World Energy Outlook 2006

to the European Union. It is possible that future policies in Africa will be
designed to meet not only domestic needs but also the growing international
demand for biofuels. Total biofuels use in Africa is nonetheless expected
to remain small in 2030, reaching 3.4 Mtoe in the Reference Scenario and
3.5 Mtoe in the Alternative Policy Scenario.
Key Drivers and Uncertainties
Technology and Production Costs
The growing interest in biofuels stems partly from the potential that is thought
to exist for lowering the costs of production through technological advances. In
most parts of the world outside Brazil, biofuels cost significantly more to
produce than conventional gasoline or diesel, even with crude oil prices of over
$70 per barrel. This is a critical barrier to commercial biofuel development. But
costs have been declining over the last few years as the technology has improved
and economies of scale have been exploited. Further cost reductions are
achievable, even using existing technologies. Over time, the cost of producing
second-generation biofuels, including enzymatic hydrolysis and gasification of
ligno-cellulosic biomass, might eventually fall as low as $40 to $50 per barrel,
which would make them competitive with conventional gasoline and diesel
without subsidy at the crude oil prices assumed in the Reference Scenario
(Figure 14.7). It may also be possible to produce better-quality biofuels, with
more favourable performance characteristics. This would allow biofuels to be
blended with gasoline and diesel in higher proportions than are currently
feasible without engine modifications.
Conventional Ethanol and Biodiesel
Conventional production technologies for ethanol based on starchy and sugar
crops are relatively mature. Further incremental cost reductions can be
expected, particularly through large-scale processing plants, but no major
breakthroughs in technology that would bring costs down dramatically are
likely. Crop prices, which tend to be volatile, will remain a major factor in
future production cost trends. Higher crop yields, through the use of better
fertilizers, plant breeding and agricultural management, could help to lower
prices (see below).
Bioethanol production costs today vary widely across countries, mainly due to
climatic factors. Crop production costs are much lower in tropical countries.
Brazil has the lowest unit costs in the world, at around $0.20 per litre ($0.30
per litre of gasoline equivalent) for new plants. Other developing countries in
tropical zones may be able to achieve similar costs. In Europe and North
America, farm subsidies distort production costs. Grain-based ethanol costs on
average around $0.30/litre ($0.45/litre of gasoline equivalent) in the United
Chapter 14 - The Outlook for Biofuels
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