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The biofuels industry in crisis: Part two

Hydrocarbon Engineering,


Biodiesel and not ethanol is the main biodiesel consumed in Europe, reports Bain & Company. As in the US, European policy makers saw biofuels as an important part of the energy mix in the early 2000s and set out to encourage growth. In 2003, the European Commission set a goal of reaching a 5.75% share of renewable energy in the transport sector by 2010. In 2009, a new directive aimed to reach a 10% mix of biofuels within all transport fuels by 2020 and reduce overall GHG emissions by 35%.

The EU’s goals are similar to those of the US, but it takes a less directive and more centralized approach, allowing member states to tailor their rules in ways that suit their domestic objectives and make the policies palatable. For example, the EU does not specify volume targets, but encourages use of sustainable biofuels that generate fewer GHG emissions without a negative impact on biodiversity or land use. Policies vary significantly from one country to another: for example, Italy’s biofuel targets are only 3.5% while in France they are 7%.

Bain & Company concludes in its report – ‘Biofuels: From boom to bust?’ – that Europe lacks enough sustainable farmland to meet the 10% mandate from the EC directive via domestic supply singularly, and locally producing biodiesel costs US$ 344/ m3 more than buying diesel in the local market. Therefore, Europe imports most if its biodiesel from the US, Argentina and Indonesia.

Consumption slows down

Consumption has slowed in Europe for at least three reasons:

  • The economic slowdown has tightened government budgets, and available funds went to other alternative energy technologies that were becoming cost competitive more quickly, like wind and solar. Private investment also shifted over to these more population sources of renewable energy. From 2008 – 2012, investment in new biofuels projects fell by 29%, while investments in solar and wind increased by 24% and 4%, respectively. Since 2000, the EU has seen only 11 new biofuels projects, compared with 197 solar projects and 323 wind projects.
  • The pace of new laws promoting the industry through mandates and incentives has slowed. For example, Germany had offered a tax exemption along with its 6.25% blend target, to encourage production. By 2009 however, taxes on 100% biodiesel (B100) rose from € 9/ltr3 to € 18.3/ltr3 (closer to the tax on diesel), reducing demand for biodiesel, which is now consumed almost solely as a blend.
  • Policies supporting biofuels have come under pressure from groups concerned about the effects of fuel crops on food production, biodiversity, water, the land and GHG emissions. These interest groups have been pushing governments to move away from traditional biofuels and focus on advanced biofuels. As a result, the EC has proposed setting a 5% cap on the use of first-generation biofuels in transport fuel and eliminating subsidies for production of biofuels based on basic food crops.

Adapted from a report by Emma McAleavey.

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