Biofuels Explained: What They Are and How They Affect the Environment

This explainer provides an introductory overview of biofuels, how they are produced, their climate impacts, related fuel policies, and the main economic challenges discussed in policy debates.

Key Points

• Biofuels are widely used today, especially in road transport, and are beginning to play a role in aviation, where low-carbon liquid fuel alternatives remain limited.
• Biofuels can reduce net greenhouse gas emissions compared with petroleum fuels because they recycle carbon recently absorbed by biomass.
• However, their climate benefits depend on feedstock choices, production practices, land-use impacts, and the fuels they replace.
• U.S. biofuel policy includes a mix of volume mandates, emissions-based standards, and tax credits.
• These policies influence how much biofuel is produced, which types are produced, and how biofuels are allocated across regions and sectors.
• Estimating net carbon benefits requires life-cycle analysis, which depends on detailed modeling choices that remain the subject of debate.
• Scaling advanced biofuels based on less land-intensive feedstocks remains a major policy challenge.

Introduction

Biofuels are fuels made from biological materials such as crops, used oils, and agricultural residues. They can reduce net greenhouse gas emissions compared with petroleum fuels because they recycle carbon recently absorbed by biomass. Biofuels attract policy interest because they can help address several energy and environmental challenges.

They provide one of the few near-term options for reducing emissions in sectors that are difficult to electrify, such as aviation, shipping, and long-distance trucking. They can also strengthen energy security by reducing reliance on petroleum fuels, especially when oil prices are volatile or when geopolitical disruptions affect fossil fuel supplies. In addition, biofuels can support rural economies by creating new markets for agricultural and forestry products.

Biofuel production also raises important considerations. Whether and how much a biofuel reduces emissions depends on how feedstocks are grown, emissions from processing and transport, and the effects of higher feedstock demand on land use. The wider impacts also depend on where biofuels are used and which fuels they replace.

Main Types of Biofuels

Most biofuels consumed in the United States today are used in road transport, while aviation remains a smaller but growing market. Key commercial biofuels include:

• Ethanol: The most widely used biofuel, usually produced from starch- and sugar-rich crops such as corn and sugarcane. It is blended into almost all gasoline sold in the United States, commonly at 10% by volume.
• Biodiesel: Made from fats and oils such as vegetable oils, animal fats, and recycled cooking oil. It is commonly blended with petroleum diesel at levels such as B5 or B20 and can be used in most modern diesel engines.
• Renewable diesel: Also made from fats and oils, but chemically similar to petroleum diesel. It can fully replace diesel fuel in existing engines and fuel systems, and its use has grown rapidly in recent years.
• Sustainable aviation fuel: SAF refers to alternatives to conventional jet fuel that can be produced from oils, fats, alcohols, and other biomass sources. When blended with conventional jet fuel, it can be used in existing aircraft and fueling systems.

Biofuel Production

Different biofuels can be produced from a wide range of feedstocks and processes. In the United States, most ethanol is produced from corn, while most biodiesel and renewable diesel are produced from vegetable oils. Fuels derived from non-food feedstocks such as agricultural residues, woody biomass, and waste oils have seen more limited deployment. In policy discussions, these are often referred to as advanced biofuels because they aim to address some concerns linked to crop-based biofuels.

The United States is the world’s largest biofuel producer and a major exporter. Brazil is the second-largest producer. Both countries benefit from large-scale domestic feedstock production, processing expertise, and supportive policies. Other important producers include Indonesia, China, India, Thailand, Germany, the Netherlands, France, and Spain.

Measuring Climate Impact

Like fossil fuels, biofuels release carbon dioxide when burned. However, part of these emissions can be offset elsewhere in the fuel life cycle. Crop-based feedstocks absorb carbon dioxide as they grow, while fuels made from residues or waste can avoid emissions that would have occurred if those materials were left to decompose.

Assessing biofuel emissions therefore requires looking at the full fuel life cycle, not combustion alone. This is commonly summarized using carbon intensity, which estimates net greenhouse gas emissions per unit of energy. Many biofuel policies link incentives to carbon intensity compared with conventional petroleum fuels.

Biofuel Policy

In the United States, federal and state policies encourage biofuel production through volume mandates, emissions-based performance standards, and tax credits. These policies shape how biofuels are produced, traded, and used across sectors.

Key examples include the Renewable Fuel Standard, state-level low-carbon fuel standards, and the Clean Fuel Production Credit. Together, these policies affect demand for different biofuel types and influence investment decisions across the fuel supply chain.

Main Policy Debates

Biofuels remain part of several economic and policy debates. One issue is how to measure carbon intensity accurately, since different modeling assumptions can lead to different estimates. Another issue is indirect land-use change, where higher demand for biofuel feedstocks may encourage agricultural expansion and reduce some climate benefits.

The food-versus-fuel debate is also important, as diverting crops or land to fuel production can affect food prices. Finally, the expansion of advanced biofuels remains difficult because of high costs, technology challenges, and policy uncertainty.

Source: Resources for the Future

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