Biofuels and SAFs Gain Ground Amid Decarbonization Push

The energy sector, responsible for 73% of global greenhouse gas emissions, must quickly find cleaner alternatives to meet global climate goals. While renewable energy sources are transforming energy production, the transport sector, especially aviation, remains one of the most difficult to decarbonize. Sustainable Aviation Fuels (SAF) and biofuels are emerging as a viable solution, offering low-carbon alternatives to traditional fossil fuels.

However, their deployment is not without challenges, ranging from production scalability to environmental cost-benefit ratio.

The Rise of Biofuels: A Partial Answer to Fossil Fuel Dependence

Biofuels are renewable fuels derived from biological materials such as plants, algae or waste. The most common are bioethanol, biodiesel, hydrotreated vegetable oil (HVO) and sustainable aviation fuel (SAF).

According to the International Energy Agency (IEA), biofuels accounted for more than 3.5% of global transport energy demand in 2022, and have the potential to account for up to 27% of global needs by 2050. A key advantage is their flexibility: they can be blended with conventional fuels without requiring major changes to existing infrastructure or engines.

However, biofuel production raises many questions about land use, food security and deforestation, especially when it comes to biofuels derived from raw materials such as palm oil or soy. So-called first-generation biofuels, derived from food crops, are particularly controversial because of their competition with agriculture for land use and natural resources.

Sustainable aviation fuel: a key pillar for zero-emission aviation

Aviation remains one of the most difficult sectors to decarbonize due to the high energy density required for long-haul flights. Although solutions such as electrification and the use of hydrogen as a fuel are being explored, these technologies are still far from large-scale application.

SAFs offer an immediate alternative to reduce aviation emissions with the potential to reduce emissions by up to 80% compared to traditional fuels. Most importantly, SAFs are “drop-in” fuels, meaning they can be retrofitted into existing aircraft without the need for modifications. While promising, SAFs still face a number of challenges:

High production costs: SAFs are more expensive than traditional fuel, making them difficult to adopt on a large scale without incentives or subsidies.

Limited supply: Current production levels are insufficient to meet aviation demand. In 2022, SAF accounted for only 0.1% of global aviation fuel consumption.

Regulatory Uncertainty: While approvals for SAF use are increasing, regulatory frameworks vary significantly from region to region, creating uncertainty for investors and producers.

The investment case for biofuels and SAF

As the energy transition accelerates to reduce dependence on fossil fuels, biofuels and SAFs represent a rapidly growing investment opportunity.

The sector is supported by increasingly stringent regulations, corporate commitments to decarbonization, and technological advances that improve efficiency and scalability. Biofuel production is expanding rapidly, with adoption increasing in road transport, aviation, and even shipping. Government incentives, such as the EU’s “Fit for 55” package and the “Inflation Reduction” Act in the United States, are further supporting investment in the sector.

However, investors face significant challenges:

Sustainability of feedstocks: Ensuring that biofuels are sourced from sustainable, non-food feedstocks will be key to avoiding negative environmental and social impacts.

Market Volatility: Biofuel prices are influenced by fluctuations in agricultural commodity markets, which creates price uncertainty.

Infrastructure adaptation: Increasing SAF production requires investment in new refining infrastructure, which could take years to develop.

Looking Ahead: Towards Scalable Adoption

The transition to SAF and biofuels is not easy. While they represent a crucial step towards zero-emission transport, their long-term sustainability depends on technological innovation, targeted regulations and investments in sustainable raw materials.

For investors, biofuels and SAFs offer both risks and opportunities. Those willing to navigate the complexities of the sector can find compelling growth potential, fueled by the global push for decarbonization and the search for low-carbon alternatives.

With governments, companies and financial markets aligned on the energy transition, biofuels and SAFs are set to play a key role. The real challenge will now be to foster their adoption while ensuring their sustainability credentials.

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(Featured image by Documerica via Unsplash)

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