The current global energy crisis brings opportunities and challenges for renewable energy. Renewables 2022 is the IEA’s primary analysis of the sector based on current policies and market developments. It forecasts the deployment of renewable energy technologies in electricity, transport, and heat to 2027 while also exploring critical challenges to the industry and identifying barriers to faster growth.
Demand for biofuel is growing
In the IEA’s main-case forecast, the global biofuel demand grows by 35.000 MLPY or 20% over 2022-2027. 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 this growth. In Europe, existing policies in Germany, Spain, and France helped boost renewable diesel uptake as well.
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. Nearly 70% of renewable diesel and biojet fuel came from wastes and residues in 2021.
Meanwhile, rising ethanol and biodiesel use occurs in emerging economies aiming to reduce oil imports while maximizing the use of indigenous resources to benefit the local economy. Plus, biofuel use helps reduce GHG emissions in these countries. 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.
Biodiesel price increases
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 increased 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 fertilizer costs, and export restrictions that pushed agricultural commodity prices to record highs in 2022. In response, Brazil, Finland, and Sweden reduced their blending mandates.
EU Fit for 55
European biofuel demand growth in the IEA’s accelerated-case is even six times higher than in the IEA’s main case because the accelerated-case includes the EU-level Fit for 55 targets of cutting transport GHG emissions by 13% across all countries.
EU member states are assumed to modify their transport policies to achieve this goal. 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.
Producing these fuels requires feedstocks that are little used today, including wastes and residues other than used cooking oil and animal fats. The declining gasoline and diesel demand and feedstock limitations put downward pressure on the forecast.
Biodiesel, renewable diesel, and biojet fuel producers are headed for a feedstock supply crunch during 2022-2027 if current trends do not change. In the EIA’s main-case forecast, demand for vegetable oil, waste, and residue oils and fats increases 56% to 79 million tonnes over the forecast period. Today, nearly 70% of renewable diesel and biojet fuel came from wastes and residues in 2021.
Fuels made from wastes and residues are in exceptionally high demand because they satisfy GHG and feedstock policy objectives in the United States and Europe. Waste and residues are expected to be used for 13% of biofuel production in 2027, up from 9% in 2021. However, demand is approaching the supply limits of the most-used wastes and residues. With biofuel, land use depends heavily on the origin of the biomass. Land use can range from smallest (for residues) to highest (energy crops).
Advanced (second-generation and third-generation) biofuels must comply with sustainability criteria related to the feedstock used (not competing directly or indirectly with food or feed crops) and their GHG reduction. These fuels must reach at least 0.2% of transport energy used in Europe in 2022, 1% in 2025, and 3.5% by 2030. Nevertheless, if all planned facilities are built, there would be an additional 1.700 MLPY production from plants using advanced feedstocks.
Other energy options
Biofuels are also just one option for policy compliance. Electricity, biogas, and renewable fuels from non-biological sources such as hydrogen will also contribute. Additionally, the transport targets of Germany, Finland, and Sweden are already more ambitious than in the revised directive, reducing the potential for additional growth.
Markets are dynamic. High prices signal to seek out new supplies, prompting the development of government programs and industry innovation to help avoid the supply crunch.