Every August 10, the world pauses—at least in energy policy circles—to reflect on an unlikely hero of the clean energy transition: Biofuels. World Biofuel Day honors Sir Rudolf Diesel, who in 1893 ran his first engine on peanut oil. What was then an engineering curiosity is now a multi-billion-dollar global market sitting at the intersection of climate action, energy security, and rural economic development. However in 2025, the annual observance comes with a twist: Biofuels are no longer the fringe alternative fuel they were a decade ago. They are central to national strategies from Washington to New Delhi, seen as both an insurance policy against oil price volatility and a pathway toward net-zero commitments. While the road ahead is full of engineering, economic, and environmental potholes, momentum is undeniable.

Biofuels are, at their simplest, energy carriers derived from organic matter—either plant-based, such as ethanol from sugarcane, corn, and wheat, or waste-derived, such as biodiesel from used cooking oil, animal fats, and crop residues. The earliest large-scale applications—now called first-generation biofuels—were ethanol from corn and sugarcane, and biodiesel from soybeans and palm oil.

In climate terms, they delivered some wins: studies showed first-gen ethanol could reduce lifecycle greenhouse gas (GHG) emissions by 40 per cent – 60 per cent compared with fossil gasoline. But they also sparked intense criticism. Food-versus-fuel debates flared when large swaths of farmland shifted from producing food to producing energy crops. Land-use changes, particularly in tropical regions, sometimes erased climate gains through deforestation and habitat loss.

The pushback catalyzed innovation. Second- and third-generation biofuels emerged, tapping feedstocks like agricultural residues, municipal waste, algae, and non-food crops grown on marginal lands. These advanced fuels not only sidestep food security concerns but, when done right, slash lifecycle emissions by as much as 90 per cent –100 per cent. Technologies such as cellulosic ethanol and sustainable aviation fuel (SAF) have moved from lab pilots to early commercial deployment.

The Market Heats Up
The numbers tell the story. The global biofuels market, valued at around $100 billion in 2023, is projected to more than double by 2030, according to multiple industry reports. Production reached roughly 144 billion liters last year, with ethanol and biodiesel still dominant but SAF growing rapidly.

North America and Brazil remain production powerhouses, but India has quietly emerged as a top-five player, holding more than 13 per cent of the global market share. In policy terms, India’s ambitions are striking: the government aims to achieve 20 per cent ethanol blending in petrol by 2025–26, up from under 5 per cent in 2014.

The aviation sector is a new frontier. SAF—chemically similar to jet fuel but made from renewable feedstocks—Can cut emissions by up to 80 per cent without requiring changes to aircraft engines or airport fueling systems. The challenge is cost. SAF currently sells at two to four times the price of conventional jet fuel. However, with airlines under pressure to decarbonize and governments offering incentives, SAF production capacity is expected to quadruple by 2030.

Policy Engines Driving the Shift
If technology is the engine, policy is the fuel. Without government mandates and subsidies, biofuels would likely still be a niche play.

At the global level, the Global Biofuels Alliance—launched at the 2023 G20 summit in New Delhi—has brought together major producers and consumers, including the U.S., Brazil, and India, to standardize sustainability criteria, share technology, and coordinate policy frameworks.

Domestically, India’s ethanol blending program has been supercharged through price guarantees for suppliers, restrictions on sugar exports to divert molasses to ethanol, and financing support for distilleries. State governments are getting creative too: Bihar’s Biofuels Production Promotion Policy offers incentives for ethanol and compressed bio-gas plants, aiming to transform agricultural waste into rural income. In Karnataka, partnerships with German universities are accelerating research on biodiesel and biogas.

In the U.S., the Renewable Fuel Standard (RFS) continues to set blending mandates for ethanol and biodiesel, while new tax credits under the Inflation Reduction Act target SAF producers. The EU, meanwhile, is tightening sustainability criteria for imported biofuels to avoid indirect land-use change impacts.

Strategic Stakes: More Than Climate
For all the talk about carbon reduction, the realpolitik appeal of biofuels lies in energy security. Reducing oil import dependence is a strategic priority for countries vulnerable to price shocks. In India, higher ethanol demand has boosted corn and sugarcane prices, funneling income into rural economies while trimming crude oil import bills.

Biofuels also function as trade levers. Indonesia’s decision to raise its palm oil biodiesel mandate to 40 per cent reverberated through global commodity markets, tightening vegetable oil supplies and pushing up prices. Brazil’s ethanol exports give it a unique diplomatic card in trade talks with energy-hungry partners.

For corporations, biofuels tick ESG boxes and open new revenue streams. Agribusiness giants like ADM and Cargill are expanding ethanol and biodiesel capacity, while oil majors from BP to Shell are investing in SAF and renewable diesel plants.

Challenges That Can’t Be Ignored
Yet, the industry is far from a guaranteed climate win. One major concern is feedstock availability. Even with second-generation sources, scaling requires massive quantities of biomass. Competing demands from food, feed, and materials could limit availability, particularly in years of poor harvests or climate-induced crop failures.

Another persistent issue is indirect land-use change (ILUC). Clearing forests or grasslands to grow biofuel crops can release more carbon than the fuels save over decades. This risk forces policymakers to design safeguards and certification systems to ensure that biofuels genuinely deliver net-positive carbon benefits.

A third challenge is cost competitiveness. Advanced biofuels like SAF remain expensive without subsidies or carbon pricing. Infrastructure for collecting, processing, and distributing waste-based feedstocks is underdeveloped in many regions, limiting the ability to scale production efficiently.

Lifecycle assessments vary widely depending on feedstock source, cultivation methods, and processing efficiency. A tonne of biodiesel from used cooking oil has a vastly different carbon footprint than one from palm oil grown on cleared rainforest land. This complexity makes regulation—and corporate reporting—tricky, but it also means that the winners in the biofuel race will be those who can prove verifiable, sustainable performance.

The Investment Lens
For investors, biofuels are a nuanced play. The growth outlook is strong, but the risk profile is high. Venture capital is gravitating toward technology-heavy players in algae-based fuels, synthetic biology for feedstock optimization, and SAF refining innovations. Meanwhile, infrastructure funds are eyeing waste-to-fuel facilities, particularly in countries with supportive policy environments.

“At Godavari Biorefineries Limited, we recognize the critical role that biofuels play in supporting India’s energy security and journey towards net zero. As one of the pioneering companies in India’s ethanol industry, GBL continues to strengthen its contribution through increased production capacity, use of renewable feedstocks such as sugarcane juice and molasses, and a strong focus on sustainable and integrated operations. Our approach combines responsible sourcing, efficient resource utilization, and investment in cleaner technologies. We remain committed to supporting the country’s ethanol blending targets and broader energy transition goals. On World Biofuels Day, we reaffirm our mission to advance bio-based energy solutions that are good for the planet and aligned with national priorities.”

— Dr. Sangeeta Srivastava, Executive Director of Godavari Biorefineries Limited (GBL)

The trajectory of carbon pricing regimes will be critical. A robust and predictable carbon market could help advanced biofuels achieve price parity with fossil fuels more quickly. Breakthroughs in low-cost feedstock conversion could also shift the economics, as could trade policy shifts affecting agricultural commodities. In the aviation sector, adoption rates of SAF could set the pace for demand growth across the entire industry.

The Road Ahead
This year’s World Biofuel Day is less about commemoration and more about acceleration. The sector stands at a pivotal moment: credible enough to attract mainstream capital, but fragile enough to be derailed by feedstock shocks, policy rollbacks, or sustainability backlash.

The optimistic case is compelling: a diversified biofuels industry that powers aircraft, ships, and road vehicles; revitalizes rural economies; and serves as a geopolitical buffer against oil dependency. Achieving this vision will require scaling advanced technologies, building robust policy coalitions, and ensuring that the push for green fuel does not come at the expense of forests, food security, or biodiversity.

In the global clean energy transition, biofuels may never be the sole hero. But they could be the indispensable co-star—bridging today’s fossil-heavy energy system with the net-zero future we’re trying to build. The question for governments, investors, and corporate leaders is no longer whether biofuels matter, but how fast, how sustainably, and how profitably they can be brought to scale.

As in the climate race, fuel is more than a commodity—it’s a strategy. Biofuels, in 2025, are finally ready to take the driver’s seat.

— Suchetana Choudhury (suchetana.choudhuri@agrospectrumindia.com)