Biofuels Market

Market Overview

The global biofuels market size was valued at USD 123.98 billion in 2023 and is projected to reach a value of USD 243.37 billion by 2032, registering a CAGR of 7.02% during the forecast period (2024-2032). The increase in Biofuels market share during the forecast period is related to factors such as renewable energy targets, advancements in feedstock production, rising public awareness, and the adoption of biofuels in emerging economies.

Biofuels, commonly called liquid transportation fuels, are derived from plant materials such as forest and mill residues, wood and wood residues, crops and residues, aquatic plants, animal wastes, livestock residues, and other organic portions of urban waste.

The rising global concern regarding fossil fuel prices and availability has drawn attention to biofuels as a substitute for petroleum-derived fuel. In addition, these biofuels can help address global issues such as energy costs, energy security, and concerns related to global warming. The feedstock for these biofuels is abundant across all regions of the world. It can be efficiently utilized in combustion engines, potentially transforming the existing fuel distribution infrastructure and creating a new end market for agricultural commodities.

Furthermore, the numerous advantages of biofuels have compelled government organizations worldwide to establish national and regional innovation systems that encourage research and development in this field. Examples in the biofuel industry include the expansion of refiners producing renewable diesel fuels. For instance, Phillips 66 is investing in its Rodeo, California refinery to process bio-feedstocks exclusively.

Highlights

• By Type, the first generation leads the market.
• Ethanol dominates the market by fuel type.
• Starch Crops and Sugar Crops hold a significant share of Feedstock.

Market Dynamics

Global Biofuels Market Drivers:

Demand for Cleaner Fuel

The growing desire for cleaner fuel sources is a significant driver in the biofuels business, complementing worldwide efforts to reduce carbon emissions and promote sustainability. India's energy mix is expected to include strategic biofuels as part of the country's energy transition goals. By 2025, India has set a goal of a 20 percent ethanol blend in petrol. This need derives from a desire to address environmental concerns about traditional fossil fuels, contributing to greenhouse gas emissions and air pollution. Biofuels are renewable fuels from organic sources such as plants, animal waste, or algae, providing a more sustainable alternative to fossil fuels.

The search for cleaner fuel sources aligns with global efforts to tackle climate change and reduce carbon footprints. To mitigate the effects of climate change, governments and organizations worldwide are focusing on transitioning to cleaner energy sources. Biofuels play an essential role in this shift since they provide a renewable and environmentally acceptable fuel source that can assist in reducing overall carbon emissions.

Global Efforts for Sustainability

The global push for sustainability, notably in decarbonization, sustainable air travel, and environmentally friendly alternatives such as bio-jet fuel, is driving significant investment and increasing demand for biofuels. The demand for sustainable fuels is expected to triple over the next 20 years, with road transport driving growth until 2035. By 2050, sustainable fuels could account for between 7 percent and 37 percent of transportation's energy demand. This shift is in reaction to the pressing need to cut carbon emissions, battle climate change, and migrate to cleaner energy sources. The airline industry faces pressure to lower its carbon impact and embrace more sustainable practices.

Similarly, Bio-jet fuel, derived from biofuels, has emerged as a crucial driver in encouraging environmentally friendly air travel. Using bio-jet fuel can dramatically cut aircraft carbon dioxide emissions, helping achieve sustainable aviation solutions. Global attempts to achieve sustainability are driving investments in biofuel technologies and infrastructure. As countries and industries prioritize environmentally friendly solutions, demand for biofuels will likely increase, propelling the market.

Global Biofuels Market Restraints:

High Production Cost

The more significant cost of production in the biofuels business poses a considerable obstacle, owing to the substantial initial capital expenditure required to build and operate biofuel plants or biorefineries. The cost of producing conventional biofuels ranges from USD 70 to USD 130 per barrel of oil equivalent (boe), and Advanced biofuels, such as biomass to liquid (BTL) and hydrotreated esters and fatty acids (HEFA), have higher production costs. BTL production cost estimates averaged USD 3.80/gge. This cost includes a variety of expenses such as installation, equipment procurement, testing, maintenance, and feedstock acquisition, making biofuel ventures relatively costly and less desirable to potential investors and stakeholders.

In addition, the capital-intensive nature of biofuel production can inhibit market entrance and limit project scalability. The need for specialized equipment, infrastructure, and technology raises the overall cost of production, limiting biofuels' economic viability as an alternative energy source. Furthermore, the complexity of biofuel production processes, which frequently entail many phases and technologies, contributes to increased production costs.

Variable and High Cost of Feedstock

The fluctuating and high feedstock cost in the biofuels market is a crucial concern for the sector, affecting overall production costs and competitiveness against traditional fossil fuels. Fluctuations in feedstock costs can significantly impact the economic sustainability of biofuel production, causing uncertainty and financial risk for producers and investors. The feedstock cost used to produce biofuels can vary depending on several factors, including market demand, supply chain interruptions, meteorological conditions affecting crop yields, geopolitical events, and regulatory changes. These changes in feedstock costs can directly impact the profitability of biofuel production, making it difficult for biofuels to compete with fossil fuels in terms of cost-effectiveness.

Moreover, the high feedstock cost can raise total production costs, affecting biofuels' competitiveness in the energy market. When feedstock prices fluctuate or are persistently high, biofuel manufacturers may need help maintaining steady product pricing, affecting market demand and consumer uptake of biofuels.

Global Biofuels Market Opportunity:

Expansion of Biofuel Industry to Create Job Opportunities

The biofuel industry is positioned to create jobs and promote economic growth by shifting away from traditional fuels such as coal and petroleum. This move to biofuels is predicted to produce employment in various biofuel industry sectors, including production, research, development, and distribution, contributing to job creation and economic growth. Biofuels are a sustainable alternative to traditional fossil fuels, with the potential to meet a considerable amount of transportation fuel demand by 2050. By reducing dependency on fossil fuels and promoting biofuel consumption, the industry can reduce CO2 emissions and achieve environmental advantages.

Furthermore, expanding the biofuels industry can result in forming new enterprises, investment opportunities, and technological improvements, promoting innovation and economic diversification. Job creation in the biofuels sector goes beyond direct employment in production facilities to include positions in research institutes, engineering firms, agricultural sectors, and allied industries, all of which help to build a more resilient and sustainable economy.

Regional Analysis

North America Dominates the Global Market

The global biofuels market analysis is conducted in North America, Europe, Asia-Pacific, the Middle East and Africa, and Latin America.

North America is the most significant market shareholder and is estimated to grow at a CAGR of 6.2% over the forecast period. North America dominates the worldwide biofuels market, with the United States being the critical engine. According to the US Energy Information Administration, biofuel production in the US will reach 17.5 billion gallons in 2023, up 5% over the previous year. The US Department of Agriculture predicted that corn used for ethanol production would increase to 5.5 billion bushels by 2024, demonstrating the biofuels sector's sustained expansion. The region's dominance is due to strong government support, abundant agricultural resources, and a well-established biofuel infrastructure.

According to the Renewable Fuels Association, ethanol will account for more than 10% of gasoline in the United States in 2023, emphasizing its importance in the transportation fuel mix. Canada has also contributed to the region's leadership, with the Canadian Renewable Fuels Association reporting that the country's biofuel blending mandate will rise to 15% for gasoline and 5% for diesel in 2023. The region's advanced biofuel business has expanded significantly, with cellulosic ethanol and renewable diesel gaining pace. Furthermore, the integration of biofuels in the aviation sector has advanced, with significant carriers promising to increase their usage of sustainable aviation fuel. North America's substantial R&D operations drive biofuel technology innovation, assuring the region's continuing global market leadership.

Europe is estimated to grow at a CAGR of 6.6% over the forecast period, with a significant emphasis on sustainability and lowering greenhouse gas emissions. According to the European Commission, biofuels accounted for 7.5% of total transport fuel use in the EU in 2023, up from 7% the previous year. The European Biodiesel Board predicted that biodiesel production capacity in the EU would reach 23 million tonnes by 2024, suggesting sustained investment in the sector. High environmental standards and a focus on advanced biofuels distinguish the region's biofuels sector. Germany, France, and Spain are the top producers, with Scandinavian countries making substantial contributions to advanced biofuels. The European Union's Renewable Energy Directive II (RED II) has established aggressive targets for renewable energy in transportation, accelerating the use of biofuels among member states.

Additionally, the region has significantly transitioned towards waste-based and lignocellulosic feedstocks for biofuel generation, which aligns with circular economy concepts. Europe's automotive industry has played an essential role in biofuel adoption, with increased manufacture of flex-fuel and biodiesel-compatible automobiles. The region has also led the way in creating and implementing sustainability certification schemes for biofuels, ensuring that environmental and social concerns are addressed along the supply chain.

Segmental Analysis

The global biofuels market is segmented based on type, Fuel type, and feedstock.

The biofuels market is further segmented by type into First Generation, Second Generation, and Third Generation.

First-generation biofuels account for the majority of the biofuels market. These biofuels are derived from food crops like sugarcane, corn, and vegetable oils. They are the most widely produced and commercially available biofuels worldwide. First-generation biofuels, such as bioethanol and biodiesel, have been made for decades and benefit from well-established processes and infrastructure. First-generation biofuels are the market's leading choice due to the widespread availability of feedstock and meager production costs. However, they have drawn criticism for their possible impact on food prices and land use, prompting the creation of second and third-generation biofuels.

Second and third-generation biofuels are sub-dominant areas of the biofuels business. Second-generation biofuels are made from non-food feedstocks like agricultural wastes, woody biomass, and municipal solid refuse. These biofuels strive to address the food-versus-fuel problem while having a low environmental impact. Third-generation biofuels are derived from algae and other microorganisms, and they have the potential to provide more energy while also being more efficient. While these advanced biofuels have great potential, they are still in the research and development stage, with more significant production costs than first-generation biofuels. The industry continues prioritizing the research and commercialization of second and third-generation biofuels to increase sustainability and minimize reliance on food-based feedstocks.

The Biofuels market is further segmented by Fuel type into Ethanol, Propanol, Butanol, and Others.

Several factors contribute to ethanol's dominance in the biofuels sector. Ethanol is commonly manufactured from renewable resources such as corn, sugarcane, and other biomass feedstocks. It is widely utilized as a transportation fuel additive, mainly in blends such as E10 (10% ethanol and 90% gasoline) and E85 (85% ethanol and 15% gasoline). Ethanol's established infrastructure, which includes distribution networks and blending facilities, enables wider adoption. Furthermore, ethanol is regarded as very mature in production technology and legislative approval, with several countries encouraging its usage as a renewable fuel. Despite arguments over its energy balance and land use implications, ethanol remains critical to reducing greenhouse gas emissions and improving energy security.

Butanol is a promising sub-dominant area in the biofuels industry. Butanol, unlike ethanol, has various advantages, including higher energy density, lower volatility, and compatibility with current infrastructure, making it a viable alternative fuel. Butanol may be created from biomass via biochemical processes, providing a route addressing food crop concerns. Its chemical features make it acceptable for mixing with gasoline at higher quantities than ethanol, potentially increasing energy efficiency and performance. However, barriers such as production costs and technological developments prevent widespread implementation. Butanol's market presence will require regulatory support and ongoing research into production efficiency and scaling. Despite these obstacles, butanol's ability to provide a viable alternative to ethanol in specific applications highlights its importance in diversifying biofuels beyond typical ethanol-based solutions.

The Biofuels market is further segmented by feedstock into Starch Crops, Sugar Crops, Oil Crops, Lignocellulosic Crops, Algae, and Aquatic Biomass.

Starch crops and sugar crops are the most critical feedstocks because they are easy to turn into biofuels, contain a lot of sugar, and have been used for a long time. Starch crops like corn and wheat are often used to make energy like ethanol. These foods are quickly turned into biofuels through fermentation, making them a main ingredient in traditional biofuel production. Starch crops have a lot of sugar, making them easy to turn into bioethanol, a popular biofuel on the market. Starch Crops are the market leader in biofuels because they are easy to get and can be grown in several ways.

Sugar crops, like sugarcane and sugar beet, are also essential for making renewables, especially ethanol. The high sugar content of these crops makes them perfect for brewing processes that make bioethanol. Biofuels use sugar crops often because they are good at turning plant matter into bioethanol, which is an integral part of the biofuels business. These crops are the most popular on the market because they have a well-established production system and a high sugar content.

Recent Developments

• April 2024- Terragia Biofuel, a technology startup with Energy Impact Partners (EIP) and Engine Ventures (EVC) leading a USD 6 million (Euros 5.5 million) pilot round, achieved its goal of propelling the next generation of biofuels.
• April 2024- USA will lead the charge in biofuel and SAF production. Biofuel production is anticipated to increase with the soaring demand for sustainable aviation fuel (SAF) and renewable diesel. By the middle of the following, energy biofuel production in the United States is projected to increase by approximately 53%, according to Rystad.