Post-Pandemic Global Biofuels Markets Face Mixed Policy Signals

Global biofuels markets have stabilized after the COVID-19 pandemic led to one of the most shocking demand disturbances in history. Now policies could determine the pace of future growth. More than 80 countries have liquid biofuels blending mandates in place today. However, many countries have stalled or lowered blending mandates in response to macroeconomic uncertainty around inflation, the pandemic, rising food and fuel prices, and the war in Ukraine.

Macroeconomic Uncertainty Stalls Biofuels Support in Most Developed Markets

The US, the world’s largest ethanol producer, increased its ethanol production targets in December 2022 from 15 billion gallons in 2023 to 15.25 billion gallons for both 2024 and 2025. Moreover, the Inflation Reduction Act extended existing biofuels Production Tax Credits through 2024. However, while incentives for EVs are increasing, current policies for biofuels offer little certainty beyond 2025.

In Brazil, the world’s second-largest ethanol producer, the ethanol blending mandate sits at a much higher rate of 27%. The RenovaBio policy mandated a 15% biodiesel blend by 2023, but that target was lowered to 10% in 2022 due to supply and price concerns, then brought back up to 12% in April 2023. Colombia also delayed implementing biofuels policies because of high feedstock prices; in 2022, it decreased its ethanol blending mandate to 6% and its biodiesel mandate to 10%. On the other hand, Argentina, which initiated a 12% ethanol blending mandate and a 5% biodiesel mandate in August 2021, further increased its biodiesel mandate to 7.5% in June 2022.

In Europe, the EU wants 14% of its transportation sector on renewables by 2030, including a minimum share of 3.5% advanced biofuels. However, the legislation includes credits for public charging stations when renewable electricity is supplied to EVs, which could reduce the market share for biofuels. At the member state level, Finland stalled its blending targets in response to rising prices, slashing its biofuels mandates for 2022-23 from 19.5% to 12% in April 2022. The EU also imposes restrictions on the share of biofuels and bioliquids produced from food and feed crops.

E20 Gains Traction in Asia Pacific

Asia Pacific is one of the most promising markets for bioenergy in the next 5 to 10 years, in terms of both production and consumption. In February 2023, India began offering fuel blended with 20% ethanol, known as E20 fuel, to combat pollution. Although the technology is still unproven, this “second-generation” ethanol—produced from biomass such as rice straw—could help India reach its ethanol blending goal of 20% by 2025, which was accelerated from an original 2030 target.

The Philippines is also considering adopting the use of E20, which would double the country’s current E10 mandate. The move is meant to allow ethanol made from sugarcane and molasses to replace imports of refined petroleum products, which account for approximately 70% of the country’s gasoline pool.

Indonesia plans to introduce a 40% biodiesel blending mandate but has delayed implementing it due to rising prices. In 2017, China announced plans to implement a 10% ethanol blending mandate starting in 2020; however, the country backtracked amid criticism over competition with food and has lately favored policies supporting EVs over biofuels.

Growing policy support for biofuels in the Asia Pacific region should drive further growth beyond 2030. Guidehouse Insights’ latest Market Data: Bioenergy Production and Utilization Market report forecasts biofuels production in Asia Pacific will grow at a compound annual growth rate of 9.4% between 2022 and 2031, with ethanol leading the way, followed closely by renewable diesel and biodiesel. The region also stands to emerge as a clear leader in using biomass for power generation, as well as a leader in biogas production, which is forecast to increase sevenfold in Asia Pacific in the next 10 years.