A Bright Future for Ethanol

By Robert Vierhout | September 12, 2011

Each year a report called the Biofuels Barometer is published that tells how much biofuel in the European Union was consumed in the past year. This year’s report (available at http://www.eurobserv-er.org/downloads.asp) gives an interesting picture of how biofuels are doing in Europe, reporting a trend that could very well continue until 2020.

As in previous years, we saw a double-digit growth in biofuel consumption in 2010, though the growth curve is getting less steep due to a slowing of growth in biodiesel use. Unlike biodiesel which was up 11 percent, ethanol for fuel increased by a strong 26 percent. Why this difference in growth rate and what will the future bring?

First, the main reason ethanol is growing strongly is that compared to biodiesel, ethanol made a slow start. Years ago, Germany strongly promoted the use of biodiesel financially and, as a consequence, production capacity and consumption strongly increased in tandem. Ethanol never had favorable treatment like biodiesel and, as a result, the build out of both production capacity and consumption was a far more gradual process. A couple of years ago, however, Germany gradually started reducing biodiesel support dampening its growth. Thanks to increasing year-on-year government targets, biodiesel consumption did not shrink.

A second important reason is that biodiesel use is limited to 7 percent by volume. A dedicated B100 fleet does exist, but without tax support that market is not sustainable. Ethanol, on the other hand, has an upper limit of 10 percent by volume. The introduction of E10 in some countries, combined with E85, gives ethanol a better growth perspective.

Basically, this explains the difference in growth curves in both biofuels, which most likely will continue in the next decade. Notwithstanding that the diesel fuel market is much bigger than the gasoline market and that there is a shortage on diesel that makes biodiesel an attractive biofuel, it is not likely that biodiesel consumption will have a similar, steep growth pattern as ethanol.

The market potential for biodiesel is beyond question. A large trucking fleet, a growing fleet of passenger cars, maritime use, jet fuel—it all looks good for biodiesel. The problem is not the market; the problem is the availability of economical agricultural raw material. This is where ethanol beats biodiesel. Within the EU, crops for biodiesel are limited in variety, quantity and yield performance. Where ethanol producers can rely on an abundance of cereals and sugary crops with high yields, biodiesel producers will be forced to source crops outside the EU. Obviously, it will be soy and, much more likely, palm oil. The weakness, or to put it differently, the political risks, of those crops is their lack of sustainability. A possible way out of this dilemma would be more use of animal fat, used cooking oil, HVO (hydro-treated vegetable oil), BtL (biomass to liquid) and maybe, one day, algae. But so far, the last two belong in the wishful thinking category, and HVO is developing poorly.

This feedstock problem, combined with the unwillingness of car producers to allow more than 7 percent of biodiesel in fossil fuel, could well create opportunities for ethanol. Fewer sustainability risks, higher production potential and a much better perspective on delivering second generation, cellulosic biofuel all contribute to a brighter future for ethanol.

There is little doubt that biodiesel will stay the preferred biofuel in the EU in terms of tonnage. The current 75/25 ratio we have will not change dramatically over the immediate years to come. But it is also clear that the challenge for biodiesel to keep up with demand will be much more of a challenge than for ethanol. Knowing the sensitivity around sustainability, the outcome of the indirect land use change debate could well become a watershed in the EU preference for biofuel.

Author: Robert Vierhout
Secretary-general, ePURE
Vierhout@epure.org