Status of biofuels policies and market deployment in Brazil, Canada, Germany, Sweden and the United States

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The transport sector is responsible for one quarter of total greenhouse gas (GHG) emissions, oil products still provide 91% of its final energy needs. There is a stark contrast between the world’s announced objectives on decarbonization and energy diversity and the current status. Renewable fuels have a significant potential to contribute to these objectives. However, the annual growth rate in biofuels (<5%) is well below the 10% output growth needed to be on track with decarbonization roadmaps. Stronger policy backing and greater innovation are required to scale up sustainable biofuel production.

This report provides useful information to spur the development of the biofuel sector. A historical analysis of the biofuel sector across 5 different countries sheds light on the different possibilities for policies, technologies and commercial outcomes. Learnings and take-aways from these cases can be used as a reference for building the right biofuel environment for any given country. The chosen countries for this study illustrate very different biofuel environments. This diversity provides a rich mix of different perspectives, showing there is no single right answer when it comes to biofuel development. The motivation for adopting biofuels, the approach taken and the outcome heavily depend on the characteristics of the country and its policy makers. The resulting differences in the biofuel industries vary widely.

Specific conclusions for the 5 countries:

• Brazil shows the most notable success case for the implementation of biofuels. Its focus on biofuels goes back to the 1970s, as a response to the global oil crisis. Brazil’s main driver for biofuels has always been energy security. The share of ethanol and biodiesel in transport fuels has increased over time and are currently at a mandatory 27% ethanol blend in gasoline and 12% blend for biodiesel in diesel; the highest levels among the analysed countries. There are additional options for hydrous ethanol, with ethanol-flex fuel vehicles receiving tax incentives. Brazil’s long history of implementing biofuels in transportation has shown no issues in terms of vehicle performance. Apart from mandatory blending requirements and tax incentives, Brazil has stimulated the biofuel industry through funding agencies and specific credit lines for bioenergy. There have also been import tariffs on ethanol to protect local production. There are also programs looking at advanced biofuels, notably on green diesel and biokerosene for aviation.
• In Canada, the main drivers for biofuels are GHG reduction and rural diversification. Having the world’s third largest oil reserves, energy security is not a driver for renewable fuels. Mandates require a 5% ethanol blend in gasoline and a 2-4% biodiesel blend, depending on the province. Biofuels are further incentivized through carbon pricing schemes. Ethanol is mainly produced with corn and biodiesel with cooking oil and animal fats. While federal subsidies were phased out in 2017, there are some provincial initiatives supporting production and consumption. There are also different programs to support R&D in bioenergy. When it comes to advanced biofuels, Canada has developed significant expertise in technologies to convert non-food based feedstocks to ethanol, (CO2 air capture and gasification to produce FT liquids, pyrolysis, and hydrolysis from agricultural residues… etc.).
• In Germany, the main driver influencing the development of biofuels is GHG savings. This has been directly reflected in their policy, where Germany has shifted from energy-related mandates (following the EU Renewable Energy Directive) to GHG mandates (following the EU Fuel Quality Directive). Germany sets the mandate for fossil fuel suppliers on GHG reduction targets. The emissions must be calculated on a life cycle basis; this considers both the share of biofuel blended and the emission reduction of the chosen biofuel. Also, carbon taxes provide general incentives for renewable transport. There are no other financial incentives or tax reliefs for biofuels in Germany, making it quite difficult for new biofuels to penetrate the market. The country’s policy seems more favourable to vehicle electrification, with subsidies for BEVs and PHEVs. There are also R&D projects on advanced biofuels (e.g., bio-oil from pyrolysis, bioethanol), but there is a stronger focus on electro-fuels.
• The main driver for Sweden is also related to climate change mitigation and reduction of GHG emissions. The country does not have specific targets for biofuels other than the ones set by EU RED II. This policy sets targets on GHG emissions for gasoline and diesel, with penalties on any emissions above this level. As in Germany, the policy focuses more on the emissions than in volumetric or energy related shares. Biofuels in Sweden receive strong incentives through full tax exemptions on biofuels, bonuses for fuel-efficient vehicles, and the “pump law”, which mandates large fuel retailers to offer at least one pump for biofuels. There is also strong investment support for any climate action programs. Bioenergy covers a 63% of Total Energy Supply from renewables and is high on Sweden’s priorities. Biofuels accounted for more than 20% of transport fuels in recent years. There are many research projects focused on biofuels; with the largest ones on biomass gasification and biomethane synthesis.
• Drivers for biofuels in the United States include energy security, job creation, and rural development. Climate change mitigation has intermittently been a significant driver. At a country level, the RFS program sets volumetric mandates for renewable fuels with minimum GHG reduction requirements. There is also regional legislation, like the LCFS program in California which provides incentives to produce low carbon fuels. Excise duty reduction and blender’s credits have also played a role in expanding biodiesel production. Liquid biofuels have seen substantial growth, increasing tenfold from 2000 to 2016. Advanced biofuels production remains relatively small but is gradually increasing.

The five countries present very different drivers, policies, resources and outcomes. An assessment from a sustainability perspective requires a complex analysis, individual in focus to each country. Each country has its own sustainability criteria, reflecting the different choices on biofuels, production processes, blends and other resources. The impact that biofuels show on sustainability will depend on these criteria. Nevertheless, biofuels do show a strong potential for contributing to the climate change mitigation commitments. The cases analysed provide a solid reference point to exploit the benefits of biofuels in many different areas.

This report was delivered in the frame of the project ‘Assessment of successes and lessons learned for biofuels deployment’, work package 1.

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