Global Energy Perspective 2023: Sustainable fuels outlook

The Global Energy Perspective 2023 models the outlook for demand and supply of energy commodities across a 1.5°C pathway, aligned with the Paris Agreement, and four bottom-up energy transition scenarios. These energy transition scenarios examine outcomes ranging from warming of 1.6°C to 2.9°C by 2100 (scenario descriptions outlined below in sidebar “About the Global Energy Perspective 2023”). These wide-ranging scenarios sketch a range of outcomes based on varying underlying assumptions—for example, about the pace of technological progress and the level of policy enforcement. They are shaped by more than 400 drivers across sectors, technologies, policies, costs, and fuels, and serve as a fact base to inform decision makers on the challenges to be overcome to enable the energy transition. In this article, we dive into the role that sustainable fuels are projected to play in decarbonizing energy systems and what is needed to harness this solution.

Achieving decarbonization targets will require a combination of decarbonization measures. One such measure—sustainable fuels—could help reach those decarbonization targets. Sustainable fuels include conventional biofuels like ethanol or fatty acid methyl ester (FAME) that can be blended until a blend-wall is reached, or more advanced drop-in fuels like hydrotreated vegetable oil (HVO) or synthetic fuels (synfuels) like e-kerosene (see sidebar “Know your sustainable fuels” at the end of the article). These fuels can be used particularly for the hard-to-abate transportation sectors, and could support faster decarbonization of existing fleets in the near term. Sustainable fuels are projected to see significant growth across sectors, and as demand increases, so may the need for investment in capacity projects. Expanding sustainable fuels may require both support for capital recovery and solutions to overcome the potential feedstock bottleneck.

Know your sustainable fuels

Sustainable fuels differ by feedstock, application, and production methods.

Conventional biofuels

Biofuels produced from organic matter, including food crops and organic-residue materials, are typically blended with conventional fossil fuels at low percentages (given the constraints of engines to accommodate fuel with certain properties).

Ethanol is produced through fermentation of plant-based materials. First-generation ethanol uses feedstocks such as corn, while second-generation ethanol is produced from residues such as bagasse, which requires more processing. Ethanol is used primarily in gasoline blends (for example, E10) and additives (for example, ethyl tert-butyl ether), improving fuel characteristics such as octane number and lowering greenhouse gases (GHGs) at a modest cost (for first-generation ethanol).

Fatty acid methyl ester (FAME) is a type of biodiesel derived from renewable sources such as vegetable oils or animal fats. FAME is commonly blended with fossil diesel fuel (such as B7 and B20). Traded products on the market reflect the underlying feedstock: for example, FAME and cooking oil can combine to create used cooking oil methyl ester, or UCOME.

Biomethanol is a type of methanol produced from biomass or renewable feedstocks, such as agricultural residues, woody biomass, or side-stream extracts from pulp mills. It can be used as a fuel in dedicated engines—for example, as a gasoline additive (methyl tert-butyl ether)—or as a feedstock for the production of chemicals.

Biogas is produced through the anaerobic digestion of waste streams such as corn stover, manure, wastewater sludges, or food waste. It is often produced on a small scale, contains roughly two-thirds methane and one-third other gases, and can be combusted to produce electricity and heat. When upgraded to biomethane, it becomes a drop-in fuel and tradable commodity.

Drop-in sustainable fuels

Drop-in sustainable fuels can be produced from edible or residue biomass sources by using low-carbon hydrogen or by synthesizing sustainable captured carbon and low-carbon hydrogen. They are compatible with existing engines and fossil-fuel infrastructure. Drop-in fuels have already been a replacement for diesel, jet fuel (currently, the blend limit is 50 percent), and compressed and liquefied natural gas. In addition to having a positive impact on GHG emissions and a low carbon-intensity score, these fuels typically have lower particulate-matter and nitrogen oxide emissions.

Products currently on the market or expected to go to market soon include renewable diesel (hydrotreated vegetable oil [HVO]) or e-diesel, sustainable aviation fuel (such as HEFA¹, e-SAF, or advanced biofuels from pathways like gasification Fischer Tropsch [FT] or alcohol-to-jet), biomethane and synthetic methane (sustainable natural gas), and sustainable gasoline. These fuels are often traded and blended with conventional fuels in the country of use.

E-fuels or hydrogen-based fuels (non-drop-in)

E-fuels are manufactured using hydrogen from low-carbon electricity sources (such as renewable or nuclear energy) and captured carbon. The production of low-carbon hydrogen through electrolysis based on renewable or nuclear energy can be traded as gaseous hydrogen or liquid hydrogen. When hydrogen is combined with acceptable sources of carbon (such as biogenic carbon² or carbon derived from direct air capture) or nitrogen, it can form e-fuels such as e-methanol or e-ammonia. However, some hydrogen derivatives are not compatible with existing engines and infrastructure.

Sustainable fuels have the potential to play a significant role in decarbonizing the energy sector. They offer a versatile solution that can be used across a wide range of applications, from transportation to industry. However, the landscape of sustainable fuels is complex, with multiple fuel types, technology pathways, and feedstocks to consider. This complexity can make it challenging for customers, governments, and suppliers to fully understand the benefits and challenges of sustainable fuels.

Unlocking future demand, investment, and supply of sustainable fuels will require collaboration between stakeholders. In particular, given the long-term payback periods typical for sustainable fuels projects, clarity in regulation could help to enable investment decisions. Through collaborative efforts, a low-carbon future could be established that benefits both the environment and the economy as the demand for sustainable transportation continues to increase.

To request access to the data and analytics related to our Sustainable fuels outlook, or to speak to our team, please contact us.

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