EU biofuels trends: Growth in bioethanol, challenges for diesel
Renewable electricity and biofuels are both essential in the drive to decarbonise the transportation sector and reduce our dependence on fossil fuels. While electric vehicle (EV) adoption has soared in recent years and will continue to grow, the outlook for biofuels is more complex. According to the latest Biofuels Annual report from the USDA Foreign Agricultural Service, released on August 13, 2024, biofuels in the European Union (EU) yielded mixed results in 2023.
Notably, EU bioethanol consumption reached a record high, increasing by 4.5% to 6.58 billion litres—an impressive 26% above pre-COVID levels. This surge is primarily attributed to the expansion of the region’s overall gasoline fuel market.
In contrast, biomass-based diesel (BBD) saw a modest increase of just 0.6%, reaching 17.98 billion litres, driven entirely by higher blending rates. Volumes remain 7% above 2019 pre-COVID levels. BBD encompasses biodiesel (fatty acid methyl esters, or FAME) and renewable diesel. The renewable diesel that is currently commercialised at scale is hydrogenation-derived renewable diesel (HDRD), previously known as hydrotreated vegetable oil (HVO).
The USDA report forecasts a 1.6% decline in the consumption of FAME and HDRD in 2024. Key factors contributing to the projected decrease include new traceability and reporting regulations, reduced national greenhouse gas (GHG) reduction mandates in certain regions, and a shift towards “advanced” BBD types with higher GHG reduction values, which will require lower physical volumes. The report also highlights a decrease in on- and off-road diesel demand and the growing influence of EV adoption.
A drastic reversal in Sweden’s diesel GHG reduction mandate, from 30.5% in 2023 to just 6% in 2024, has a significant impact. This sharp decrease is expected to halve Sweden’s BBD consumption, which will have a notable impact on overall BBD volumes in the EU. The top six consumers—France, Germany, Spain, Sweden, Italy, and Poland—currently account for nearly 70% of total BBD consumption in the region. However, the report projects an increase in BBD use in Germany, Italy, the Netherlands, and Ireland.
Bioethanol, widely blended with gasoline for transportation fuels, is produced by fermenting biomass containing sugars and starches. In the EU, the main feedstocks for bioethanol are grains and sugar beet. Sustained demand growth is expected to continue into 2024, with estimates projecting a 2.9% rise to 6.77 billion litres. This increase is driven by the ongoing expansion of the gasoline pool and growing sales of higher blends like E10 and E85 in certain EU member states.
Currently, E10 is available in 15 member states. France plays a key role in boosting overall EU bioethanol consumption due to a rising number of flexIble-fuel cars. Sales of E10 in France increased by 9% in 2023, reaching around 8 billion litres, while E85 sales hit 900 million litres. E85 sales in France will continue to increase in 2024, bolstered by competitive pricing. Germany, Poland, Ireland, Austria, Spain, Belgium and the Netherlands are also forecasted to experience significant growth in bioethanol consumption.
Sweden is also facing declines in bioethanol consumption, alongside Finland and Hungary. Sweden’s ethanol blending mandate was reduced from 7.8% to 6% in 2024. Although, these declines are partially offset by an increase in gasoline consumption. Similarly, Finland has significantly lowered its bioethanol blending mandate from 30% to 19.5%, with the reduction set to take effect by 2030.
Several legislative proposals are affecting the adoption of biofuels in the European transportation sector, including the Deforestation-free Supply Chain Regulation (EUDR), which aims to ensure that products placed on the EU market do not contribute to global deforestation or forest degradation. Additionally, the European Green Deal and Fit for 55 package sets a target of a 100% reduction in carbon dioxide emissions for new passenger cars and light commercial vehicles by 2035.
The Renewable Energy Directive II (RED II) is a key piece of EU legislation aimed at promoting the use of renewable energy across member states. The directive imposes caps on conventional crop-based biofuels, allowing for a maximum increase of 1% above each member state’s 2020 consumption levels, with an overall cap of 7%. RED II also introduces stringent sustainability criteria and sets binding targets for advanced biofuels, aiming for a 3.5% share of the transport sector’s energy mix by 2030, with at least one percentage point coming from renewable fuels of non-biological origin.
The establishment of the Union Database for Biofuels (UDB) aims to improve the traceability of liquid and gaseous biofuels, addressing concerns about the mislabelling of certain biofuels, such as BBD certified as being made from used cooking oil. There are also proposed changes to taxation in the EU that would set a minimum tax applicable to fossil fuels and biofuels based on energy content rather than the current volume-based method, which disadvantages biofuels.
While bioethanol consumption in the EU increased last year, production saw a decline of 0.9%, falling to 5.25 billion litres. The report attributed this decrease to reduced beet supplies. French bioethanol production experienced a significant drop, along with declines in Germany, Hungary, and Sweden.
Looking ahead, there is optimism for a production rebound in 2024, with expectations of 2.4% growth to 5.38 billion litres driven by higher domestic supplies of sugar beets and grains. An increase in corn feedstock—at the expense of wheat—is anticipated, given the potential for higher profit margins with corn. A widening gap between consumption and production is likely to fuel bioethanol imports, primarily from the U.S.A. and Brazil, which remain key suppliers to Europe.
Preliminary data indicates that BBD production in Europe increased by 2.9% year-on-year, driven in part by higher biodiesel exports to the U.S.A., despite competition from cheaper imports. Analysts anticipate continued growth in 2024, projecting a 1.3% rise to 16.79 billion litres, supported by ongoing export demand.
HDRD production is expected to grow by 7.9%, powered by increased capacity in Sweden and Italy. However, an EU-wide decline in FAME production of 0.8% is predicted. BBD imports are also forecast to decrease due to new traceability and reporting requirements.
While Europe’s biofuels market has seen varied success, the U.S. biofuels market is thriving, capitalising on rising demand and a recent surge in production. In the long term, the U.S. is poised to maintain a dominant position in the global biofuels landscape.
The EU remains the world’s largest market for BBD in terms of both production and consumption. Nevertheless, independent energy research and business intelligence company, Rystad Energy, projects that the U.S. will lead in the production of ethanol, biodiesel and advanced biofuels by 2035, capturing 40% of total global output.
U.S. Environmental Protection Agency (EPA) data indicates that U.S. production of BBD—including biodiesel, renewable diesel, sustainable aviation fuel (SAF), and heating oil—reached 4 billion gallons (approximately 15.14 billion litres) in 2023. This represents a significant increase, with domestic production and use of advanced BBD rising by 1 billion gallons.
This growth was lauded by Clean Fuels Alliance America. “The clean fuels industry achieved what the EPA said could not be done—namely, the continued growth of advanced biodiesel, renewable diesel, SAF, and heating oil from sustainably sourced feedstocks,” remarked Kurt Kovarik, vice president of federal affairs for Clean Fuels. The EPA Renewable Fuel Standards for 2023, 2024, and 2025 allowed for only moderate increases in BBD and non-cellulosic advanced volumes.
According to statistics from the U.S. Energy Information Administration (EIA), fuel ethanol consumption in the U.S. reached 14.2 billion gallons in 2023. This denotes a nearly tenfold increase since 2000, although it remains slightly lower than the record highs observed in 2019 (14.5 billion gallons).
The International Energy Agency (IEA), in its Renewables 2023 report, indicates that emerging economies—particularly Brazil, Indonesia, and India—will be the primary drivers of new biofuel demand. This growth is fuelled by strong biofuel policies, increasing transport fuel demand, and abundant feedstock availability, leading to significant expansions in ethanol and biodiesel usage in these regions. In contrast, growth in advanced economies such as the EU, U.S., Canada and Japan is anticipated to be constrained by the rising adoption of EVs, improvements in vehicle efficiency and the high cost of biofuels.
