Biodiesel’s appeal is that nearly all diesel vehicle engines are compatible with blends of up to 20 percent biodiesel, and blends higher than that and even pure biodiesel (B100) can be used in engines built since 1994 with little or no modification. The fuel is most commonly made from vegetable oil, jatropha or alternatives such as algae.
As the amount of biodiesel blended into diesel fuel increases, emissions of unburned hydrocarbons, carbon monoxide, sulfates, polycyclic aromatic hydrocarbons, nitrated polycyclic aromatic hydrocarbons, and particulate matter decrease substantially. However, B100 is not suitable for use in cold engines (engines first have to be heated by conventional fuels in cold weather), and special management is needed to transport and store B100.
The biofuels industry in North America is already booming, due to government support and environmental concerns. Recent research by global growth consultancy Frost & Sullivan, estimates that the industry will continue to grow at a rate of between 20 and 22 per cent per annum for the next few years. Frost & Sullivan also finds that there is significant potential for biofuels in Europe, Latin America, India, the Asia Pacific region and sub-Saharan Africa.
Europe’s desire to be less dependent on oil imports has revived interest in alternative fuels. This need to be self sufficient has also induced encouraging legislation from individual EU member state governments for the biodiesel market.
This interest is also backed by demands for cleaner fuels. The EU's commitment to achieve a reduction in CO2 emissions by 8.0 percent between 2008 and 2012 has resulted in the setting a target of 5.75 percent biofuels of all transportation fuel by December 2010. This will make the EU the largest market for biofuels in the world.
“The biodiesel market has enjoyed excellent European Commission support by way of the Kyoto agreement and Directives 2003/30/EC and 2003/96/EC, which specifically seek to promote biofuels and establish indicative targets for their use in the transport industry,” notes Frost & Sullivan Industry Analyst Robert Outram.
These regulations are expected to encourage biofuel use and make them cost competitive with mineral fuels. Encouraged by the EU legislation, individual member states have implemented their own incentives such as tax relief, renewable transport fuel obligations and blending mandates.
Such helpful mandates are however expected to contribute to escalating feedstock prices. Since the production of vegetable oil in Western Europe has touched full capacity and has remained constant over the past decade (at between 11 and 12 million tonnes), the intensely competitive biodiesel market is hard pressed to procure feedstock at competitive prices. Even with the new EU member states contributing an additional 1 million tonnes, approximately 9.5 million tonnes of biodiesel will be required to meet EU Directives that aim to make biodiesel account for 5.75 percent of all transport fuels.
“Assuming a 1:1 conversion of vegetable oil to biodiesel by volume, over 80 percent of all the vegetable oil currently produced in Europe would be required for the biodiesel market,” observes Outram.
Latin America’s biodiesel market is much smaller, but is witnessing rapid growth as a potential supplier to the European market. New biodiesel capacities are being installed, domestic consumption is steadily emerging and the export market further enhances future attractiveness.
Analysis from Frost & Sullivan finds that consumption that was virtually negligible across the region in 2004 is likely to reach 1.2 million tonnes by the end of 2007 and 8 million tones by 2013. China, Australia, Indonesia and the Philippines will be the largest markets.
