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Crop-based biofuels are likely to go out of use

Biofuels could fall out of favour as governments lean towards cleaner sources of energy and hand out less financial support, thinks Capital Economics.
Biofuels that originate from renewable organic matter like corn, sugarcane and plant oils have raised concerns about the diversion of food towards the production of fuel and the carbon emissions that they may generate.

Although many experts argue that the biofuel ethanol is "carbon-neutral" because there is a CO2 reduction from growing the crops that they will later burn, others think that the use of fertilisers and the impact of deforestation still impacts the environment in a negative way.

Because of this, governments are not likely to financially support biofuels in comparison with cleaner energies. Tighter regulations and the removal of the subsidies are likely to affect the industry, Capital Economics said.

The EU has even gone as far as to implement a 'land use tax' to ban crops that will be later used for biofuel production instead of food production and it has it has an intention of banning all crop-based fuels by 2030.

Even though the industry is at the mercy of government policy, in the short term rises in commodity prices still remain the main drivers of biofuel production and demand. Although biofuels can't substitute petrol completely because most of these are blended with petroleum products, the rise in oil prices also increases the demand of ethanol.