On the future prospects and limits of biofuels in Brazil, the US and EU

Abstract

In the early 2000s high expectations existed regarding the potential contribution of biofuels to the reduction of greenhouse gas emissions and substitution of fossil fuels in transport. In recent years sobering judgments prevailed. The major barriers for a further expansion of biofuels are their high costs (compared to fossil fuels), moderate ecological performances, limited feedstocks for biofuel production and their competition with food production.The objective of this paper is to investigate the market prospects of biofuels up to the year 2030. It focuses on the three currently most important regions for biofuels production and use: the US, EU and Brazil which in 2010 accounted together for almost three-quarters of global biofuel supply.Our method of approach is based on a dynamic economic framework considering the major cost components of biofuels and corresponding technological learning with respect to capital costs. Moreover, for the analysis of the competitiveness of biofuels with fossil fuels also taxes are considered.The most important result is that under existing tax policies biofuels are cost-effective today and also for the next decades in the regions investigated. However, their potentials are restricted especially due to limited crops areas, and their environmental performance is currently rather modest.The major final conclusions are: (i) To reveal the real future market value of biofuels, a CO2 based tax system should be implemented for all types of fuels providing a neutral environmental incentive for competition between all types of fossil and renewable fuels; (ii) Moreover, the research and development for all types of biofuels, but especially for second generation biofuels, has to be intensified.