UC Davis Institute of Transportation Studies

The recently heightened attention to US petroleum consumption and the associated environmental and economic impacts has resulted in a resurgent interest in biofuels as an alternative source of energy for transportation. The production and use of biofuels for transportation is not a new idea and in fact has been around as long as we have had cars. The difference today is a combination of factors – economic, environmental, technical, and political – that have combined to create an atmosphere in which biofuels are viewed as having the potential to replace a significant percentage of our transportation energy needs. This paper is an attempt to understand the most significant factors that have contributed to this situation and to use that understanding to provide insight about the impact of future policies and business decisions on the market.

The transportation biofuels market in the US has grown substantially in the last few years with sales reaching almost 4 billion gallons in 2005, up from 2 billion in 2002. Sales are expected to exceed 5 billion in 2007 (see Figure 1) with an additional 6.2 billion gallons capacity under construction over the next several years.

The recent growth in the market in the US is driven almost entirely by the use of ethanol as a blending agent for gasoline to increase octane and as an “oxygenate” for cleaner combustion. Ethanol can be blended into gasoline up to concentrations of 10% without any modification of the vehicle or retail infrastructure required. The use of ethanol in concentrations greater than this, which would currently require either a dedicated alcohol or “flex-fuel” vehicles (FFV)and capable retail fuel dispensers, has been minimal. In this sense, the current demand for biofuels as a true ‘alternative fuel’ is nearly non-existent. It will be one of the key points within this paper to make the distinction between biofuels as a blend vs. biofuels as an alternative fuel.