What’s the future outlook for biofuels?

Walter Frick
Apr 19, 2023 05:47PM UTC

This article is part of a new blog series called INFER Insights. Each post will explore a question (or group of questions) we're monitoring on INFER and compare the crowd consensus with expert perspectives surrounding the possible outcome.

The world will need to ramp up its use of biofuels in order to decarbonize transportation, according to the International Energy Agency. The agency models the path to a zero-emissions world, and its main net-zero scenario requires biofuels to grow by 16% a year globally between now and 2030.

Will that happen?

Forecasters on INFER have been tackling this topic across a range of questions that speak to both biofuels’ short- and long-term potential. In the short-run, forecasters see biofuels continuing to grow—though possibly not as fast as other sources of renewable energy. The longer run picture for biofuels likely hinges on its use in aviation fuel—and is far less certain.

The short-term outlook for biofuels

Two current questions on INFER speak directly to biofuels’ growth in the short-term: one focused on the US and one on the UK.

Between 2018 and 2021, biofuels represented 4-5.7% of UK transport fuels, according to the government. But the consensus forecast from INFER gives a 78% chance that it will rise to 6% or more in 2023.

Biofuels' share of UK transport fuel INFER crowd forecast as of publication
Less than 5% 1% chance
More than or equal to 5% but less than 6% 21% chance
More than or equal to 6% 78% chance

INFER forecasters expect an uptick in biofuel use to be driven in large part by the 2021 introduction of an E10 fuel standard in which more UK gas contains up to 10% ethanol.

“The trend will continue upward,” INFER Pro forecaster Ryan Beck writes of the UK’s biofuels use. “And coupled with the recent changes in regulations… it's likely that the share [of biofuels in total transport fuel] will increase.” 

Experts see similar factors in play for the sector globally. 

“Policy will remain key for biofuels in the short term,” says Beatriz Pupo, global biofuels manager for S&P Global Commodity Insights. “In 2023, the global biofuels demand is expected to reach a new record high of 2.3 million b/d or 6.5% of the total motor gasoline and diesel pool. Renewable diesel (RD), is expected to remain the fastest growing segment within the biofuels space in the short term.”

While the UK question looks at biofuels as a share of transport fuel, the U.S. question on INFER asks about biofuels as a share of renewable energy. And on this front, forecasters are more skeptical—suggesting that while biofuels will continue to grow, they may not grow as quickly as other clean energy sources.

For the past 15 years, biofuels have hovered around 20% of U.S. renewable energy, driven largely by the mandated use of ethanol in gasoline. INFER forecasters see it as highly improbable that that figure will increase significantly this year.

Biofuels’ share of U.S. renewable energy INFER crowd forecast as of publication
Less than 20% 89% chance
More than or equal to 20% but less than 24% 10% chance
More than or equal to 24% 1% chance

The 2022 Inflation Reduction Act will shift the major tax credit driving biofuels, beginning in 2025. At that point, the “clean fuel producer tax credit” will replace the existing biofuels tax credit. “Rather than setting the credit amount based on the types of fuel produced, the new credits will be awarded based on their emissions intensity,” according to a 2022 report on the sector from Goldman Sachs.

Despite the supportive policy environment, INFER forecasters don’t expect biofuels to increase as a share of renewables—in part because they expect other sources of renewable energy to grow faster. “Solar should also continue its exponential growth for another year, which will further expand the denominator for total renewable energy by another 50 or so,” one forecaster wrote.

The long-term outlook for biofuels

In the long-run, the fate of biofuels likely depends on aviation fuel. As more and more ground transport is electrified, the question will become whether biofuels can help to decarbonize air travel. As the IEA notes:

“Aviation biofuels, also known as biojet kerosene, would need to make the most dramatic strides between now and 2030 to align with the Net Zero Scenario, increasing from 0.1% of aviation fuel demand in 2021 to more than 5% in 2030. The successful take-off of biojet kerosene hinges on several key factors, including reducing the cost gap between biojet fuel and fossil jet fuel, governments implementing clear regulatory schemes and policies, and diversifying sustainable feedstock supplies beyond waste oils and edible oils.”

Forecasters on INFER don’t expect that transition to happen quickly. Aviation fuels were barely mentioned in the INFER forecasts mentioned above, and another question points to the long timeframes involved with using biofuels in aviation.

In March 2022, United Airlines announced a $5 million investment in Cemvita Factory Inc., a Houston-based startup that uses synthetic biology to produce sustainable aviation fuel. However, INFER forecasters see it as improbable that United will announce that they’re using fuel produced by Cemvita this year.

INFER crowd forecast as of publication
Yes 21% chance
No 79% chance

“This is a long-term investment,” wrote INFER Pro Michal Dubrawski. “United is going in big... but for the long run,” added INFER Pro DKC.

The policies to support the transition to biofuels are already emerging. The Inflation Reduction Act created a $1.25 per gallon credit for sustainable aviation fuel. For now, aviation remains a small slice of the biofuels sector. But as one INFER forecaster noted, the “aviation industry has to start somewhere.”

INFER forecasters are also forecasting in one other area of longer-term, more advanced biofuels: the chance of ExxonMobil positively mentioning algae-based biofuels in a quarterly report. The crowd consensus is nearly certain that won’t happen before 2024.

INFER crowd forecast as of publication
In Q1 2023 or Q2 2023 1% chance
In Q3 2023 or Q4 2023 1% chance
Not before Q1 2024 98% chance

“ExxonMobil has previously invested in algae-based biofuels research and development, and they have stated their intention to continue exploring biofuels as a potential alternative to traditional fossil fuels,” wrote one INFER forecaster. “Therefore, it is possible that they may have positive updates to report on the progress of their research or commercialisation efforts related to algae-based biofuels.”

However, other forecasters pointed to news reports that Exxon was retreating from algae-based biofuels, which it had previously backed publicly. As with the United question, INFER’s Exxon forecast points to an uncertain future for advanced biofuels, one that could take decades to take shape.

Walter Frick

By: Walter Frick

Walter Frick is the founder of Nonrival, a newsletter that lets readers make predictions about tech, business, and the economy. He is a contributing editor (former senior editor) at Harvard Business Review, former executive editor at Quartz and has written for publications including The Atlantic, the BBC, and MIT Technology Review.

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