Fueling the Future: Biofuels Driving Progress on Net Zero

March 07, 2024

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(S&P Global) The role of biofuels in energy transition is growing, as they can help decarbonize hard-to-abate transport sectors, but more supply is needed to keep the world on track with net-zero goals. S&P Global Commodity Insights explores how regional policies are driving adoption and evolving technology is widening the feedstock pool, as well as supply and demand outlooks across transport sectors.

A new era for biofuels

Biofuels are playing a key role in the energy transition by helping to decarbonize not only road transport, but also hard-to-abate sectors, such as aviation and shipping. Traditionally made from food crops and increasingly from waste biomass feedstocks, most biofuels provide low-carbon, drop-in replacements for liquid fuels in conventional combustion engines. Biodiesel and ethanol, for example, are already displacing millions of barrels of oil demand around the world each year as blends in fossil-based road fuels. At the same time, a new breed of synthetic, hydrogen-based ‘e-fuels’ are ramping up from a low base, supported by growing public policy.

The global production of sustainable biofuels needs to triple by 2030 to keep the world on track for net zero emissions by 2050, according to the International Energy Agency, with a much larger share produced from waste, residues and non-food crops. With demand for travel growing fast, sustainable aviation fuel (SAF) would need to make the most dramatic strides between now and 2030 to align with net-zero scenarios.

Europe’s “Fit for 55” policy package and the US Inflation Reduction Act (IRA) are the two largest energy transition policies globally and are expected to spur a push for low-carbon fuels, with global biofuels and alternative liquids consumption expected to more than double by 2050.

Top biofuel capacity locations

Several regions have become key centers for biofuel production, driving innovation, investment, and policy development to support the transition towards a more sustainable energy future. Among these regions, the US, Brazil and Asia stand out as prominent leaders in biofuel production, leveraging their agricultural resources, technological advancements, and regulatory frameworks to drive significant growth in the sector.

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Biofuels policies

EU

The EU’s Renewable Energy Directive (RED III) adopted in late 2023 raises the region’s ambitions for transport decarbonization. EU member states are free to choose between a 29% renewable energy share target and a greenhouse gas intensity reduction target of 14.5% by 2030. RED III also includes targets for advanced biofuels and renewable fuels of non-biological origin (RFNBO), such as hydrogen-based e-fuels, providing member countries some freedom to set their mix.

The EU’s RefuelEU Aviation and FuelEU Maritime regulations were also adopted in 2023, setting ambitious targets for the use of low-carbon fuels in these hard-to-abate sectors. These policy developments raise the bar for biofuel consumption. As of 2025, some 2% of the fuel supplied to EU airports must be SAF, with the target rising to 6% by 2030 and gradually to 70% by 2050. ReFuelEU Aviation also includes a synthetic aviation fuels sub-target of 1.2% as of 2030, which is set to rise to 35% by 2050. Meanwhile, FuelEU Maritime sets technology-agnostic targets, prescribing a 2% GHG intensity reduction target in the shipping sector in 2025, which will gradually increase to 80% by 2050.

A number of uncertainties over the EU biofuel expansion remain, however, making investment decisions difficult. While granting substantial flexibility to member countries, RED III creates policy uncertainty as member countries will transpose the directive’s provisions into their national laws in different ways. Biofuel affordability concerns have also led some EU members such as Sweden to dial back their GHG reduction target, leading to a substantial loss of renewable diesel demand.

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US and Canada

The US Inflation Reduction Act (IRA) of 2022, signed into law by President Joe Biden, is the nation’s most ambitious biofuels legislation since the expansion of the Renewable Fuel Standard (RFS) in 2007.

Under the IRA, previously expired tax credits for alternative and second-generation biofuels have been revived, as well as grants for new infrastructure and expanding incentives for carbon capture and sequestration.

Key biofuel measures include the extension of the $1/gal Blenders Tax Credit (BTC) until the end of 2024, and the creation of a standalone SAF blending credit of between $1.25-$1.75/gal, depending on the level of reduction in greenhouse lifecycle emissions. Both credits expire at the end of 2024 to become the Clean Fuel Production Tax Credit (CFPTC).

The additional SAF credit encouraged the addition of new SAF production capacity onto existing renewable diesel plants, improving project economics by covering higher plant conversion costs. Both the standalone SAF credit and new CFPTC will help further President Biden’s goal of producing 3 billion gallons of SAF by 2030.

Currently approved Environmental Protection Agency fuels that are eligible to receive the SAF blending credit are biomass diesel, advanced biofuels, cellulosic biofuels, and cellulosic diesel. Updated guidance is expected no earlier than March 1, 2024.

As new feedstock pathways are approved in the US, the pull on soybean oil has lessened, reducing the price of biomass-based diesel RINs (D4). RINs, or renewable identification numbers, are credits used by refiners and obligated parties to meet their annual renewable volume obligation under the RFS and are layered into biofuel production costs and credits.

California’s Low Carbon Fuel Standard (LCFS) program began in 2011 and provides credits for renewable fuel production, with lower carbon intensity products being most valuable. Both Washington and Oregon followed California’s lead and implemented programs of their own. New Mexico in February 2024 established its own LCFS program while several other states, including New Jersey, have introduced LCFS bills into their respective senates.

Canada’s Clean Fuel Regulations came into effect in July 2023 and require gasoline and diesel suppliers to reduce the carbon intensity of their products by 15% below 2016 levels by 2030. Canada has modeled its program on similar programs used in California, Oregon, and Washington as well as British Columbia and Quebec.

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The feedstock dilemma

Used cooking oils and waste animal fats currently make up the bulk of the non-food feedstocks for biofuel production. But with a limited supply of waste oils available, new technologies are needed to expand the use of non-food crop feedstocks for biofuels. World biofuel use of all feedstocks doubled between 2015 and 2022 while feedstock production increased by only 25%.

Ethanol and fatty acid methyl esters (FAME) biodiesel are produced via established production pathways. Renewable diesel and SAF are newer biofuels but are ramping up, currently largely through a pathway known as HEFA, or hydrotreated esters and fatty acids.

But to meet the scarcity constraints for low-carbon lipids feedstocks as demand surges, the industry is turning to more costly processes such as cellulosic ethanol and biomass-based Fischer-Tropsch. Other production pathways are only now just becoming commercial, with the alcohol-to-jet (ATJ) route currently the most developed technology.

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Routes into transport 

Biofuel consumption has been driven by regulatory efforts to decarbonize road transport, and thus so far has been concentrated in this sector. S&P Global Commodity Insights analysts estimate that 3 million b/d of biofuels were used in transportation in 2023 at the global level, of which almost 99% was in road transport. By comparison, planes and ships consume only very limited volumes of biofuels. Going forward, this situation is bound to change as legislation at both global and national levels is increasingly targeting emissions reductions in aviation and shipping.

Biofuels consumption in road transport is projected to continue to grow to almost 4 million b/d by 2040, with ever-stringent decarbonization targets incentivizing fuel suppliers to blend more renewable diesel and ethanol.

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Biofuels supply outlook

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SAF demand set to surge

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Marine sector competition

There is growing interest in using biofuels for marine propulsion, as climate targets get ever tougher and shipping companies look for decarbonization pathways that minimize expense, such as engine replacements.

But biofuels are expected to remain a limited source of decarbonized shipping compared to other green alternatives to fossil bunkers such as methanol and ammonia, a hydrogen carrier fuel.

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Spotlight on biofuel prices

Biofuel credits

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SAF prices READ MORE

Tags

Washington used cooking oil (UCO) Transportation Fuels Policy tax policy tax credits shipping RINs price RINs (Renewable Identification Numbers) renewable fuels of non-biological origin (RFNBO) Renewable Fuel Standard (RFS and RFS2) Renewable Diesel/Green Diesel/HVO/Paraffinic Diesel Regulations-State Regulations-Federal Quebec Oregon New Mexico Methanol/Biomethanol/Renewable Methanol markets/sales market forces Marine/Maritime Bio and Renewable/Sustainable Fuel (SMF) mandates LCFS (Low Carbon Fuel Standard) Jetfuel (Sustainable Aviation Fuel (SAF)) internal combustion engine (ICE) hydrogen carrier HEFA (Hydro-processed esters and fatty acids) GHG (Greenhouse Gas Emissions) fuel prices Fischer-Tropsch/FT FAME (Fatty Acid Methyl Ester) European Union (EU) EPA (Environmental Protection Agency) environmental policy electrofuels (e-fuels) defossilization D-4 (bio-based diesel) RINs co-processing 45Z Clean Fuel Production Tax Credit Cellulosic ethanol carbon/CO2 sequestration Carbon Intensity (CI)/Carbon Footprint carbon capture and storage (CCS) Canada California British Columbia Brazil Blenders Credit biomass Biofuel biodiesel Aviation Fuel/Sustainable Aviation Fuel (SAF) aviation fuel (SAF) mandates Asia animal fat ammonia alcohol-to-jet (ATJ)/ethanol-to-jet (ETJ) advanced biofuel prices BioRefineries/Renewable Fuel Production Investing Sustainability

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