Excerpt from the Wall Street Journal, July 14
Global production of biofuels has surged over the past decade or so, with annual production climbing from approximately 10 billion liters in 2000 to nearly 80 billion liters in 2012. Much of this growth is being driven by governments’ increasing focus on alternate fuel sources in an effort to reduce the countries’ reliance on foreign oil. Demand for biofuels has been particularly strong to date in the U.S., the European Union and Latin America, and has accelerated markedly recently in China and India.
Biofuel production is led by the production of so-called first-generation biofuels, which are derived from crops that can also be used as food or feedstock. Bioethanol, which is made from biomass (including sugar cane, sugar beets, maize and wheat), accounts for approximately 70% of first-generation biofuel production. Biodiesel, which is made from vegetable oils (primarily rapeseed, soybean and palm oils), accounts for approximately 30%.
Although first-generation biofuels have been hailed as a viable alternative fuel source, their production has met some controversy, particularly regarding the effects on the food and feed markets. Concerns about the effects of first-generation production on food prices, specifically, were particularly high in 2007, when grain prices reached an all-time peak. Those concerns have persisted, particularly with regard to the potential food-price effects of first-generation biofuel production on developing countries. Concerns have also been raised about the impact of first-generation production on land use and food security.
In response to these concerns, governments and companies have begun to push the development of second- and third-generation biofuels, which are derived from resources (including waste biomass, certain vegetable oils, animal fats, lignocellulose and algae) that cannot be used alternatively as food. The European Union, for example, is trying to promote development by establishing a 7% blending cap for first-generation biofuels and a 0.5% blending target for second-generation biofuels in 2020. Second- and third-generation biofuels are not fully price competitive with first-generation biofuels today, although some (mainly lignocellulosic bioethanol and some advanced biodiesels) are expected to become competitive within the 2020 to 2030 span.