Member states are assumed to modify their transport policies to achieve this goal, and the European Commission estimates that these actions would surpass existing transport sector renewable energy targets by two, raising the share of renewables to 28% by 2030.(11) In this case, biofuel producers would also achieve the EU target of 2.2% advanced fuels in total fuel consumption by 2030. Producing these fuels requires feedstocks that are little used today, including wastes and residues other than used cooking oil and animal fats.
In the accelerated case for India, a 3.5% blending target for biodiesel is assumed, leading up to its goal of 5% by 2030, but achieving this aim will require the collection of used cooking oils for feedstock. Ethanol blends also reach 20% in this case, assuming India expands its fleet of compatible vehicles and retrofits those that are currently incompatible. The Indian government is supporting flexfuel vehicles (for example those that run on 85% ethanol blends) through incentive programmes such as its Production-Linked Incentive scheme.
Brazil’s biofuel demand is 30% higher in the accelerated case, owing to a 1% GHG emissions reduction target for aviation and a small increase in the country’s biodiesel target. Based on the number of facilities currently planned, renewable diesel would supply most of the additional biofuels blended with diesel. Ethanol demand increases slightly, assuming Brazil’s RenovaBio programme makes ethanol more affordable than gasoline.
(11) This projection is based on the current Renewable Energy Directive’s calculation methodology for renewable energy
sources, which includes multipliers for electricity and advanced biofuels
