World Energy Outlook 2006

Current Status of Biofuels Production and Use
Market Overview
Interest in biofuels – liquid transport fuels derived from biomass 1 – is soaring
in many countries. Biofuels hold out the prospect of replacing substantial
volumes of imported oil with indigenously produced renewable fuels and of
diversifying the sources of energy supply in the coming decades. Such a
development would bring energy-security benefits to importing countries.
Produced in a sustainable way, it could also bring environmental benefits,
including lower greenhouse-gas emissions, because the raw materials for
producing biofuels are renewable. Biofuels can also contribute to rural
development and job creation. Farm policy is an important driver of biofuels
markets.
The recent surge in international oil prices – together with lower biofuels
production costs – has made biofuels more competitive with conventional
petroleum-based fuels. But, in most cases, further reductions in costs will be
needed for biofuels to be able to compete effectively with gasoline and diesel
without subsidy. Land availability and food needs will also limit the growth in
conventional biofuels production based on sugar, cereals and seed crops. New
biofuels technologies being developed today, notably enzymatic hydrolysis and
gasification of ligno-cellulosic feedstock, could allow biofuels to play a much
bigger role in the long term. Until recently, most biofuels programmes were
conceived as part of farm-support policies, but a growing number of
governments are now planning to expand or introduce such programmes for
genuine energy-security, economic and environmental reasons.
There are several types of biofuels and many different ways of producing them.
Today, almost all biofuels produced around the world are either ethanol or
esters – commonly referred to as biodiesel. Ethanol is usually produced from
sugar and starchy crops, such as cereals, while biodiesel is produced mainly
from oil-seed crops, including rapeseed, palm and sunflowers. Other crops and
organic wastes can also be used. Each fuel has its own unique characteristics,
advantages and drawbacks. Ethanol, in an almost water-free form (anhydrous
ethanol), is usually blended with gasoline (either pure or in a derivative form,
known as ethyl-tertiary-butyl-ether, or ETBE). 2 Biodiesel can be used easily in
most existing compression-ignition engines in its pure form or in virtually any
blended ratio with conventional diesel fuel. Ethanol in a hydrous form
1. The term biofuels is used in this report to refer exclusively to liquid fuels derived from biomass that
can be used for transport purposes. Some studies use the term more broadly to cover all types of fuels
derived from biomass used in different sectors.
2. ETBE has lower volatility than ethanol, but there are health concerns about its use as a gasoline
blending component.
386 World Energy Outlook 2006 - FOCUS ON KEY TOPICS