Carbon reduction policies drive up demand for biodiesel, with the EU being the world's largest market

Global carbon reduction and emission reduction have boosted the demand for renewable fuels, with the global biodiesel market CAGR reaching 9.1% from 2010 to 2021. According to IEA forecasts, the total global consumption of biodiesel (ester based biodiesel+hydrocarbon based biodiesel+sustainable aviation fuel) in 2021 is 54.83 billion liters, a year-on-year increase of 6.4%. The CAGR from 2010 to 2021 is 9.1%, and demand remains stable; From the perspective of demand sources, in 2021, the four major economies of the European Union, the United States, Indonesia, and Brazil collectively consumed over 80% of the world's biodiesel, with EU consumption accounting for 39.4%, totaling 21.63 billion liters, making it the world's largest biodiesel market; In contrast, China's current consumption of biodiesel is relatively small, with a consumption proportion of only 1.5% of the global total in 2021. 

As a global leader in carbon emissions reduction, the consumption of biodiesel in the European Union is expected to continue to increase. Due to the impact of the epidemic, the energy consumption of the EU's transportation sector significantly decreased by 12.8% year-on-year in 2020; However, in terms of biodiesel consumption, thanks to the increase in renewable diesel consumption, the total consumption of biodiesel has still achieved positive growth, which has driven the proportion of renewable energy in the transportation sector to significantly increase to 10.2%; According to the latest document of the Revised Renewable Energy Directive passed by the European Union on June 27, 2022, the EU resolution significantly increased the target from the original 14% to 29%. In order to achieve the new goal, the consumption of biodiesel in the EU is expected to continue to rise in the future.

The higher demand from the European Union may further expand the import of biodiesel, and China's industrial chain is expected to benefit. To match the increasing demand for biofuels, the EU needs to import a large amount of biodiesel annually to meet domestic supply; In 2020, the EU imported 3.054 million tons of biodiesel, of which 815000 tons were imported from China, accounting for 26.7%; From the perspective of trade scale, China has become the second largest exporter of biodiesel to the European Union, and a strong demand from the EU will fully benefit China's export of biodiesel products.

The United States, Brazil, and Indonesia have active biofuel policy planning, but the supply and demand situation is relatively balanced, and the demand for foreign imports is small. The United States was the first country to study biodiesel and is also the world's second largest consumer and supplier of biodiesel. According to IEA predictions, in 2021, the United States produced 10.17 billion liters of biodiesel (FAME+HVO+SAF) and consumed 11.31 billion liters, with a relatively balanced supply and demand situation; According to the Energy Independence and Security Act (EISA) enacted in 2007, the United States has set a long-term mixing target of 36 billion gallons (approximately 136.3 billion liters) of renewable fuels. However, due to the lower than expected development of cellulose fuels, the renewable fuel mixing target in the United States in 2022 is only 20.63 billion gallons, which is still a long way from achieving the long-term policy goal of 36 billion gallons. The annual capacity requirements are expected to further increase in the future. In addition, traditional biodiesel major countries such as Brazil and Indonesia have also proposed active policy plans: Brazil plans to increase the mandatory blending ratio of biodiesel to 15% by 2023 (due to the impact of the epidemic, the blending ratio will only be 12% in 2021); Indonesia recently announced the implementation of the B35 biodiesel blending program and has begun road testing of B40 biodiesel vehicles containing 40% palm oil; Driven by policies, the consumption of biodiesel in both countries may further increase.

The popularization of biodiesel policies in China is limited, and domestic sales channels are blocked. Although the Renewable Energy Law and the Biodiesel for Diesel Fuel Blending (BD100), which were introduced in 2005 and 2007 respectively, have successively legalized and standardized biodiesel in China, due to the lack of mandatory mixing requirements in policies and uneven product quality among enterprises, fuel oil sales enterprises do not trust biodiesel products and are reluctant to include biodiesel in the fuel oil sales system. Due to the lack of smooth sales channels, the consumption of biodiesel in China has been consistently low. According to IEA data, the total consumption of biodiesel (ester based biodiesel+hydrocarbon based biodiesel+sustainable aviation fuel) in China in 2021 was only 810 million liters, accounting for 1.5% of the world's total consumption. The demand for biodiesel consumption has been fluctuating and declining since 2013.

Actively promoting the application of biodiesel during the 14th Five Year Plan period, local governments are accelerating pilot fuel blending, and channel constraints are expected to be eliminated. On May 10, 2022, the National Development and Reform Commission issued the "14th Five Year Plan for the Development of the Bioeconomy", which emphasized the need to actively promote the application of bioenergy such as biodiesel and promote the transformation of fossil fuels into green, low-carbon, and renewable energy in China. From the perspective of policy implementation, local governments with Shanghai as a benchmark are accelerating the pilot promotion of biodiesel. In early February 2021, the Shanghai Development and Reform Commission issued the "Management Measures for Supporting the Promotion and Application of Biodiesel Made from Kitchen Waste Oil in Shanghai", promoting the application of biodiesel B5 made from kitchen waste oil at gas stations in Shanghai; According to data from the Shanghai Market Supervision Administration in 2020, there are over 301 gas stations in Shanghai that can refuel with B5, and the sales of B5 at pilot gas stations account for over one-third of the total diesel sales. Under the dual efforts of "national promotion" and "local pilot", the domestic biodiesel terminal sales channels are expected to be opened up. However, with the gradual elimination of channel constraints, the current situation of weak domestic demand is expected to reverse.