The market for transport biofuels may reach US$185 billion by 2021, according to a recent report from independent research firm Pike Research. Numerous favourable government policies exist to promote biofuel technologies, including quotas for renewable fuels in transport fuel mixes in Brazil, the United States and the European Union. Yet, the industry also faces challenges such as allegations by environmentalists and development organizations that farmers are using land to grow biofuel feedstock instead of food, driving up global food prices as a result.
Eco-Business speaks to Anselm Eisentraut, bioenergy analyst and the lead author for the International Energy Agency’s transport biofuels roadmap published last year, about the current outlook for the biofuels industry.
Eco-Business: The IEA roadmap projects a 27 per cent share for biofuels in the global transport fuel sector in 2050. How would the figures differ for Asia, and what policies (or lack thereof) in the region are determining these numbers?
Anselm Eisentraut: For Asia, the scenario projects a share of 24 per cent biofuels in the transport sector.
Regarding the policy requirements it is important to note that the IEA Roadmap on Biofuels is based on a very ambitious scenario that targets a 50 per cent reduction of energy-related carbon dioxide (CO2) emissions by 2050. Given current trends in the energy sector, it is obvious that to achieve such an ambitious scenario, a radical shift in energy-related policies is required in the next years - not only in Asia, but anywhere in the world. Policies that will lead to a solid price on CO2 emissions that increases over time (to US$90 per tonne in 2030 and $130 to 160 per tonne in 2050) is one of these measures, but more dedicated support for specific technologies that are not yet fully commercialised is needed too.
For instance, advanced biofuels will need government support in the next two decades to enable the industry’s transition from demonstration stage to large-scale commercial production, and to promote the uptake of the fuels by consumers. This support can come in form of loan guarantees for plants or direct financial support for investments. A specific quota for advanced biofuels - possibly combined with a tax exemption for these fuels - would ensure the fuels could compete with fossil fuels in the early phase of their market penetration. All such measures should be transitional and be phased out over time.
EB: Is this transition going to be costly compared to the continued use of fossil fuels?
AE: In the roadmap we assessed possible future costs for different types of biofuels, and compared them to the projected cost of the fossil reference fuel. The average production cost for advanced biofuels will eventually come within a range of $0.10 price difference compared to gasoline by 2030 in a conservative case. It might even reach cost parity by 2030 if technology costs can be reduced faster and low-cost feedstocks (biomass used to make biofuels) are available.
In the first case, we assessed that from 2010 to 2050 about $105 trillion would be spent on biofuels, which would result in additional expenditures of $810 billion compared to the continued use of fossil transport fuels. This number seems significant, but it is indeed only 1 per cent of total fuel costs (including on fossil fuels) that will occur over the next 40 years in the underlying scenario.
In the more optimistic case, the use of biofuels would actually lead to net fuel cost savings of $890 billion compared to the use of fossil fuels. The key issue to take into consideration here is that on a short-term horizon (10 years), higher proportions of biofuels might make overall fuel costs more expensive than their fossil counterparts. In the longer-run, however, those initial costs are actually offset by possible fuel cost savings.
EB: What are some of the most promising new biofuel or biodiesel technologies, and how quickly can they be scaled up?
AE: There is a whole range of biofuel technologies out there that are at different stages of development.
Among the conventional biofuels, sugarcane ethanol is generally cost competitive with gasoline and provides very high greenhouse gas savings compared to using gasoline. This is why we see sugarcane production grow in both the short- and long-term. Biodiesel produced from used cooking oil or waste fats also seems to be a fuel with future potential, but the key problem is that the feedstock base is limited.
In the advanced biofuel sector, it is more difficult to say which technologies will reach commercial scale and will expand in the future. At the moment we see the first commercial-scale plants coming online, but it will take another 10 years for many of the technologies currently scaling-up to reach a fully commercial stage.
We expect that cellulosic-ethanol is among those promising technologies, but gasification-based biofuels also look promising. And recently there has been some promising news on advancements in algae-based biofuels. The next years will show if the different technologies can deliver the yield and quality on a commercial scale that have been achieved in pilot plants. This, together with delivering fuel at a cost close to fossil fuel prices, will be critical to attract further investments and to expand the industry.
At the end of the day, we will have a portfolio of technologies that deliver different fuels for different markets.
EB: How will the EU’s proposed biofuel policy changes – which limit the market for crop-based biofuels - impact the projections in last year’s IEA roadmap for transport biofuels?
AE: For the moment, we do not incorporate the suggested policy changes in our analysis, as they just exist as a proposal and are not yet legally binding. Should such legislation be adopted, we would adjust our projections on the production and use of such biofuels in the EU accordingly. This would have an impact on our medium-term outlook, but would leave the longer-term scenario that we used in the roadmap largely unaffected. This is because in the roadmap we see those conventional grain and vegetable oil-based biofuels phase out over time anyway.
EB: Do you expect the policy change – if adopted - to sway opinion or policies in other regions due to the fuel verses food debate?
AE: If the policy change is eventually adopted, countries outside the EU might follow the approach. However, it is too early to judge, and it is important to remember that many countries promote biofuels primarily for energy security reasons. With oil prices expected to remain strong, these countries are unlikely to drastically change their policies.
EB: You also follow technologies that utilize biomass for energy uses other than transport. What are the most advantageous uses for biomass-based heat and power generation?
AE: Heat generated from biomass is currently used in two cases: The first is in developing countries, where no other fuels are available or affordable; and the second is in cases where biomass residues are available more or less for free - such as in pulp mills or sugarcane mills - and there is a demand for process heat in the plant. In those cases, biomass-generated heat is cheaper than heat production based on gas or oil.
But our analysis shows that biomass-based heat could actually be competitive with oil, and often also with gas, in many circumstances ranging from domestic heating to larger industrial heat plants. The barriers to more wide-spread use of biomass for heat are in these cases non-economic, and include lack of awareness and the absence of locally available biomass sources. With wood pellet production scaling up rapidly, biomass can easily be traded and we expect to see more pellet boilers being installed - in particular in OECD countries. In the longer term, biomass could become an important low-carbon source for high-temperature heat for instance in the metal industry.
EB: Several Southeast Asian countries are investing in biomass energy projects that use agricultural waste and effluent from oil palms. What do they need to do to ensure such projects are environmentally sustainable?
AE: It is difficult to give a general answer, because not every plant that uses residues or palm oil effluents is set up properly. For instance if you have a biogas digester that is not 100 per cent tight, methane will leak and emit to the atmosphere, where it acts as a very potent greenhouse gas. It is therefore important to ensure that a biogas plant is set up according to best practice. It will then not only generate electricity and heat, but also avoid methane emissions that would have occurred if the effluents would have been stored in an open lagoon next to the plant. So in this case there is a clear environmental benefit, but it is important that the by-products from the biogas digester are used in a proper way, for instance to fertilise plantations rather than discarded into the next river.
Mr Eisentraut is a Bioenergy Analyst in the Renewable Energy Division of the International Energy Agency (IEA). He is the lead author of the recently published Technology Roadmap-Biofuels for Transport and Bioenergy for Heat and Power.
He will be speaking at the Asia Future Energy Forum, to be held from 22 to 24 October as part of Singapore International Energy Week.
