Toyota’s Biofuel: A New Lease on Life for Combustion Engines

June 02, 2025

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by Yves Helven (Global Fleet) ... A recent Nikkei Asia report reveals that Japanese automakers led by Toyota have opened a bioethanol facility in Fukushima, aiming to slash the carbon footprint of conventional engines with a new kind of “better biofuel”.

The technological leap

Toyota’s new bioethanol venture centers on a research plant in Fukushima, designed to produce 60 kiloliters of ethanol fuel annually. What sets this project apart is its focus on second-generation biofuels: non-edible plants and agricultural waste serve as the feedstock, rather than food crops like corn or sugarcane. By avoiding feedstocks that compete with food supply, Toyota’s program addresses a key criticism of traditional biofuels.

At the heart of this effort is a breakthrough in fermentation. Toyota has developed a new yeast-based process to convert tough, inedible biomass into ethanol far more efficiently than before. This innovation means more fuel output from the same biomass, driving down production cost and energy use.

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... the project plans to capture and utilize CO₂ byproducts from fermentation. By recycling emissions (and using byproduct oxygen from hydrogen production), the fuel’s lifecycle could remove more CO₂ than it emits – a potential carbon-negative fuel cycle.

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After a last-minute lobby by Germany, the EU will allow new combustion cars beyond 2035 only if they run exclusively on carbon-neutral fuels.

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It acknowledges a reality that 250 million combustion cars will still be on European roads, and “climate-neutral fuels can play an important role in decarbonising transport” by reducing emissions from this existing fleet. BMW has noted that all its engines are already e-fuel compatible, anticipating such a future where fueling with carbon-neutral gasoline or ethanol could keep legacy vehicles in operation.

In Japan, the strategy looks different. Rather than banning internal combustion, Japan is gradually greening it: the government plans to introduce E10 (10% biofuel-blended gasoline) by 2028, with a further goal for 20% biofuel mixes in the early 2030s. By 2040, Japan aims to roll out nationwide fuel blends with 20% bioethanol. This policy bets that a progressive increase in biofuel use – supported by domestic production innovations like Toyota’s Fukushima plant – can decarbonize transport without forcing a wholesale switch to EVs. It also reflects practical challenges: Japan currently imports most bio-ethanol from Brazil or the U.S., and scaling up local, second-gen biofuel production is key to a stable supply.

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Fleet managers may soon have more options than the binary choice of sticking with gasoline or going electric. If Toyota’s carbon-neutral ethanol (or similar biofuels and e-fuels) become commercially viable, combustion engine vehicles could essentially run “net-zero”. For corporate fleets, this opens up scenarios such as:

Extended ICE Viability: Keeping high-efficiency combustion cars (for example, hybrid or flex-fuel vehicles) in the fleet mix longer, since their fuel can be carbon-neutral. This could be particularly useful for vehicle categories where suitable EV or hydrogen models are not yet available or affordable.
Diversified Powertrain Strategy: Rather than a one-size-fits-all electrification, fleets might adopt a blend: EVs for urban and low-mileage use, hydrogen fuel-cell or efficient ICE (on biofuel) for long-range or heavy-duty needs. Toyota’s own strategy reflects this multi-path approach – alongside bioethanol, Toyota continues to develop hydrogen fuel cell models (like the Mirai) and even hydrogen combustion engines for racing. The implication is that different use-cases might warrant different energy solutions.
Policy Compliance and Incentives: Company car policies could evolve to recognize carbon-neutral fuels in their sustainability metrics. Just as many firms now mandate or incentivize EVs for employee cars to meet CO₂ targets, in the future a plug-in hybrid running on bioethanol could potentially meet strict internal emission criteria. However, realizing this will depend on regulations – e.g. whether authorities count biofuel use as “zero emission” equivalent. Early signs are promising: some jurisdictions are beginning to acknowledge advanced biofuels and e-fuels in CO₂ accounting, provided they demonstrably reduce 100% of lifecycle emissions.

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Toyota’s pilot plant produces only 60,000 liters a year, a drop in the bucket relative to fleet needs. Widespread adoption would require massive scaling up of production, distribution infrastructure for high-ethanol blends or e-fuels, and vehicles tuned to use them. Cost is another factor: today, bioethanol (especially second-generation) and synthetic e-fuels are pricier than gasoline or electricity on a per-mile basis. Yet, as innovation continues and if carbon pricing or incentives come into play, those costs could fall.

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Toyota’s biofuel development hints that internal combustion could complement EVs and hydrogen in a decarbonized fleet ecosystem, rather than simply bow out.

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Policy and Compliance Flexibility: As governments begin to recognize biofuels and e-fuels in their climate policies (e.g. Europe’s post-2035 e-fuel exception and Japan’s biofuel blend mandates), fleet managers can anticipate more options to comply with regulations. You might not be forced into an all-EV fleet if drop-in renewable fuels become acceptable for meeting emission targets. Staying informed on these policy shifts will help in formulating future-proof fleet policies.
Fleet Risk Management: Relying solely on one technology (like BEV) comes with risks – supply chain bottlenecks, electricity price fluctuations, or charging infrastructure gaps. Toyota’s bet on biofuels underscores the importance of a diversified approach. Fleet managers will monitor advances in combustion alternatives (bioethanol, synthetic fuels) alongside EV and hydrogen trends. A mix of powertrains could safeguard your operations against any single technology failure or regional infrastructure shortfall.
Lifecycle and Resale Considerations: If carbon-neutral fuels become widespread, the residual value of combustion vehicles may stabilize or even improve (since running them wouldn’t carry the stigma of high emissions). This could influence decisions on leasing vs. buying and how long to keep ICE vehicles in service. A fleet of efficient hybrids running on biofuel, for example, might remain a viable asset class well into the 2030s, whereas today many assume those vehicles would depreciate rapidly as electrification progresses.

Sources: Nikkei Asia; Reuters; Advanced Biofuels USA; LinkedIn (Francois Roudier/OICA); Toyota Global Newsroom; Advanced Biofuels USA/Yomiuri. READ MORE

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yeast water Transportation Fuels Policy Sustainability scale up renewable fuels of non-biological origin (RFNBO) regulations Plug-in Hybrid Electric Vehicle (PHEV) Plug-in Flex Fuel Hybrid pilot scale oxygen methanol hybrid markets/sales market forces life cycle analysis (LCA) Japan Investing internal combustion engine (ICE)/gasoline engine ban internal combustion engine (ICE) import/export Hydrogen/Renewable Hydrogen hydrogen fuel cells hydrogen combustion engines hybrids heavy duty vehicles (HDV) Germany genetically engineered yeast cells fuel prices flex-fuel vehicles (FFV) Fleets fermentation European Union (EU) ethanol/bioethanol ethanol hybrid ESG (Environmental Social Governance) environmental policy electrofuels (e-fuels) prices electrofuels (e-fuels) Electric Car/Electric Vehicle (EV) E20 E10 defossilization co-products carbon price carbon neutrality carbon negative Carbon Intensity (CI)/Carbon Footprint Carbon Dioxide (CO2) carbon capture and utilization (CCU) Brazil BioRefineries/Renewable Fuel Production biomass Battery Electric Vehicles (BEV) Auto manufacturer Agricultural waste/residue advanced biofuel prices 2nd generation biofuels

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