Despite Obstacles, Biofuels Continue Surge
World production of biofuels rose some 20 percent to an estimated 54 billion liters in 2007.1 (See Figure 1.) These gains meant biofuels accounted for 1.5 percent of the global supply of liquid fuels, up just 0.25 percent from the previous year.2
Global production of fuel ethanol-derived primarily from sugar or starch crops-increased 18 percent to 46 billion liters in 2007, marking the sixth consecutive year of double-digit growth.3 Production of biodiesel-made from feedstock such as soy, rape and mustard seed, and palm and waste vegetable oils-rose an estimated 33 percent, to 8 billion liters.4
The United States, which produces ethanol primarily from corn, and Brazil, which primarily uses sugarcane, account for 95 percent of the world's ethanol production.5 (See Figure 2.) Brazil increased its ethanol production by 21 percent in 2007, to 19 billion liters.6 But the United States continued to widen its lead over Brazil as the world's leading producer by boosting output 33 percent to 24.5 billion liters in 2007.7
The United States now accounts for a little more than half of the world's ethanol production, and though the industry has encountered some roadblocks, strong growth is still expected, with an estimated 15 billion liters from 68 new or expanding bio-refineries in 2008.8 Despite this boom, the United States still imported an estimated 1.7 billion liters of ethanol last year, 40 percent of which came from Brazil.9 Most gasoline sold in the country in 2007 was blended with ethanol.10
Germany maintained its lead in biodiesel by increasing production capacity 60 percent in 2007.11 The German biodiesel market has weakened, however, since the government started taxing biodiesel sales in late 2006 and imposed a second round of taxes at the beginning of 2008.12 These taxes, coupled with soaring feedstock prices, have eliminated biodiesel's price advantage.13 Several large producers have announced production cuts, and overall output is now falling well short of available capacity.14 Other European countries posting biodiesel production capacity gains include Austria, Belgium, Greece, Italy, the Netherlands, Poland, and Portugal.15
Biodiesel production continued to grow rapidly in Southeast Asia, where Malaysia seeks to capture 10 percent of the global biodiesel market by 2010 through expansion of its palm oil plantations. Indonesia aims to expand its palm oil plantations to 1.5 million hectares by 2008.16
The primary forces underpinning the continued surge in biofuel production and capacity expansion were a combination of blending mandates and tax subsidies in several countries, with strong support from agricultural interests.17
The U.S. Energy Independence and Security Act of 2007 expanded the U.S. Renewable Fuels Standard, calling for the use of 136 billion liters of biofuels in 2022 (with 60 billion liters of that total mandated for cellulosic ethanol).18 Other renewable fuels policies enacted in 2007 include the United Kingdom's adoption of a 5-percent target by 2010, Japan's goal to produce 6 billion liters per year by 2030, and China's annual production targets of 13 billion liters of ethanol and 2.3 billion liters of biodiesel by 2020.19 The European Union (EU) also expanded its previous 2003 Biofuels Directive of 5.75 percent by 2010 to 10 percent by 2020.20 In total, at least 17 countries have enacted mandates for blending biofuels into vehicle fuels, with an additional 36 states and provinces in 21 countries taking similar actions in recent years.21
In response to these market signals and policy incentives, worldwide investment in biofuel production capacity continued to expand in 2007.22 The value of biofuel production plants announced or under construction exceeds $4 billion in the United States, $4 billion in Brazil, and $2 billion in France.23 However, overall investments in biofuels decreased from the record set in 2006 as feedstock prices soared and socio-environmental concerns mounted.24
In the public markets, biofuel companies raised $1 billion in equity, approximately $2 billion less than in 2006.25 Rising commodity prices, deforestation and carbon sink concerns, and uncertain energy content levels all affected investor confidence in biofuel stocks in 2007, and shares in the sector lost 19 percent of their value during the year.26 Venture capital and private equity investments in biofuel firms also decreased slightly from 2006.27
Last year the U.N. Food and Agriculture Organization (FAO) reported that biofuel demand has played a key role in driving 8 percent of food price inflation in China, 13 percent in Indonesia and Pakistan, and 10 percent or more in Latin America, Russia, and India.28 Adding to these concerns, FAO reported that wheat has doubled in price, that global food reserves are at their lowest level in 25 years, and that costly food aid to developing countries has declined.29 While climbing biofuel production and demand represents just one influential factor in this trend, the International Monetary Fund and other multilateral agencies report that using food to produce biofuels will continue to strain already scarce water and arable land resources.30
Soaring biofuels production has also produced a substantial backlash as grain and soybean prices have soared and the environmental benefits of biofuels have been called into question. Recent studies conclude that clearing grass and forestlands to produce ethanol and other biofuels could potentially double the output of greenhouse gas emissions instead of reducing them, as previously thought.31
Palm oil, once considered a promising new eco-friendly fuel source, now faces similar questions and is blamed for contributing to massive deforestation and the subsequent loss of enormous tropical carbon sinks.32 With the recent Bali round of international climate negotiations dealing explicitly with deforestation, which accounts for 20-25 percent of all carbon dioxide emissions, it is unclear how the biofuel industries in countries such as the United States, Indonesia, and Brazil will react.33
One outcome of these developments has been a growing number of governmental and nongovernmental initiatives aimed at addressing concerns associated with biofuel production. EU countries recently reached an initial agreement on sustainability standards for biofuels that would require biofuel energy sources to emit 35 percent less greenhouse gases than the equivalent fossil fuels before 2015 and 50 percent less after 2015.34
California Governor Arnold Schwarzenegger also announced in January 2007 that his state would establish a Low-Carbon Fuel Standard and would begin developing metrics for measuring the "life-cycle carbon intensity" of all transportation fuels.35 This metric will eventually be incorporated into California's implementation plan for alternative fuel use. Industry-led nongovernmental organizations such as the Roundtable on Sustainable Palm Oil have also started investigating sustainable supply chain standards and consumer labels to help distinguish feedstock products in the market.36
Mounting problems with conventional biofuels spurred investment in advanced biofuel feedstocks and technologies in 2007-including cellulosic ethanol that can be produced from waste materials and non-food crops that can be grown on marginal land.37
- Total world fuel ethanol and biodiesel production figures taken from REN21, Renewables 2007 Global Status Report (Paris and Washington, DC: REN21 Secretariat and Worldwatch Institute), Table R6 and p. 8, and from Rodrigo G. Pinto and Suzanne C. Hunt, "Biofuel Flows Surge," in Worldwatch Institute, Vital Signs 2007-2008 (New York: W. W. Norton & Company, 2007), pp. 40-41, citing F.O. Licht.
- Worldwatch calculation based on REN21, op. cit. note 1, and on Pinto and Hunt, op. cit. note 1.
- Ibid; Christoph Berg, senior analyst, F.O. Licht, e-mails to Rodrigo G. Pinto, Worldwatch Institute, 20-22 March 2007.
- Worldwatch calculation based on REN 21, op. cit. note 1, and on Renewable Fuels Association, Changing the Climate: Ethanol Industry Outlook 2008 (Washington, DC: February 2008); Renewable Fuels Association, "Annual World Ethanol Production by Country," at www.ethanolrfa.org/industry/statistics/#E.
- REN21, op. cit. note 1; Renewable Fuels Association, Outlook 2008, op. cit. note 6.
- Renewable Fuels Association, Outlook 2008, op. cit. note 6, p. 2.
- Ibid., p. 16.
- REN21, op. cit. note 1, p. 13.
- Worldwatch calculation from European Biodiesel Board, "2007 Production Capacity Statistics," at www.ebb-eu.org/stats.php.
- Michael Hogan, "German Biodiesel Output Collapses," Reuters.com, 15 January 2008.
- Ibid.; "German Biodiesel Firm Cuts Output as Sales Fall," Reuters.com, 26 March 2008.
- "German Biodiesel Firm," op. cit. note 13.
- European Biodiesel Board, op. cit. note 11.
- REN21, op. cit. note 1, p. 15.
- Renewable Fuels Association, Outlook 2008, op. cit. note 6, p. 8; Soo Ai Peng, "Record Oil Price Boosts Demand for Biofuels but Critics Question the Cost," Forbes.com, 19 October 2007.
- Renewable Fuels Association, Outlook 2008, op. cit. note 6; Renewable Fuels Association, "Renewable Fuel Standard," at www.ethanolrfa.org/resource/standard.
- REN21, op. cit. note 1, p. 28.
- Ibid.; Masami Kojima, Donald Mitchell, and William Ward, Considering Trade Policies for Liquid Biofuels, World Bank Energy Sector Management and Assistance Program (Washington DC: April 2007), p. 47.
- REN21, op. cit. note 1, p. 27.
- Ibid., p. 16.
- "New Energy Finance: New Clean Energy Investments in 2007 Totaled $117.2 Billion," Clean Edge News, 8 January 2008.
- "Analyzing the Bull Run by Clean Energy Shares in 2007," New Energy Finance, press release (London: 16 January 2008).
- "New Energy Finance," op. cit. note 24.
- John Vidal, "Global Food Crisis Looms as Climate Change and Fuel Shortages Bite," (London) The Guardian, 3 November 2007.
- Ibid.; Eli Clifton, "Biofuels Pushing Up Food Aid Prices," Ipsnews.net, 27 July 2007; Kathleen Kingsbury, "After the Oil Crisis, A Food Crisis?" Time, 16 November 2007.
- Valerie Mercer-Blackman, Hossein Samiei, and Kevin Change, "Biofuel Demand Pushes Up Food Prices," IMF Survey Magazine, posted 17 October 2007; "Indian Minister Attacks Biofuels," BBC News, 26 March 2008.
- Joseph Fargione et al., "Land Clearing and the Biofuel Carbon Debt," Science, 29 February 2008, pp. 1235-38; Timothy Searchinger et al., "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land Use Change," Science, 7 February 2008.
- Elisabeth Rosenthal, "Once a Dream Fuel, Palm Oil May Be an Eco-Nightmare," New York Times, 31 January 2007.
- Intergovernmental Panel on Climate Change, Climate Change 2007: The Physical Science Basis (New York: Cambridge University Press, 2007), p. 115; "UN Climate Change Conference," December 2007, at www.un.org/climatechange/blog/index.asp.
- "Europe and US Take Clean Energy Lead While Japan Wavers," New Energy Finance Week in Review, 1-7 April 2008.
- California Energy Commission "Low-Carbon Fuel Standard," at www.energy.ca.gov/low_carbon_fuel_standard.
- Roundtable on Sustainable Palm Oil, at www.rspo.org.
- Joel Bourne, Jr., "Green Dreams," National Geographic, October 2007, pp. 38-60.