Overview of biofuels
The consumption and production levels of biofuels are expected to increase by more than 50 percent, led by sugar-based ethanol and biodiesel. The ethanol price increases in line with crude oil price, while the biodiesel price follows more closely the path of the vegetable oil price.
The year 2013 was marked by several policy decisions that have strongly influenced the market environment for biofuels. The European Union put in place trade measures against imports of biofuels from Argentina, Indonesia and the United States. There were also proposals towards lower first generation biofuels targets for 2020 in the European Renewable Energy Directive (RED). In Brazil, the ethanol blending requirement was raised to 25% for low blends. At the same time, artificially lower domestic petrol prices in Brazil had some impacts on the use of high blends of ethanol. In Argentina and Indonesia, domestic biodiesel mandates were increased - partly in response to European anti-dumping measures. And for the first time, the EPA made proposals to reduce the total, advanced and cellulosic biofuel mandates for 2014.
The availability of cereals, oilseeds and palm oil in 2013 improved compared to 2012, and thus commodity prices edged lower. In 2013, world ethanol and biodiesel prices continued their declines from their historical high levels of 2011 in a context of ample supply for both ethanol and biodiesel.
- Ethanol prices are projected to increase in line with the inflation rates and crude oil prices over the next decade. Biodiesel prices are also expected to increase but their growth should be slower, mostly driven by the expected growth in vegetable oil prices and to a lesser extent by the growth in crude oil prices.
- Increasing domestic demand in key exporting countries is expected to raise biodiesel prices in 2016 and 2017. This trend is in line with the assumptions in this Outlook on the continuation of biofuel policies.
- Global ethanol and biodiesel production are both expected to expand to reach, respectively, 158 Bln Land 40 Bnl L by 2023. Ethanol and biodiesel will continue to be mostly produced from feedstocks that can also be used for food. By 2023, 12%, 28% and 14% of world coarse grains, sugar cane, and vegetable oil production, respectively, are expected to be used to produce biofuels.
- Ethanol use in the United States will be limited by the ethanol blend wall and should only grow marginally in the latter years of the projection period, leaving additional biodiesel use necessary to meet the advanced and total mandates. The policy driven imports of sugarcane based ethanol to fill the advanced gap are also expected to flatten at the end of the next decade to reach 10 Bln Lby 2023. It is assumed that by 2023 only 12% of the US cellulosic mandate will be implemented.
- For the European Union, the Outlook assumes that the fulfilment percentage of the RED coming from biofuels should reach 8.5% in 2020. Biodiesel use is expected to increase in the first part of the projection period and then to stay at a plateau of 19 Bln L from 2020 onwards. The increase in production of second generation biofuel will remain very limited. Imports will be necessary to satisfy the RED target.
Figure 1. Biofuel prices to remain almost constant in real terms
Evolution of prices expressed in nominal terms (left) and in real terms (right)
Notes: Ethanol: Brazil, Sao Paulo (anhydrous , ex-distillery), Biodiesel: Producer price, Germany, net of biodiesel tariff and energy tax.
Source: OECD and FAO Secretariats.
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