Explained: what is driving global demand for biofuel production?

With conflict in the Middle East choking global oil and gas supplies and driving up prices, demand for biofuels is rising as nations seek alternatives to fossil fuels to improve energy security while pursuing decarbonisation goals.

Where do biofuels fit into the energy mix?

Today, most liquid biofuels are used in road transport where they are blended with petrol or diesel at various concentrations. India aims to achieve an E20 (20% ethanol blend) by 2025, according to the International Energy Agency (IEA).

More than 90% of global biofuels are produced from food crops, mostly corn/maize from the US. Sugarcane, grown particularly in Brazil, is the second-largest source, followed by oil crops such as palm oil, soy oil, and rapeseed. Used cooking oil and animal fats represent about 12%.

Our World in Data says collectively biofuels meet 4% of global transport energy demand. Consultants BMI, part of Fitch, expect that to reach 5% by 2035.

What is driving current demand?

Asia, which buys about 80% of the oil shipped through the Strait of Hormuz, which is currently closed, has sought to increase biofuel use since the war began. Reuters says Vietnam switched fully to ethanol-blended gasoline from April, instead of June, due to energy price surges. Indonesia is raising the mandatory blending rate for palm oil-based biodiesel from 40% to 50%.

US refiners have been ordered to blend a record number of biofuels this year, while Brazil’s government is looking to raise the ethanol blend from 30% to 32% by the end of June.

Why are countries adopting biofuels long term?

Biofuels can bolster energy security by reducing reliance on imports and contribute to achieving emissions-reduction targets. The industry can support economic development and job creation, especially in rural areas, and utilise agricultural residues and organic waste, both of which are abundant in India. The bioenergy model promotes circular economy practices and social inclusion.

State-owned firm Empresa de Pesquisa Energética says the expansion of the biofuel sector saved Brazil about $405 billion in fuel imports over the past few decades.

Global policies such as the Renewable Energy Directive (RED II) and the Renewable Transport Fuel Obligation (RTFO) aim to make biofuels a key part of decarbonising the transport and energy sectors.

Which countries are leading the sector?

Several countries have thriving production agendas, including Brazil (sugarcane ethanol), Indonesia (biodiesel), and India (ethanol blending), according to the Organisation for Economic Co-operation and Development (OECD).

Ethanol and compressed biogas (CBG) are leading the growth in India, where the IEA says biofuel production, including biodiesel, could double by 2030 with suitable policies. Ethanol consumption there has scaled from under 2 billion litres to 11+ billion litres since 2018.

Global production of liquid biofuels has grown sevenfold over 20 years, driven by policies, particularly in the US, Brazil, and the EU, while consumption is projected to grow in Colombia, Argentina, Malaysia, and Thailand.

Planète Énergies cites the US, Brazil, and Indonesia as the top three producers, while China has significantly accelerated since 2023. Along with the EU, those regions produce more than 80% of the world’s total.

Brazil intends to increase biofuel production fourfold by 2035, according to Minister of Mines and Energy, Alexandre Silveira de Oliveira.

Other significant ethanol producers include Paraguay, the Philippines — projected to reach nearly 0.8 billion litres each by 2034 — and Peru, which is also a major biomass based diesel producer, along with Malaysia and the Philippines, says the OECD.

While most countries produce biofuels for domestic use, Singapore’s biomass-based diesel is largely exported. China, the US, the EU, Canada and Malaysia dominate biomass-based diesel exports, with a combined market share of 79% (OECD).

How is policy promoting biofuel adoption?

The International Renewable Energy Agency (IRENA) says decades of strategic policies, including the RenovaBio Initiative and the Fuel of the Future law, have made Brazil a biofuels leader, notably in ethanol and biodiesel. The government says blending anhydrous ethanol in gasoline is set to increase to 27%, targeting 35% by 2030, and the biodiesel blend in diesel rose to 15% in early 2025, with plans to reach 20% by 2030.

The IEA says India operates about 170 CBG plants with almost 300 under construction.

Canada’s Biofuels Production Incentive programme took effect in January. Designed to stabilise and protect domestic biofuel production capacity, it will give CAN$370 million in funding over two years.

In 2005 and 2007, the Renewable Fuel Standard mandated a minimum volume of US transport fuel to be sourced from biofuels. In Argentina, the 2021 Biofuels Law mandated a 5% blending rate for biomass-based diesel, according to the IEA.

Are there barriers to bioenergy production?

Yes, it can be highly dependent on changes in public regulations.

Relying on food-based feedstock carries risks such as harvest disruption, and critics have highlighted the impact of rapidly expanding monocultures, such as soy and sugar, on ecosystem health, water resources, and food security. Palm oil has courted controversy over massive land needs and biodiversity loss.

Currently, at least 90% of world biofuels come from food crops, rather than waste oils or fats. Consultancy Cerulogy estimated that 32 million hectares of global land are dedicated to biofuels.

OECD says interest in advanced biofuels is rising. But expanding production capacities remains challenging due to higher development costs than for fossil fuels, and government support will remain necessary.

ScienceDirect said Brazil’s biodiesel industry has experienced considerable growth, but technological goals in feedstock diversification, production processes, storage and stability, and quality control have largely not been achieved.

Are there downsides to biofuels?

Critics say they can raise food prices; already higher because of the war-fuelled surge in energy, transport and fertiliser costs.

Last year, Brussels thinktank Transport and Environment suggested biofuels were responsible for 16% more global CO₂ emissions than fossil fuels they replace “due to the indirect impacts of farming and deforestation”. For example, Semafor says Indonesia is planning a 560,000-hectare bioethanol estate in a sensitive forested region of Papua, while Brazil is expanding sugarcane cultivation in the Cerrado, home to many endemic and threatened species.

More positively, Empresa de Pesquisa Energética says Brazil is embracing “land-sparing” techniques, promoting the conversion of degraded pasture to meet rising demand without deforestation.

The Biofuture Industry Council argues that biofuels can be produced sustainably, and that certification and verification are improving.

How else is the sector evolving?

Growth is shifting from first-generation biofuels to technologies such as cellulosic ethanol and advanced biodiesel. These use non-food biomass, such as agricultural residues, forestry waste, and municipal solid waste, for a more sustainable approach without impacting the food supply.

Emerging options include algae-based biofuels (biodiesel, bioethanol, jet fuel), produced from photosynthetic microorganisms and utilising wastewater, and biohydrogen generated primarily from water using biological or electrochemical processes.

Produced from biomass with low-intensity harvesting, biomethanol can improve fuel efficiency when blended with gasoline or used in fuel cells, while fourth-generation synthetic biology-based fuels use engineered microbes to convert CO₂ and organic waste into liquid fuels.

IRENA says Brazil is exploring a link between bioenergy and hydrogen, aiming to use waste-to-hydrogen technologies for green hydrogen production in refineries.