Good morning ladies and gentlemen, It is my pleasure to speak ... - IEA

Good morning ladies and gentlemen,
It is my pleasure to speak to you today here in Rotterdam, at this important conference for the
biofuel sector.
At the IEA we track and evaluate all aspects of the global energy economy which can have an impact
on energy security. And we look closely through our scenario analysis and other work at the
technologies needed to provide energy securely into the future. We carefully analyse the
contribution that biofuels make to world liquid fuel supplies in the current market – for example
within our Medium Term Oil Market Report. We also look to the long-term future of the energy
sector and one of our series of technology roadmaps focuses on Biofuels for Transport.
So in my talk today I would like to focus on four main issues:
1. Why do we think biofuels are important now and into the future?
2. How is the current market evolving?
3. What do we see as the major challenges for the sector?
4. How can these challenges be best addressed?
So why do we think biofuels are important?
Our long-term energy scenario analysis within our Energy Technology Perspectives publication shows
that we are currently on a very unsustainable track in terms of global energy-related CO 2 emissions.
In a business-as-usual scenario, we would see emissions rise to 58 billion tonnes by 2050 – almost
twice the current level.
The transport sector has also been growing rapidly, along with the associated CO 2 emissions. As you
can see in the figure we expect this trend to continue and transport-realted CO 2 emissions could
account for one-fourth of all energy-related emissions in 2050 under our business-as-usual Baseline
Scenario. So it is obvious that we need to change the current trajectory. But the challenge is that the
transport sector is one of the most difficult to decarbonise.
In our ambitious low-carbon scenario, we see that some 9 billion tonnes of CO 2 equivalent could be
avoided by 2050 compared with the baseline emissions trajectory. Much of these savings can be
achieved with improvements to vehicle energy efficiency and fuel switching. However there will be
some transport sectors in which it is difficult to find low-carbon fuel alternatives. This is in particular
the case for long-haul transport by air, sea and road, where liquid fuels will remain dominant for the
time being. This is where we see the important role for sustainable biofuels, which could potentially
provide up to 27% of road-transport fuel by 2050 with associated savings of 2.1 billion tonnes of CO 2 .
Our Technology Roadmap on Biofuels for Transport shows how this transition might be achieved.
You can see – highlighted in purple – that the demand for biofuels used in long-haul transport like
bio-kerosene and other advanced biodiesel fuels is growing strongly over time.
In order to achieve the required emissions reduction in the transport sector there needs to be a
gradual shift towards new technologies based on feedstocks and processes that are the most
efficient in terms of emission reductions and land-use. This includes enzymatic conversion of

iomass to ethanol and butanol, thermo-chemical processes which can convert cellulosic feedstocks
into high-value synthetic biofuels, as well as novel routes based on algae and bacteria.
But 2050 is a long time horizon, and it is important to look at the current developments to highlight
what challenges need to be overcome in the short term to pave the way towards a long-term change
in trajectory. So what is happening in the sector at present?
The sector has been expanding rapidly over the last decade. The growth has been strongest in Brazil,
the United States and in the European Union, but over 50 countries now have adopted policies
designed to promote biofuels use. The policies have been put in place for three main reasons –
energy security, emissions reductions and rural economic development. The latter has been an
important motivation for biofuel policies in the United States, as well as in Europe and is also a very
important driver for biofuel development in many developing countries.
In 2012 global biofuel production was about 1.9 million barrels per day, or 110 billion litres per year.
Biofuels accounted for 3% of world road transport fuels, and met 1.5% of world oil supply on an
energy adjusted basis.
This may not sound like a large contribution, but it is actually equivalent to UK crude oil production
(1.2 mb/d of world crude production). And so biofuels already make an important contribution at
the margin to world oil markets.
But the impressive growth of the sector over the last decade has stalled in the last two years. This
shows that the industry is facing challenges, and many of you here will have experienced this in
everyday business.
So what are these challenges?
The ethanol sector in Brazil, which has long time been a rapidly growing sector, has been facing
some challenges in the last two years. High sugar prices made ethanol production unprofitable, and
let many producers favour sugar over ethanol production. Financial difficulties in the sector had an
impact on establishment of new sugarcane fields and replanting of aging cane, and yields went
down. But the situation is improving now, and we expect production levels to increase in the coming
year.
There is one specific aspect in the Brazilian market, however, that made it particularly difficult for
ethanol to compete with gasoline. It is the fact that the government regulates the gasoline price to
control inflation. You can see in the figure that despite rather volatile oil prices in the last years, the
gasoline retail price in Brazil has been almost unchanged. So when biofuels are criticised for being
too expensive and economically not viable, it is important to take a closer look at the situation and
assess if there is a level playing field.
But the situation in Brazil is not the only reason why global biofuel production has stalled recently. In
the United States we saw that a severe drought last summer reduced the corn crop and led to a
significant increase in corn prices. As you can see in the figure, this rise in corn prices coincides with
a drop in ethanol production. The reason is that many producers were struggling to maintain
positive profit margins, and therefore decided to reduce production or temporary idle plants.

In a similar way, producers in the European Union have been struggling with high vegetable oil and
grain prices, and have often been operating on very small or even negative margins.
This shows that further improvement is needed to make conversion processes more efficient, and
improve the link between feedstock prices and economics of production.
But economics of production are not the only challenge the sector needs to deal with. The overall
sustainability of biofuels – which covers many environmental, social and economic issues – also
remains a controversial topic.
For example the world faces increasing water shortages. The World Energy Outlook of 2012
highlighted that water scarcity will increasingly determine our energy management and that some
biofuel production is still too water-intensive, and a move towards crops which do not need
irrigation will be essential.
Another key issue for policy makers is that of land-use competition – with new impetus to the “food
versus fuel” discussion after the high corn prices in the United States, and many people have
questioned the role of biofuels on agricultural commodity prices. In fact an analysis shows that there
are many factors other than biofuels production which influence food prices – weather patterns are
one clear such factor. One of the strongest correlations is between energy prices and food prices.
But in times of tight supply producing biofuels may play a role, too.
Now all these issues are leading policy makers be cautious about continuing support for biofuels.
While the science and analysis of many issues is continuing, we see that biofuel policies are coming
more and more under review. The most recent example is the draft proposal of the European
Commission to limit the share of conventional biofuels to 5% of total transport fuel by 2020. Even
though this is just a proposal, it shows that the requirements for the biofuel sector are changing.
How can these impacts be mitigated or avoided?
Moving to using wastes and residues produced in synergy with food crops is clearly one way.
Another way is to provide biofuel feedstock by increasing productivity – so producing more from the
same amount of land. One interesting approach being successfully adopted Brazil is to constrain
areas where sugarcane can be grown. By increasing the intensity of cattle production, land can be
made available for additional sugarcane planting, so overall productivity increases without
decreasing food production. There is much scope for such improved land-management practices.
So what is the way forward? We suggest there are two main priorities.
The first is the need for clear and internationally agreed sustainability indicators and certification
schemes for biofuels. Good progress is being made on this front. The IEA has been an active
member of the Global Bioenergy Partnership (GBEP), for instance. And we are happy to see that the
indicators developed by the GBEP are currently being tested in a number of case studies in both
producing and consuming countries.
The certification required for instance under the EU Renewable Energy Directive is also a positive
step forward to establish a market for sustainable biofuels. The next step is now to ensure that the

certification schemes are aligned internationally, so they do not act as trade barriers, and then policy
makers and industry should know where they stand.
The second key step forward needs to be the transition to the most efficient processes in terms of
carbon savings. Focussing production on wastes and residues, ensuring production is as efficient as
possible and deploying the advanced biofuels technologies are highlighted in the IEA’s Biofuel
Roadmap.
The good news is that we see that the demonstration and first commercial-scale advanced biofuel
plants are now coming online, particularly in the United States and in Europe but in China too.
And you can see in the figure that a number of projects are currently under construction and an
even bigger number are planned.
The bad news is that progress in deploying these technologies has been at a much slower pace than
many had anticipated and than what would be needed to keep on track with our roadmap
aspirations. Many potential producers have found it difficult to secure the capital that they need in
order to invest in commercial plants. But these large-scale plants are needed to demonstrate largescale
production and to reach an economy of scale that will lead to cost reductions.
Governments have been actively helping this process through support for R&D and with help at the
demonstration stage – for example the United States has provided support in the form of loan
guarantees. However the current policy mechanisms have not yet successfully mitigated the
investment risks related to these first-of-their-kind production units. Continued support for R&D,
and possibly some additional support measures, will therefore be needed to get through the “valley
of death” in order to help the technologies to enter commercial production. If this does not happen,
it will be very difficult to reach the penetration level that we think is needed to move towards a lowcarbon
energy sector.
So let me conclude the presentation by summarising the key messages of my talk:
Biofuels have an important role to play as an essential part of a decarbonised transport sector in
the future.
Biofuels are already an important part of our energy mix today, and continue to make an increasing
contribution to the world’s transport fuel supply.
This growth can not be taken for granted, however.
In order to ensure the long-term future of the sector, sustainability needs to be pre-requisite for
production.
The sustainability challenges the biofuel sector is facing can be tackled through the adoption of
internationally agreed sustainability schemes.
And, finally, advanced biofuels have a key role to play in decarbonising the transport sector. But
continued and stronger support measures by governments will be needed to enable investments in
these technologies.