Commodities and Products
Biofuels Coming Online:
International Biofuel Use Expands
By Phil Jarrell and
day, the oil used in preparing last night’s dinner might
just be recycled to make biodiesel to run the family
automobile. Once considered too expensive to compete
with petroleum products, biofuels are becoming
economically viable as petroleum prices surge and
technological advances decrease biofuel costs.
The biofuel industry promises not only to reduce U.S.
dependence on imported crude oil, but to create more
demand for U.S. commodities used to make bio-products.
U.S. commodity producers are already selling surpluses
for biofuels as the industry grows.
World Consumption of Crude
2003, transportation worldwide burned up almost
500 billion gallons of crude — 192 billion gallons
of diesel and 307 billion gallons of gasoline.
That same year, the United States used 176 billion
gallons of petroleum, almost double that of the
EU, the next highest consumer at 92 billion
gallons. China, Japan, Canada, Russia, Mexico, and
Brazil rounded out the top consumers of crude oil
for transportation purposes.
United States, biofuel feedstocks range from grease
wastes, animal fats, and soybeans for biodiesel to corn
and sorghum for ethanol. Not far in the future,
dedicated crops may begin to supply the biofuel
industry. However, the development of biofuels is by no
means limited to the United States. A number of other
countries are investing heavily in their biofuel
World Biofuel Snapshots
the United States, ethanol is the primary biofuel in
use. U.S. ethanol production now makes up about 3
percent of U.S. annual gasoline usage. In calendar 2005,
the United States consumed 139.9 billion gallons of
gasoline and 4.04 billion gallons of ethanol. By
comparison, biodiesel consumption made up about 75
million gallons, out of 38.3 billion gallons of the
diesel consumed for transportation.
encourage U.S. biofuel consumption, the Energy Policy
Act of 2005 for the first time established a federal
mandate — called the Renewable Fuel Standard—to require
a certain amount of biofuel consumption. Under the Act,
Congress mandated a 4-billion gallon total for national
biofuel consumption in 2006, with an increase to 7.5
billion gallons by 2012.
While the U.S. biofuel industry has been growing
considerably, biofuels in other countries have been
quite active as well. Similar to the United States, the
EU (European Union) has established a biofuel mandate
for member states, from a voluntary target of 2 percent
of fuel consumption in 2005, up to 5.75 percent in 2010.
While actual use for 2005 was below the target, biofuel
use is still growing considerably in the EU.
In part reflecting the large use of diesel fuel,
biodiesel has been the biofuel of choice in the EU,
comprising 80 percent of EU biofuel use. Biodiesel
production has significantly increased the consumption
of rapeseed within the EU. Although biodiesel currently
dominates in the EU, the increased mandate in EU biofuel
consumption is also likely to cause significant growth
in the production and consumption of ethanol.
Brazil, the world’s biggest producer of ethanol, already
requires a 20-percent blend of ethanol with all gasoline
that is sold (down from 25 percent earlier this year).
Significant government support, including favorable tax
incentives, has helped make ethanol a viable industry in
the country, with production at 4.14 billion gallons in
2005. The recent advent of the flex-fuel vehicle has
turned domestic consumption of ethanol around, and
spurred investments in additional ethanol production.
Apart from its strong domestic growth, Brazil could be a
significant beneficiary of increased biofuel use around
the world, and the country has plentiful arable land for
expanding these crops. The use of baggasse (residue left
after extraction of oil or juice from commodities like
olives, grapes, or sugar cane) to co-generate power for
the sugar/ethanol mills results in lower energy usage in
Brazilian ethanol production, a significant cost savings
helping to make Brazil a major competitor.
Global Drivers of
Enhanced rural development
Can Biofuels Compete?
the world biofuel situation becomes more dynamic, there
are several analytical issues to consider. One key issue
is the long-term competitiveness of biofuels vis-à-vis
petroleum. Most biofuels are currently price-competitive
with petroleum. However, production costs of biofuels
vary, depending on feedstock and other input prices, as
well as the technology used to make the product.
In general, ethanol from corn in the United States and
sugar cane in Brazil–both more established industries –
will likely be cost-competitive with petroleum products
even if petroleum prices fall considerably. Other
biofuel production will likely require sustained
petroleum prices to remain competitive.
Effects on Trade
Another key issue to consider in the biofuel arena is
the impact of increased biofuel usage on the underlying
feedstock. For example, what impact will increased corn
ethanol usage in China have on Chinese corn exports, or
how will EU sugar reforms affect the world ethanol
Another issue is how nonagricultural and
nonpetroleum-producing countries will react to the
availability of biofuels. In these countries (Japan, for
example), some drivers for increased biofuel use are
missing. Nevertheless, if such countries embrace biofuel
use, then trade could play a larger role in filling
their energy needs.
Finally, two ancillary issues regarding biofuels in the
international arena are: 1) How will technological
improvements affect the competitiveness of biofuels,
relative to other fuels, and among countries? 2) What
will be the impact of higher levels of byproducts from
biofuel production on underlying feedstock markets?
Reports by FAS
About 30 countries currently either have active biofuel
programs or will have soon. As the biofuel industry
develops and worldwide consumption increases, FAS will
be including analyses and descriptions of markets for
biofuels and biofuel feedstocks in attaché reports.
These reports will be located on the FAS Web site at:
Included with this overview article in the current
edition of FAS Worldwide is
“Belgium and the Netherlands
Gearing Up for Biofuel Production,” a
description of the Netherlands and Belgium biofuel
industry, and EU plans to increase biofuel use, based on
FAS Report E35235 by the FAS Office of Agricultural
Affairs at The Hague, Netherlands.
For extensive reporting on Brazil’s ethanol dynamics,
FAS Reports BR6002 and
Phil Jarrell is a senior agricultural economist in the
FAS Grain and Feed Division. E-mail:
Mary Rekas is a public affairs specialist in the FAS
Public Affairs Division. E-mail: