Energy security returned as a primary rationale for expanding biofuel policies last year. Similar to the forecast before Russia’s invasion of Ukraine, our updated forecast expects 11% (18 000 million litres) of new demand by 2024, supported by policies with energy security objectives. However, as in 2022, only a few markets are actively trying to accelerate deployment by 2024. In advanced markets, new policies are not likely to influence production until after 2024, and high prices, feedstock concerns and technical constraints limit additional growth beyond our 2021 forecast. 

Nearly two-thirds of biofuel demand growth will occur in emerging economies, primarily India, Brazil and Indonesia. All three countries have ample domestic feedstocks, additional production capacity, relatively low production costs and a package of policies they can leverage to increase demand. Policies in all three countries are also rooted in energy security considerations, as greater biofuel use will offset some oil imports. India imported 87% of its crude oil supply and Indonesia net imports made up 20% of supply in 2021. Brazil is a net crude exporter but still imported 19% of its gasoline and diesel in 2021. 

Indonesia also announced two initiatives to accelerate biofuel deployment at the end of 2022. First, it plans to increase its biodiesel blending mandate to 35% in 2023, up from 30% in 2022. Second, it released an Ethanol for Energy Security strategy to increase ethanol use, but implementation details remain limited.

Brazil plans to reinstate a climbing biodiesel blending target to reach 15% blending by 2024, up from 10% in 2022. Ethanol demand will expand as well, but more slowly than anticipated in our 2021 pre-energy-crisis forecast because sugar prices have risen. Depending on which option is more profitable, sugar producers in Brazil can switch some production from sweeteners to ethanol or the reverse. The country is also considering a 2.5% increase to its mandatory ethanol blending requirement, but no date has been released.

In 2022, India did not announce any new biofuel policies. However, the country is still committed to its target of achieving 20% ethanol blending by 2025, which will drive demand growth in upcoming years.

Biofuel demand is projected to rise by 6% or 5 700 million litres between 2022 and 2024 in advanced economies, with most of the increase occurring in the United States and Europe. The Renewable Fuel Standard and the Inflation Reduction Act in the United States are intended to achieve various goals, including enhancing energy security. Meanwhile, the EU Renewable Energy Directive (RED), which member states’ governments have implemented through domestic policies, aims to achieve 14% renewable content in transport fuels by 2030.

One of the reasons for the RED’s initial implementation in 2003 was to decrease oil import reliance to strengthen EU energy security. In 2022, this rationale was reiterated, with the RED additionally considered a measure to reduce both energy prices and EU dependence on imported fossil fuels.

Nevertheless, we do not expect biofuel demand to accelerate in response to energy security concerns in either the European Union or the United States during 2023-2024.

Although the European Union is planning to increase its targeted share of renewable energy in transport from 14% to 29% by 2030, a final agreement has yet to be reached, and member governments would need time to align their domestic targets. Ethanol, biodiesel and renewable diesel prices also remain above those of gasoline and diesel (see next section), so biofuel use can be less expensive for consumers only if it is subsidised. Furthermore, over 40% of the European Union’s biodiesel (or the feedstocks to produce it) were imported in 2022. Renewed concerns over the difficulty of verifying the sustainability credentials of these imports presents additional doubts about increasing blending requirements.

In the United States, the IRA provides production support to 2027 and investment support to 2031. We do not, however, expect a notable change in production or demand to 2024, since projects take more than two years to complete and we had assumed the biodiesel blending credit available in 2021 would remain in place. The Environmental Protection Agency (EPA) has released proposed volume obligations for 2023 through 2025, but the amounts for biodiesel and renewable diesel are lower than our current forecast. If the proposed values stand, it will likely lead to a decrease in our forecast. The EPA noted that “feedstock limitations are more likely [than capacity] to limit renewable diesel supply”. 

The United States has additional ethanol capacity, and ethanol prices are currently close to gasoline prices. To promote sales, the US government issued an emergency waiver in 2022 allowing for year-round 15% ethanol sales, and has done so again for 2023 to help reduce gasoline prices. However, ethanol consumption cannot be boosted quickly because compatible infrastructure is required for higher ethanol blends.