Daily Update: July 11, 2024

Biofuels are considered renewable in the sense that we can always grow more corn or sugarcane, but they aren’t truly “green” because burning biofuels releases carbon. Most countries that have committed to lower carbon emissions under the Paris Agreement on climate change have biofuels playing a big role in the energy transition. The cynical view of biofuels as a low-carbon fuel source is that ethanol is popular in regions that are traditionally opposed to green energy. By including biofuels in the mix, there is electoral cover for a broader energy transition. However, biofuels have significant carbon emissions-related benefits compared to fossil fuels. First, biofuels tend to burn cleaner, with fewer emissions than fossil fuels. In addition, the plants grown to produce biofuels act as a carbon sink, capturing carbon in roots and stalks that is not all released through biofuel consumption. According to some calculations, this makes biofuels on balance carbon-neutral.

S&P Global Commodity Insights monitors the global biofuels market to understand its role in the energy transition over time. In February, a team of researchers released an in-depth report on biofuels called “Fueling the Future: Biofuels driving progress on net zero.”

The role of biofuels in the energy transition has two phases. Initially, biofuels will continue to be used as an additive to gasoline and as a fuel source for some light-vehicle transportation. Over time, as internal combustion engines are replaced by battery-electric vehicles, this application will decline in importance, and biofuels will grow in hard-to-abate transportation applications, such as air travel and shipping.

Regionally, the US, Brazil and Asia are the biggest producers and consumers of biofuels. Biofuels require a great deal of arable land and regular rainfall, and the countries that produce them tend to have enough of both that they don’t need to confront a trade-off between biofuels and food for consumption. 

In a recent Insight Conversation with S&P Global Commodity Insights, Zuari Envien Bioenergy CEO Pinaki Mukherjee discussed the difficulty of growing the biofuel market in India: “The government has traditionally monitored the cost of sugar through various mechanisms to keep sugar prices from fluctuating and impacting the end-consumer. The restrictions and subsequent permission to use any feedstock for ethanol production in the sugar industry is derived from the government's calculations of desired sugar stocks nationwide.”

Europe is not a leader in biofuel production right now, but it is at the forefront of biofuel policymaking. Rising biofuel mandates for light vehicles are driving the current growth in the market. However, sustainable aviation fuel (SAF) and biofuel alternatives to bunker fuel for shipping will eventually be the main drivers of demand. Europe is attempting to propel SAF adoption through regulation, and the US is driving SAF adoption through incentives under the Inflation Reduction Act. Both longer air travel and shipping are impractical for electrification because of the weight of batteries and the frequency of charging. Technologies such as Bio-LNG bunker fuel or ammonia-based fuels point to a future in which existing fleets can be retrofitted for green fuels. But the costs will need to come down to avoid a shipping-driven inflationary spiral.

Today is Thursday, July 11, 2024, and here is today’s essential intelligence.