World Energy Outlook 2006

EU biofuels production and use have been primarily driven by farm policy.
Under the EU Common Agricultural Policy and a trade agreement with the
United States, set-aside land – farm land left fallow, for which farmers are paid
a per-hectare subsidy, to reduce surplus output – can be used to grow crops for
biofuels up to a limit of 1 million tonnes of soybean equivalent per year. In
addition, member states are permitted to levy lower excise taxes on biofuels
than on conventional transport fuels. Some countries, including Germany, levy
no excise tax at all on biodiesel. Several countries also provide financial
incentives for investment in biorefineries. In 2003, the European Union
adopted a directive requiring all member states to set non-binding national
targets for a minimum share of biofuels in the road-transport-fuel market. The
target was 2% for end-2005, rising to 5.75% by end-2010. Although the share
reached only about 1.4% in 2005, it was well up on the level of 0.6% in 2003.
The 2010 target is more or less achieved in the Alternative Policy Scenario,
where the share reaches 5.6%, but not in the Reference Scenario, where the
share is only 4.9%. The European Commission is reassessing its biofuels
strategy (European Commission, 2005 and 2006a and b).
Other Regions
Biofuels use in other regions is expected to remain modest in both scenarios.
Several Asian countries are planning to launch or expand biodiesel
programmes. Malaysia is emerging as the leading producer, with 14 plants
approved and a further 36 under consideration, all based on palm oil. Most are
aimed at meeting domestic or regional demand, though exports to Europe are
also envisaged. China is the main importer of Malaysian biodiesel. India has
started producing ethanol and plans to begin producing biodiesel soon. China,
Indonesia, Thailand and the Philippines are also planning new plants, though
the volumes are relatively modest.
Chinese demand in the Reference Scenario is projected to rise from about
0.5 Mtoe today to 1.5 Mtoe in 2015 and just under 8 Mtoe in 2030. It rises
to almost twice these levels in the Alternative Policy Scenario. Demand in
the rest of developing Asia amounts to an additional 8 Mtoe in 2030 in
the Reference Scenario and 20 Mtoe in the Alternative Policy Scenario.
Consumption of biofuels in Japan is projected to grow strongly. Almost all the
country’s biofuels will need to be imported, with most expected to come from
Brazil. Australia has good natural conditions for low-cost feedstock production
of both sugar cane and wheat for ethanol and oil crops for biodiesel.
Several African countries currently have, or are planning to introduce, active
biofuel policies, some of which date back to the 1970s. In South Africa, a pilot
500-kilolitre per year ethanol plant is being built and there are plans to adopt
a national minimum requirement of between 1% and 3% biodiesel. South
Africa, as well as the Democratic Republic of Congo, currently exports ethanol
404 World Energy Outlook 2006 - FOCUS ON KEY TOPICS