Interest in biofuels survived the fossil fuel bonanza of 2022 but there’s still a long road to viability
The importance of energy to domestic and international politics became more visible than ever before between 2020 and 2022.
The post-lockdown surge in global energy demand meant generators struggled to reinstate normal production. The result was acute energy inflation that was only accelerated by the Russian invasion of Ukraine.
With volatility in oil and gas markets locked in over the medium term, all the pieces would seem to be in place for a biofuels boom. 2022 saw the industry act on this historic lobbying opportunity, pitching biofuels as the way to overcome energy security threats posed by war, climate change, and inflation.
Industry demands EU support for advanced biofuels
In June 2022, president of the World Bioenergy Association Christin Rakos wrote in a Politico article that that the EU can only meet its looming Green Deal target of 44-45 percent renewable energy by including biofuels in its mix.
Rakos made his intervention advance of the European parliament vote on amendments to the Renewable Energy Directive (REDIII). One of the questions driving the amendments was whether to retain biofuels as a pathway to meeting Green Deal targets.
The link between crop biofuels and food insecurity has been a thorn in the side of the biofuels industry for years. When the invasion of Ukraine in March raised the spectre of famine, there were renewed calls from NGOs and academics to abandon biofuels, arguing that it undermines food production and contributes to inflation.
Yet even though food inflation made criticisms of biofuels more compelling than ever, the EU ultimately did not renounce its historic support of the sector over 2022. Its only measure aimed at addressing the environmental and social impacts of biofuels was restricted to blacklisting soy oil biodiesel. The European Parliament’s industry committee voted on 13 July to ban this feedstock from being counted in first-generation biofuels quotas, arguing that it fuels environmental destruction in producing countries.
Otherwise, the EU has reiterated its support for the sector, and in particular renewable ethanol. When the EU parliament finally voted on the REDIII legislation in September, MEPs endorsed using higher shares of advanced biofuels to decarbonise transport.
Industry fights for advanced biofuels in aviation
Another lobbying issue for the European biofuels industry in 2022 concerned the use of advanced biofuels in aviation.
Enerkem, Clariant, and UPM, the biggest names in the biofuel business, were just three signatories to a November 2022 open letter addressed to the EU climate chief Frans Timmermans. The airline companies LanzaJet, SAS, and BRA also put their names to it.
The letter drew demanded that the EU support advanced biofuels to break aviation’s dependence on kerosene. It called for the EU to formally define this particular class of biofuels as a sustainable fuel under the ReFuelEU law currently being drafted.
Advanced biofuels are made from straw, saw dust, and forest residues. It is a segment of biofuels that the EU has so far been reluctant to back. Currently, it is not classified as a sustainable aviation fuel that may count towards airline emissions reductions.
Instead, EU regulation has been much warmer to biofuels that use cooking oil and certain animal fats as feedstock. The perception is that these are less risky, with superior cost efficiency and greater technological maturity.
The problem with waste feedstock is that it is limited and intermittent. Maarten van Dijk, the co-founder and chief development officer of SAF producer skyNRG, argued this is why advanced biofuels need more formal support: “Due to natural limits in the scaling potential of waste oil-based routes, a significant share of SAF in Europe will have to come from sustainable advanced biofuels”.
Negotiations over the ReFuelEU law continue.
A window of opportunity
While government support may not be coming quickly enough for the biofuels sector, the upheavals of 2019 to 2022 may have opened a window of opportunity for years to come.
The disruptions to natural gas and petroleum markets are now so severe that seemingly any government policies to rein in volatility threatens to worsen the problems globally.
For example, the US decision to raise interest rates combatted domestic inflation but it also made crude oil more expensive for foreign currency holders since US dollars are used to pay for the commodity globally.
In Europe too, policies to sanction Russian aggression while maintaining cross-border oil flow have only intensified a tit-for-tat energy war with Russia. The EU deal to ban all Russian seabourne oil and oil product imports above $60 per barrel prompted Russia to hit back with a counter-measure banning oil exports to any nations abiding by it. The measure is due to come into force after February 1 and will once again tighten supply.
Gas prices sank back to pre-war levels at the very end of 2022, with Europe averting major energy shortages thanks to a mild season and assiduous energy storage. However, there is no sight to the energy war around Eastern Europe. The game of energy sanctions and counter-sanctions throttling easy access to fossil energy is expected to play again once again this winter.
Back in 2021, the IEA was already predicting that the oil markets would never return to pre-pandemic normalcy. The pessimistic outlook for oil in the longer term may be why, despite renewed questions around the sustainability of biofuels, the EU did not withdraw its support of biofuels at the key parliamentary vote on REDIII in September.
A robust outlook
The past two years could mark the beginning of serious attempts to expand the industry. But first, some fundamental blockages must be addressed.
For sustained biofuel uptake, cost is key. In June 2022, record fuel prices drove up French demand for E85, a mix of petrol and up to 85 % bioethanol made from sugars in crops. However, without rectifying problems with the feedstock supply chain, such demand will fizzle out if and when fossil fuel prices stabilise.
Biofuel feedstocks need to be viable long term but even the price of agricultural waste is still too high to make the sector appealing to private investors. Moreover, innovative conversion technologies are not yet mature.
The industry needs government support until these problems are addressed but it is not seeing the ballooning subsidies now being thrown at fossil fuels. State funds for legacy energy grew by 130% to $190 billion in 2021 across the G20.
On the plus side, the US biofuels sector was given an unprecedented boost byt he Biden bioeconomy package signed in on August 16 2022. The package explicitly tries to de-risk biofuels through tax credits and grant programs. These include $500 million to the US Department of Agriculture to open grant competitions for biofuel infrastructure improvements. It also established Clean Fuel Production Credit to incentive domestic production in the sector, welcomed by the Renewable Fuels Association.
Nonetheless, the Biden package figures are paltry against the estimated $20 billion given by the US government each year to the fossil fuels industry – especially considering biofuels is at least a century behind oil and gas in its infrastructural maturity.
Fears over energy shortages only highlighted our continuing structural reliance oil and gas. The most dramatic example came in March 2021, when Biden released 50 million barrels from the US’ Strategic Petroleum reserve to quell the post-pandemic energy crunch. He released a further 180 million barrels once Russia invaded Ukraine in 2022.
Elsewhere, we saw an active dampening down on biofuel use and production incentives. The Brazilian government reduce its biodiesel blending requirements and the Finnish government temporarily lowered its renewable distribution obligation for 2022/2022. Sweden froze 2023 greenhouse gas targets for transport fuels at 2022 levels.
While energy security is still anchored to fossil fuels, there is room for optimism. 2022 did not a wholesale international withdrawal from biofuels. Overall, fossil investments grew without an equally drastic reduction in biofuels production. 175 billion litres of biofuels were produced in 2022, which amounts to a growth rate of 9 percent on 2021. 2022’s production was also higher than the annual amount for 2019 before the pandemic hit, meaning that the industry is still on a similar growth trajectory as it was before the ongoing energy shock.
It was only in the depths of lockdown during 2020 that biofuels production growth dipped, plummeting 8 % in the first year of lockdowns. This suggests only an exceptional shock will would now supress biofuel growth, which to some extent appears to be happening under its own momentum.