Is the biofuel industry approaching a feedstock crunch?

Biodiesel, renewable diesel and biojet fuel producers are headed for a feedstock supply crunch during 2022-2027 if current trends do not change. In our main case, demand for vegetable oil, waste and residue oils and fats increases 56% to 79 million tonnes over the forecast period. Fuels made from wastes and residues are in particularly high demand because they satisfy GHG and feedstock policy objectives in the United States and Europe. In fact, wastes and residues are expected to be used for 13% of biofuel production in 2027, up from 9% in 2021.

However, demand is approaching the supply limits of the most-used wastes and residues. Nevertheless, markets are dynamic. High prices are a signal to seek out new supplies, which is prompting the development of government programmes and industry innovation to help avoid the crunch.

Compared with wastes and residues, the sugars and starches used to produce ethanol are under less pressure. Although biofuel demand for these feedstocks is growing, sugar cane and maize production expands as well, keep the share dedicated to biofuel production nearly flat over the forecast.1

The United States, Europe, Brazil and Indonesia are responsible for the majority of biodiesel, renewable diesel and biojet fuel consumption growth. Combined, demand for these fuels increases by 44% or 21 billion litres in our main case over 2022-2027. In the United States, the renewable fuel standard, state-level low-carbon fuel standards and the IRA’s tax credits boost demand for renewable diesel and biojet fuel. Most requirements are met with domestic production from a mixture of feedstocks (e.g. soybean oil, rapeseed oil, corn oil, used cooking oil and animal fats).

In Europe also, consumption of renewable diesel and biojet fuel increase the most. Total demand growth is relatively small, but the European Union is phasing out the use of palm oil and has placed limits on other feedstocks, which is boosting production from wastes, residues and rapeseed oil. Meanwhile, Brazil and Indonesia both have biodiesel blending mandates that will become more stringent over the forecast period. Indonesian biofuel manufacturers primarily use palm oil to produce biodiesel, and Brazilian ones rely on soybean oil. 

Consumption of vegetable oil for biofuel production is expected to increase 46% to 54 million tonnes over 2022-2027, raising the share of vegetable oil production directed to meeting growing biofuel demand from 17% to 23%. In the United States, this increase in demand is already reducing soybean oil export estimates and supporting higher prices.

Used cooking oil and animal fats are unlikely to provide relief, as they are in even higher demand because they offer lower GHG emissions intensity and meet EU feedstock requirements. In fact, the use of used cooking oil and animal fats nearly exhausts 100% of estimated supplies over the forecast period. Even when a broader range of wastes (such as palm oil mill effluent, tall oil and other agribusiness waste oils) is considered, demand still swells to nearly 65% of global supply. 

If this situation remains unchanged throughout the forecast period, the potential for biofuels to contribute to global decarbonisation efforts could be undermined. Bio-based diesel and biokerosene are essential components of net zero pathways because they can be used in marine, aviation and heavy trucking applications, for which few other decarbonisation options exist. However, attaining a net zero trajectory would require a more than three times production increase in our main case. 

Our forecast takes a relatively static view of agricultural and waste oil markets. This doesn’t Steep prices will prompt companies and governments to improve feedstock supply chains, seek out new supplies and develop new techniques.

Policies and programmes in the United States, Canada and Europe will be helpful. In the United States, the Sustainable Aviation Grand Challenge Roadmap aims to improve understanding of the feedstock challenge, boost supply potential and support new technology development. Meanwhile, the European Union as a whole, and individual member states such as Germany, have dedicated targets for fuels made from less-developed wastes and residues. In Canada, a USD 1.1‑billion Clean Fuels Fund supports supply chain development. Policies focused on GHG emissions reductions can also be useful, since they give biofuel producers an incentive to reduce the GHG intensity of their fuels, not just produce more. This can mean lower feedstock requirements with the same or better GHG emissions benefit.

Biofuel producers and users are also interested in expanding feedstock supplies for commercial biofuel technologies, as additional stocks could support up to another 8.5 EJ of biofuel production (300 billion litres), compared with 4 EJ (160 billion litres) in 2021 (see table below for sources). The industry sector is also investing in new technologies that use more widely available feedstocks, offering up to 50 EJ of sustainable potential. In fact, expanding commercial and new technologies could sustainably increase bio-based diesel and biokerosene production more than four times by 2030.

Exploiting the potential of conventional crop-based feedstocks that meet sustainability requirements could support a near-70% increase in biofuel production by 2030 from the 2021 level. Although there are limits to the pace and scale of growth for certain feedstocks such as vegetable oils, crops already support a 20% increase in liquid biofuel production by 2027 in the main-case forecast. However, governments and companies will need to be diligent to detect fraudulent waste supplies and maintain the integrity of sustainability frameworks, as high costs are also an incentive to circumvent policies.

Biofuel producers are also seeking feedstocks produced on degraded land or from crops planted during what were previously fallow periods to increase acreage without appropriating land that would otherwise be used for food and feed production. In Brazil, for instance, 75% of corn ethanol production comes from second-crop production in existing fields. In Europe, some biofuel producers are sourcing oilseeds grown on degraded terrain to meet RED II sustainability criteria, and bio-based diesel feedstock producers globally are establishing new supply chains for bio-oils such as tall oil and fish oil, and expanding those for animal fats and used cooking oil.

Redirecting some ethanol production to make biojet fuel using alcohol-to-jet or ethanol-to-jet production pathways could also help relieve pressure on vegetable oil demand. As gasoline consumption declines in advanced economies, some ethanol can be redirected towards biojet fuel production. Biogas, which is made mostly from wastes and residues, can also be used to produce biojet fuel.

However, on the path to net zero emissions, these efforts will need to be supplemented with biofuel production from far more abundant resources. The IEA estimates that nearly 100 EJ of sustainable biomass supplies are available, including from woody residues, organic wastes, forest plantations and short-rotation woody crops planted on marginal land. These resources could support up to 50 EJ of liquid biofuel production, even though biogas and bioenergy producers will compete for the use of these resources. On a net zero trajectory, biofuel demand reaches 14 EJ in 2040. While gasification and pyrolysis technologies can make use of these more available feedstocks, estimated production costs remain at least 50% higher than for conventional technologies.

In our accelerated case, we assume that governments and biofuel producers overcome their feedstock challenges, removing one barrier to faster growth and accelerating decarbonisation. Thus, biodiesel, renewable diesel and biojet fuel production are 30% higher in this scenario than in the main case in 2027.