Biofuels Outlook Market Developments and Policy Challenges Anselm Eisentraut

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Biofuels Outlook

Market Developments and Policy Challenges

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World biofuels produc@on – end of

rapid expansion?

n 

Global biofuels output reached 120 billion litres in 2013 and now provides 3.5% of

world transport fuel demand

n 

Support policies are major driver behind rapid growth in biofuel produc@on

à  Brazil and US ﬁrst established biofuel programs in 1970/80s

à  EU introduced mandate of 5.75% biofuels in transport by 2010 in 2003

à  changed target in 2010: 10% renewable energy in 2020

n 

More than 50 countries worldwide now have biofuel mandates in place

0 20 40 60 80 100 120 140 0.0 0.5 1.0 1.5 2.0 2.5 2001 2003 2005 2007 2009 2011 2013 billion litres/yr mb/d

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Biofuel support policies worldwide

n

 

Key drivers for introduc@on of support policies:

l  Support for agricultural sector / rural development

l  Energy security / reduced oil import bills

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The context for biofuels has changed

n 

Oil price rising and increasingly vola@le –

should improve biofuels compe@@ve posi@on

n 

However: agricultural commodity prices also

rising and increasingly vola@le

n 

Biofuels sustainability increasingly

ques@oned:

l  “food vs. fuel”

l  Deforesta@on

l  (indirect) land-‐use change

0 50 100 150 200 250 300 Ja n-‐ 04 Ju l-‐04 Ja n-‐ 05 Ju l-‐05 Ja n-‐ 06 Ju l-‐06 Ja n-‐ 07 Ju l-‐07 Ja n-‐ 08 Ju l-‐08 Ja n-‐ 09 Ju l-‐09 Ja n-‐ 10 Ju l-‐10 Ja n-‐ 11 Ju l-‐11 Ja n-‐ 12 Ju l-‐12 Mo nt hl y r ea l f oo d pr ice in di ce s (2 00 2-‐ 04 = 100)

Cereals Price Index Vegetable Oils Price Index 0 20 40 60 80 100 120 140 Ja n-‐ 04 Ju l-‐04 Ja n-‐ 05 Ju l-‐05 Ja n-‐ 06 Ju l-‐06 Ja n-‐ 07 Ju l-‐07 Ja n-‐ 08 Ju l-‐08 Ja n-‐ 09 Ju l-‐09 Ja n-‐ 10 Ju l-‐10 Ja n-‐ 11 Ju l-‐11 Ja n-‐ 12 Ju l-‐12 Mo nt hl y r ea l f oo d pr ice in di ce s (2 00 2-‐ 04 = 100)

Europe Brent Spot Price FOB (USD/bbl)

0 20 40 60 80 100 120 0 50 100 150 200 250 300 Ja n-‐ 04 Ju l-‐04 Ja n-‐ 05 Ju l-‐05 Ja n-‐ 06 Ju l-‐06 Ja n-‐ 07 Ju l-‐07 Ja n-‐ 08 Ju l-‐08 Ja n-‐ 09 Ju l-‐09 Ja n-‐ 10 Ju l-‐10 Ja n-‐ 11 Ju l-‐11 Ja n-‐ 12 Ju l-‐12 Bi llion lit er s M on thl y re al foo d pr ice ind ice s (2 00 2-‐ 04 = 100)

Cereals Price Index Vegetable Oils Price Index Biofuel production

Source: FAO, IEA

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Biofuels produc@on to grow 25% to 2018

n 

Global biofuels output to grow 3.5% per year on average from 110 billion litres in 2012

to 135 billion litres in 2018

n 

Biofuels provide 4% of global road transport fuel demand in 2018

n 

Growing poli@cal uncertainty in the EU and US provides an important downside risk,

and might undermine the medium-‐term growth prospects

0 20 40 60 80 100 120 140 0.0 0.5 1.0 1.5 2.0 2.5 2006 2008 2010 2012 2014 2016 2018 billion litres/yr mb/d World biofuels supply (2006-‐18)

Rest of global biofuels OECD EUR biofuels

Brazil biofuels US biofuels

0% 1% 2% 3% 4% 5% 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2006 2008 2010 2012 2014 2016 2018

mboe/d Biofuels share in global road transport (2006-18)

Biofuels supply (adj. for energy content) As % of global transport demand

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OECD Americas produc@on faces

challenges

n 

US Renewable Fuels Standard (RFS) set ambi@ous growth path for biofuels (140 bn L in

2022)

! Very unlikely that it can be met

n 

EPA proposal for substan@al revision of RFS mandate indicates that “blend wall” in the US

proves challenging to overcome

à  Growth in US ethanol produc@on will be limited in the future

à  US cellulosic fuel produc@on far below original RFS 2 target

à  Biodiesel output above RFS target in 2013, due to Blender’s Tax Credit that expired in December

5.0 6.0 7.0 8.0 9.0 10.0

mb/d _{US
gasoline
demand
vs.
ethanol
produc@on
and}

mandated ethanol use (2009-‐18)

MTRMR ethanol supply Net gasoline demand

RFS2 mandate (conv. and cellulosic ethanol) Ethanol "blend wall" (10% volumetric)

0 20 40 60 80 100 120 Ja n 1 2 Fe b 1 2 M a r 1 2 Ap r 1 2 M a y 1 2 Ju n 1 2 Ju l 1 2 Au g 1 2 Se p 1 2 O ct 1 2 N o v 1 2 D e c 1 2 Ja n 1 3 Fe b 1 3 Ma r 1 3 Ap r 1 3 M a y 1 3 Ju n 1 3 Ju l 1 3 Au g 1 3 Se p 1 3 O ct 1 3 N o v 1 3 D e c 1 3 Ja n 1 4 kb/d

US biodiesel production Other origins European Union Indonesia Argentina

US biodiesel production and imports

Preliminary date

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Brazil’s ethanol industry suﬀers from

poor proﬁt margins

n 

Brazilian ethanol output increasing again aier some years of decline/no growth, but

outlook is cloudy

à  Financial situa@on of the sugarcane sector prevents new investments into sugarcane

planta@ons and sugar/ethanol plants

à  Regulated gasoline prices limit proﬁts from ethanol sales

à  Proposed changes to US RFS “advanced biofuels” quota would signiﬁcantly limit poten@al

for ethanol exports to the US

0 200 400 600 800 1000 1200 2.2 2.4 2.6 2.8 3.0 3.2

Jan 13 Apr 13 Jul 13 Oct 13 Jan 14

million L

Real/litre

Gasoline

Hydrous ethanol (adj. for energy content) Hydrous ethanol consumption

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Argen@na’s biodiesel industry challenged

by policy developments

n

 

Biodiesel produc@on took hit from new an@-‐dumping import tariﬀs in the EU

à  Signiﬁcant decline in produc@on in 2013 and 2014

n

 

New B10 mandate has not s@mulate growth in produc@on so far

à  Biodiesel reference price does not cover produc@on costs

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60

Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14

US

D/

L

Biodiesel reference price Biodiesel production costs

0 10 20 30 40 50 60 2013 2014 2015 2016 2017 2018 2019 kb /d

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EU policy uncertainty leaves biofuels

sector in limbo

n 

Medium-‐term growth in biofuel output of 4 billion liters 2012-‐18

à  Driven primarily by EU Renewable Energy Direc@ve

n 

Proposed cap on conven@onal biofuels (5-‐7% of transport energy demand) due to

sustainability concerns could signiﬁcantly undermine growth prospects

n 

Future for advanced biofuels industry highly uncertain due to lack of post-‐2020 policy

framework for biofuels

à  First advanced biofuel projects get shelved as they struggle to secure investments (e.g. VAPO’s

Ajos BtL plant in Finland)

Note: Projections do not include proposed changes to Renewable Energy Directive

0 5 10 15 20 0.0 0.1 0.2 0.3 0.4 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 billion litres mb/d

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Emerging markets set to grow

n 

Growing number of emerging markets in Asia and Africa with blending mandates

à  India: E10 ﬁnally adopted, but mee<ng the target proves diﬃcult

à  Indonesia: B10 as of Feb. 2014 as result of an<-‐dumping tariﬀs in the EU à  Thailand: subsidise use of E20; Malaysia (B5) and Philippines (B5, E10) à  South Africa: introducing long-‐awaited E2 and B5 mandate

à  Zimbabwe: E10 as of Oct. 13, may rise to E20 later in 2014

0.0 0.1 0.2 0.3 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 mb/d

China Ethanol China Biodiesel SE Asia Biodiesel

SE Asia Ethanol Rest of Non-OECD Asia Africa and Middle East

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Lack of long-‐term policy framework provides

challenge for advanced biofuels industry

n 

Industry currently enters large-‐scale produc@on with ﬁrst commercial plants coming online

n 

Opera@ng capacity at 4.5 billion litres in 2012 could grow to 9 billion litres in 2018

n 

However: projects con@nue to get cancelled, or companies go bankrupt

n 

Perceived investment risk is most important barrier to more rapid deployment

à 

long-‐term policy framework is needed to spur growth

Note: HVO=hydrotreated vegetable oil. No plants have yet been announced beyond 2016

0 2 4 6 8 10 0 50 100 150 200 2012 2013 2014 2015 2016 2017 2018 billion litres/yr kb/d

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The advanced biofuels industry is

expanding, slowly

hnp://demoplants.bioenergy2020.eu

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IEA Biofuel Roadmap

Advanced biofuels to play a key role in the long-‐term

n  In a low CO₂ scenario (IEA 2°C Scenario) biofuels’ share in total transport increases to 27% in 2050

n  Advanced biofuels play key role ! only low-‐carbon fuel alterna@ve for heavy transport modes

Note: Figure shows gross land demand, excluding land-‐use reduc<on poten<al of co-‐products

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Biofuels produc@on falling behind targets of

IEA 2 Degree Scenario

n  In a low CO₂ scenario (IEA 2°C Scenario) biofuels’ share in total transport increases to 27% in 2050

n  Advanced biofuels play key role ! only low-‐carbon fuel alterna@ve for long-‐distance, heavy

transport modes

n  Without signiﬁcant improvements of the policy framework for advanced biofuels, targets in the

2DS will not be met!

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Conclusions and policy considera@ons

n 

Policy framework con@nues to determine developments in the biofuel industry

n  Long-‐term policy framework is key to ensure investor conﬁdence, in par<cular for advanced

biofuels

n 

Policy support starts with innova@on and deployment

n  Sustained funding for RD&D of promising technologies, as well as research on land suitability

mapping and biomass poten<al analysis, is crucial

n 

Policies should promote sustainable biofuel produc@on

n  Interna<onal alignment of sustainability cer<ﬁca<on to avoid trade barriers, and ensure solid

sustainability standards globally

n  Support mechanisms should be linked to sustainability requirements for biofuels

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Thank you for your anen@on!

n

 

Medium-‐Term Renewable Energy Market Report 2013

à  2014 edi@on to be launched 28 August 2014

www.iea.org/topics/renewables

n

 

Technology Roadmap -‐ Biofuels for Transport

www.iea.org/roadmaps

n

 

Contact:

Anselm.Eisentraut@iea.org

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Disclaimer

This presenta@on is derived from the analysis published in the IEA's Medium Term Renewable

Energy Market Report 2013 which is available for download at

hnp://www.iea.org/w/bookshop/add.aspx?id=453. For more informa@on on renewable energy at

the IEA please visit:

hnp://www.iea.org/topics/renewables/medium-‐termrenewableenergymarketreport/.

Should you have any ques@ons or comments about this workbook, please write to

IEA-‐MTRMR@iea.org

Please note that the IEA’s Medium Term Renewable Energy Market Report 2013 is subject to restric@ons that limit its use and distribu@on. These terms and condi@ons are available online at

hnp://www.iea.org/termsandcondi@onsuseandcopyright/.

Biofuels Outlook Market Developments and Policy Challenges Anselm Eisentraut