COUNCIL ON FOREIGN RELATIONS

Biofuels are receiving increased attention worldwide. The International Energy Agency projects that global consumption of ethanol and biodiesel will increase nearly fivefold over the next two decades, accounting for four percent of global transportation fuels by 2030, up from one percent today (IEA, 2008). Growth is expected to be even more pronounced in Europe: biofuels consumption is expected to quadruple there even as total oil consumption falls, vaulting biofuels ’ share of the transportation fuels market from one to seven percent. Similar trends are forecast for the United States. These “business as usual ” projections, however, are extremely tentative. They are based on hard-to-make predictions about future commodity prices and, critically, on the assumption that no new policies will be put in place to promote biofuels growth. But the future will almost certainly be different. Concerns about energy security, climate change, and food prices, will yield new policies in Europe and elsewhere, which will in turn change the biofuels landscape. The most bullish pictures see biofuels providing nearly half of the world’s liquid transportation fuels by 2030 (Vattenfall, 2007). Other estimates of a carbon-constrained world are foresee a much smaller role for biofuels, but one that is still substantially greater than in the business as usual case (IEA, 2007; IEA, 2008).2 This paper explores the basic factors and policy decisions that will shape the future of biofuels. It then provides several basic recommendations for policymakers. Crafting the best biofuels strategy possible will require policymakers to carefully balance multiple objectives and to draw on policy tools from beyond the biofuels sphere