5/19/2004 - Recent policy initiatives designed to promote biofuels couldresult in a displacement of 5% of the world's gasoline demand by 2010,according to a new study by the International Energy Agency (IEA).

"In the absence of strong government policies, we project that theworldwide use of oil in transport will nearly double between 2000 and2030, leading to a similar increase in greenhouse gas emissions," saidClaude Mandil, executive director of IEA.

But IEA's study, Biofuels for Transport: An International Perspective,outlined how ethanol, biodiesel and other biomass-related fuels can helpchange that picture. "If historical trends were to continue, annual growthrates [for biomass-related fuels] in the future would be about 7% forEurope, 2.5% for North America and Brazil and 2.3% for the whole world,"the study said, with an increase from about 30 billion liters in 2003 toover 40 billion liters by 2020.

But policy initiatives including a proposed renewable fuels standard inthe U.S., the non-binding biofuels directive in the European Union and theyet-to-be ratified Kyoto Protocol all will act as drivers to promotebiofuels over the next decade, the study said. Implementing theseinitiatives would quadruple world biomass-related fuel production to over120 billion liters by 2020, the study noted.

But cost still remains a major impediment to bringing biofuels to the massmarket, the study noted. "In IEA countries [such as the U.S., U.K. andAustralia], liquid biofuels production costs currently are high--up tothree times the cost of petroleum fuels," the study said. "But concludingthat biofuels are 'expensive' ignores the substantial non- market benefitsand the fact that these benefits are increasing, as new, moreenvironment-friendly production techniques are developed," the study said.

In other words, countries shouldn't discount "difficult-to-quantifybenefits," such as how it helps displace oil demand, reduce greenhouse gasemissions and give air quality benefits, the study said. However, the costdifferential is coming down in countries such as India and Brazil, whichboth use sugar to produce ethanol, IEA said. In "Brazil, feedstock yieldsof sugar cane per hectare are relatively high; efficient co- generationfacilities producing both ethanol and electricity have been developed; andlabor costs are relatively low. Thus, the cost of producing ethanol fromsugarcane is now very close to the (Brazilian) cost of gasoline on avolumetric basis and is becoming close on an energy basis. The economicsin other developing countries, such as India, are also becomingincreasingly favorable," the study said.

To further promote biofuels, IEA recommended a global biofuel tradingregime, since "production costs of sugarcane ethanol in Brazil are muchlower than grain ethanol in IEA countries," it said. "These costdifferences create opportunities for biofuels trade that wouldsubstantially lower their cost and increase their supply in IEA countriesand would encourage development of a new export industry in developingcountries." Therefore, "since both greenhouse gas emissions and oil importdependence are essentially global problems, it makes sense to look atthese problems from an international perspective," IEA added.