Biofuel's Time of Transition

TitleBiofuel's Time of Transition
Publication TypeReport
Year of Publication2008
AuthorsKammen DM, O'Hare M, Lemoine D
Pagination14-15
Date Published10/2008
InstitutionAccenture
Keywordsbiofuels, land-use change
Abstract

As it turned out, 2007 was a tough year for biofuels development, slowing even more quickly than we expected due to:

• Excess and stranded capacity in the United States, Europe and Brazil. For example, the estimated idle capacity in 2007 was approximately 20 percent in the United States and approximately 30 percent in Germany.
• High and volatile feedstock prices. Corn went from an average of $2.60/bushel in 2006 to an average of $3.75/bushel in 2007 (a 44 percent increase); soy went from $6/bushel in 2006 to $12/bushel in 2007 (a 100 percent increase).
• Low product prices. Ethanol spot prices went from a high of $4/gallon in 2006 to an average of $2/gallon in 2007.

It also looked as though the European Union (EU) governments and the public were beginning to wonder whether biofuels would do more harm than good as evidenced by articles such as: The End of Cheap Food” (The Economist, December 6, 2007). “Biofuels: Crime Against Humanity” (BBC News, October 27, 2007).

But a “bust” is expected as any industry moves beyond start-up and faces the challenge of scaling. The reality has already started to set in: Biofuels won’t solve all of our energy problems, but they won’t cause world hunger either. They have a role to play in our energy portfolio. Biofuels are a signpost of the future diversity that we expect in transport fuels, and they can be produced sustainably or unsustainably. It is the role of regulators to ensure that the incentive system around biofuels drives sustainable production and the use of feedstocks and processes that produce a net greenhouse gas (GHG) reduction.
Despite the challenges of 2007, biofuels production will probably exceed the International Energy Agency predictions of 120 billion liters of ethanol and 23 billion liters of biodiesel before 2020. By mid-2007, ethanol capacity stood at 48.1 billion liters, with another 100.6 billion liters financed, announced or permitted. Figures for biodiesel showed commissioned capacity at 11.9 billion liters with another 68.9 billion liters financed, announced or permitted. That means that ethanol capacity at all stages by mid-2007 was equal to 148.7 billion liters and biodiesel capacity at all stages was 80.8 billion liters. Although we do not expect all of the announced capacity to be built in the next two or three years, production continues to grow significantly.4 For example, 2007 US ethanol production was up 25 percent to 25 billion liters and biodiesel production was up more than 100 percent to 1.7 billion liters.
Our earlier biofuels research gave us a foundation for understanding the supply side of the market, namely feedstocks, markets and producers and how these elements could influence the development of biofuels.

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