INSIGHT: Policy delays slow biofuels market growth

LONDON (ICIS)–Shifting government priorities are continuing to weigh on the growth of biofuels, with the policy-driven sector buffeted by delays in new legislation and low fossil fuel costs.

The public commitments by most governments to emissions-reduction, and the decarbonisation of heavy industry to meet those targets, continue to drive expectations for sector growth.

Aeroplanes will need to shift to clean fuel sources, waste from the high-polluting logistic sector will have to be cut to the bone, and the proportion of ethanol in transport fuels is likely to increase in many places.

The coronavirus pandemic has sharpened government attention on more immediate issues than transport sector reform, with Indonesia and Malaysia pushing back biodiesel blending mandates temporarily and Thailand postponing its ethanol-blending mandate indefinitely.

This lack of policymaker focus has been exacerbated by prevailing cheap crude oil prices even after the uptick seen in values this year. Combined with prevailing high pricing of biofuels feedstocks, such as palm oil and soybeans, it presents a situation where alternative fuels are less attractive.

Biofuels demand dropped 8% in 2020 year on year to 150bn litres, according to the International Energy Agency (IEA), with Brazilian and  US ethanol production experiencing the most significant contraction.

Output is expected to return to 2019 levels at least this year, the agency added, but the rebound will be uneven, with biodiesel and hydrogenated vegetable oil (HVO) fuels coming back strong but US and Brazil ethanol sectors remaining subdued.

With policymakers touting sustainability commitments ahead of the Glasgow climate summit later this year, the biofuels space is likely to continue to see support. But, at the current point in time, the nagging feeling remains that government targets, the size of biofuels markets, and projected growth rates remain sharply out of alignment.

By Tom Brown