The main question facing biofuels is not whether they can work, but how they might be developed further. Any large-scale development remains stifled by numerous issues. The IEA, a sister organisation of the OECD, has identified several areas requiring extended research, but while there is a need to better quantify the various benefits and costs of biofuels, there is enough evidence to confirm that these fuels could represent serious alternatives to conventional fuels or, at the very least, complements to existing transport fuels. Energy and agricultural policies should aim to maximise the benefits of these fuels with minimum costs for governments and societies.
The production potential, cost and the environmental impacts of producing ethanol, biodiesel and other liquid and gaseous fuels are still uncertain. Biofuels are currently derived from crops such as corn and wheat for ethanol, and soy and rape for biodiesel. In Brazil, the main source of ethanol is sugar cane. These alternative fuels are not only largely compatible with current vehicles, they are blendable with existing fuels. In fact, low percentage ethanol blends, such as E10 (which contains 10% ethanol by volume) are already dispensed in many service stations worldwide and used in regular gasoline vehicles. To go beyond 10% blends, minor engine and fuel system modifications are needed, which are inexpensive. Still, in Brazil, an increasing number of new cars are compatible with virtually any combination of gasoline and ethanol.
However, the use of these fuels for transport remains low across the world. Currently leading the way in consumption of ethanol for transport are the United States and Brazil. Nonetheless, in the United States, ethanol represents less than 2% of transport fuel; but in Brazil it now accounts for well over 30% of motor fuel demand.
While biofuel production costs are fairly easy to measure, the benefits are difficult to quantify. Biofuels can be expensive, at up to three times the price of petrol, though the gap has narrowed with recent sharp oil price rises. The high cost of biofuels has traditionally kept their usage down in IEA countries, though with oil prices rising and technical improvements, they are rapidly becoming more attractive. Also, with increasing production scale and experience, biofuel prices will likely drop. On the benefit side, increasing the use of biofuels can improve energy security, greatly reduce greenhouse gases and many pollutant emissions, and improve vehicle performance. Their production can also enhance rural economic development. These benefits are difficult to quantify as they are externalities, and not reflected in the market price of biofuels.
Over the next decade the cost of producing advanced biofuels, such as from ligno-cellulosic feedstocks–the green parts of plants–may drop noticeably. In fact, prices may fall to below the costs of producing conventional biofuels, since the biomass feedstocks may be much cheaper, including crop and forestry wastes, and due to dedicated energy crops such as grasses or trees that can be produced on marginal lands.
From a greenhouse gas point of view, cellulosic ethanol is good news, since it is nearly carbon-neutral. The cost for reducing greenhouse gases from these advanced biofuels may drop to $50-$100 per tonne over the next decade, much lower than today’s cost of using grain crops in IEA countries.
It is in the developing world that the outlook for production of biofuels appears most promising. The cost of producing ethanol from sugar cane in Brazil is now close to the country’s cost of gasoline on a volume basis. The sunny, warm climate encourages relatively high feedstock yields per hectare. Labour costs are low, too, and efficient co-generation facilities producing both ethanol and electricity have been developed. Production costs continue to drop with each new conversion facility, which currently provide CO2 reductions at a cost of $50/tonne or less.
However, there is a mismatch between those countries where biofuels can be produced at lowest cost and those where demand is rising most quickly. If biofuel needs and requirements of IEA countries over the next decade were met in part with a feedstock base abroad, then the costs of biofuels could drop substantially. Diversifying biofuel sources also could benefit energy security, as a chief source of uncertainty is weather-related. Since heavy rain or sudden drought can damage the plants that yield these fuels, planting a variety of crops over a large area could help protect against loss.
New conversion technologies are being developed which aim to make better use of the entire plant, not just the sugar or starch components. In addition to improving the economics and environmental characteristics of the fuel, this will substantially increase the potential feedstock supply. It will allow biofuel crops to be grown in new areas, such as grasses on pastureland, reducing competition with food crops. These new technologies, including both conversion of lingocellulose to ethanol and conversion of any type of biomass to diesel fuel via thermochemical conversion, have the added benefit of requiring very little fossil fuels during any phase of development and processing, so net greenhouse gas emissions are very low.
A key long-term concern is that higher usage of biofuels will lead to land being drawn away from other purposes, including food, animal feed or fibre. This could lead to higher food prices for consumers. According to IEA projections, a 5% displacement of gasoline and diesel fuel in the EU would require about 15% of available cropland to produce the relevant feedstocks. In the US, a slightly higher share would be required.
But these trade-offs are made more complicated by extensive farm subsidies in many countries. For example, some crop price support schemes that may be paying farmers not to grow crops, could be replaced by incentives to encourage production of crops for biofuels instead, and in some cases this is happening. After all, the cultivation of crops for biofuels would provide an additional product market for farmers and bring economic benefits to rural communities.
A key question, of course, is: are biofuels really green? Apart from reductions in greenhouse gases, ethanol and biodiesel provide certain air quality benefits compared to gasoline and diesel fuel, though the net impacts are complex and depend on each situation. These fuels typically emit less carbon monoxide (CO), sulphur dioxide (SO2) and particulate matter, particularly valuable when emissions control systems are weak, as in some developing countries. On the other hand, some emissions are typically higher with biofuels–such as emissions of hydrocarbons, and toxic compounds like aldehydes from ethanol.
Another advantage is that biofuels can reduce wastes through recycling–in particular, agricultural wastes from cropland, and waste oils and grease that can be converted to biodiesel. However, a big question is the net impact of growing biofuels crops on the earth’s soils and ecosystems. If production were to increase many times, the land requirement would be quite large. The level of “sustainable” production of biofuels, from this point of view, is still unclear. But there may be some opportunities to use biofuel crops, like grasses, to protect sensitive lands and provide improved habitats for birds and other animals.
Despite these uncertainties, biofuel production could have good potential; the IEA estimates that ultimately half or more of road transportation fuels worldwide could be displaced by biofuels, perhaps in the 2050-2100 timeframe. But this will depend on many factors, including global food requirements and land productivity.
Given the benefits, there is little wonder that many IEA countries, including the US, Canada, several European countries, Australia and Japan are considering, or have already adopted policies that could result in significantly higher biofuel use over the next decade. Though many IEA countries are encouraging domestic biofuel production, the low cost of ethanol from Brazil and, eventually, from other developing countries, make it a very attractive prospect to import. International trade in biofuels, even to complement domestic production, will likely develop over time.
If all policies and targets are fully implemented, biofuel use could more than double worldwide over the next five years or so. Even though that means an ethanol share of gasoline of only 4% or 5%, that would be a huge leap in a petroleum industry that has not faced real competition in over a century.
IEA (2004), Biofuels for Transport: An International Perspective, OECD, Paris.
© OECD Observer, No. 249, May 2005