The future of biofuels - A global perspective

Nov 2007

Unlike previous high-price periods, the current oil market is driven by strong demand-side factors. These factors include robust economic growth and rising oil demand from rapidly growing middle-income economies, where consumers are demanding a higher standard of living and exhibiting big appetites for energy. Almost two-thirds of recent global growth in oil demand has come from China and other middle-income economies.
The future of global biofuels will depend on their profitability, which depends on a number of interrelated factors.
Key to this will be high oil prices: 6 years of steadily rising oil prices have provided economic support for alternative fuels, unlike previous periods when oil prices spiked and then fell rapidly, undercutting the profitability of nascent alternative fuel programs. On the other hand, the sector’s profitability has been negatively affected by rising feedstock prices (corn and vegetable oil, not sugar), which account for a very large share of biofuel cost of production.
For this commodity-dependent industry, government support to reduce profit uncertainty has been a common theme in the U.S., Brazil, and the EU, where biofuel production has been most significant.
Biofuels will most likely be part of a portfolio of solutions to high oil prices, including conservation and the use of other alternative fuels. The role of biofuels in global fuel supplies is likely to remain modest because of its land intensity. In the U.S., replacing all current gasoline consumption with ethanol would require more land in corn production than is presently in all agricultural production. Technology will be central to boosting the role of biofuels. If the energy of widely available, cellulose materials could be economically harnessed around the world, biofuel yields per acre could more than double, reducing land requirements significantly.

By: William Coyle

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