A decade ago, one could analyse and understand the global biofuels market solely looking at the big three markets – the U.S., Brazil and Europe. The sector has grown, however, to include major Asian markets. In this article, we will look at China, the world’s sixth largest biofuel market. China shows potential for further global impact, but some open questions remain.
Market Overview
Overall Chinese biofuel consumption totals 1.5 billion gallons per year (bgy) of which the majority (85%) is ethanol, but with a growing biodiesel (BD) and renewable diesel (RD) sector. Demand this year is forecast to recover above pre-pandemic levels.
Figure 1: Chinese Biofuel Demand 2015 – 2024
The sector comprises 21 first generation (1G) ethanol plants using corn, wheat, rice, cassava and sugarcane feedstocks, four mothballed cellulosic (second generation, 2G) ethanol plants, 48 BD plants and 14 RD plants with a further nine plants under construction or the planning stage that overwhelming use used cooking oil (UCO) as a feedstock. A commonality across the sector is relatively low levels of utilization rates (~55% overall).
In addition to bioethanol capacity, Lanza Tech has established a joint venture with the Beijing Capital Steel and Iron Group to establish four synthetic ethanol plants1 at Hebei, Yunman, Guizhou, and Ningxia. Only the facility at Hebei is a licensed fuel ethanol producer producing approximately 50 million gallons per year (mgy). The other facilities supply ethanol for industrial use. Indications are that the facilities are struggling to be economic with no price advantage and/or additional price support in the Chinese market.
Figure 2: Chinese 2023 Biofuel Capacity & Utilization
Since 2017, China has emerged as biomass-based diesel (BBD) export orientated market, exporting 730 million gallons of BD and RD in 2023, exceeding domestic consumption of just under 200 million gals that year. Approximately 80% of the BD production is exported, with Europe being overwhelmingly the key destination until very recently. Similarly, 90% of China’s RD production is exported, and while the destinations for China’s RD exports are difficult to ascertain due to the wide range of trade codes used, it can safely be assumed that the majority likewise ended up in Europe and the U.S.
In addition, China is a key feedstock exporter (specifically UCO) with 2023 exports totaling some 500 million gallons (a similar level to the finished product exports). These feedstock exports were split primarily between the U.S., Europe, and Singapore (for onward processing to the EU and U.S.).
In August 2024, however, Europe imposed countervailing tariffs on Chinese BBD (i.e., BD and RD) due to anti-dumping concerns, and these tariffs appear to be causing a readjustment to trade flows. Overall, 2024 exports are expected to be down from 2023, but there has also been a redirection of these flows, with BBD imports to Asian markets hitting record highs in September 2024 (up 300% vs September 2023) while sales to Europe collapsed (some 50% lower vs September 2023). The key Asian markets were Singapore, Malaysia and Hong Kong, with expectations that most of the BBD found its way into the marine fuel pool, given the scale of the bunkering sector in all three of these markets.
In contrast to BBD, China’s ethanol sector is largely self-sufficient with very small imports and exports consistent with China’s view of ethanol’s role to manage the domestic corn balances. Imports for 2019 and 2021 came from the U.S., equivalent to 14% and 25% of domestic consumption respectively. This was a consequence of competitive prices, an import tariff waiver, and Chinese political endorsement of such imports. These conditions have since ceased, and consequently ethanol imports have since been minimal.
Figure 3: Chinese Net Biofuel Imports and Exports 2015 – 2024
Biofuel Policy & Legislation Overview
Policy in China is structured around five-year plans; for biofuels, the relevant plan is the 14th Five-Year Plan for Bioeconomic Development released in 2022. This plan established a national biotechnology framework that aims to promote the development of biofuels via a range of measures including demonstration pilots for advanced biofuels, acceleration of key technology development and equipment manufacturing, and feedstock projects related to accessing biomass wastes. More recently, in May 2024 the Action Plan for Energy Conservation and Carbon Emissions Reduction was published which includes a call to promote the use of advanced bio-liquid fuels and sustainable aviation fuels.
However, these high-level policies and ambitions are not necessarily underpinned by specific biofuel targets or support measures to achieve the stated goals. Nor does Chinese biofuel policy seek to promote biofuels according to their carbon intensity or set minimum environmental standards. Rather, policy objectives and drivers differ between ethanol and BD, RD and sustainable aviation fuel (SAF). Taking each in turn:
Ethanol
Given China’s historic sensitivity to food security, 1G ethanol’s role is seen as primarily as means to control the surplus of domestic corn production with limited emphasis on its environmental benefits. As far back as 2008, in the wake of the commodity price spike, China introduced restrictions on the construction of new ethanol facilities. These restrictions largely remain in place. Most recently, in 2022 the State Council released guidance to provincial officials to “strictly control the corn-based fuel ethanol processing industry.”2
Current ethanol blending averages 2.3% nationwide, and while an E10 mandate (or pilots) exists in certain provinces and cities, a nationwide E10 mandate that was meant to come into force in 2020 was cancelled in 2016. In the longer-term, such a mandate looks unachievable given restrictions on new 1G (corn ethanol) capacity and absent a 2G ethanol boom. Lacking a national mandate, ethanol subsidies and incentives are ostensibly set at the provincial level, but support for such subsidies has been progressively wound down in the face of central government’s indifference. Likewise, the incentive for cellulosic ethanol is a lackluster 27 cents per gallon (cpg), initially set in 2018 with no further adjustment, and too low to support economic production.
Biomass-Based Diesel (BD and RD)
The BBD picture is somewhat rosier, with an export-oriented sector having developed in 2017 based off China’s significant UCO base. The government is now introducing measures to attempt to stimulate the domestic sector, including:
- Updates to the B5 diesel spec and recognition of a B24 spec for marine fuel,
- 70% sales tax refund and consumption tax exemption, and
- Subsidies in some provinces, mainly Shanghai.
Sustainable Aviation Fuel (SAF)
China’s domestic civil aviation market is the world’s second largest after the U.S., and the Chinese government considers SAF to be a key part of its efforts to realise its carbon emission reduction goals. Development programs trace back as far as 2008 in terms of technology research and test flights. There are currently 11 HEFA3 SAF plants in China with capacity totalling some 28 mgy either operating, under construction or planned. However, no domestic SAF targets, mandates, or incentives are in place, and the majority of the capacity seems to be targeting the export market.
Conclusion and implications for the U.S.
Despite China’s significant and growing demand base and its biomass feedstock potential particularly in the areas of wastes and agricultural residues, the growth of the sector is still primarily export driven. U.S. and European markets clearly have been benefiting from this in terms of BBD and UCO imports.
The impact of Europe’s imposition of anti-dumping tariffs on Chinese BBD imports in August this year is likely to increase import availabilities for the U.S, particularly for UCO. However, there are already concerns that exporters will find ways of avoiding the penalty tariffs.
The longer-term question is whether the Chinese government will decide to stimulate the domestic biofuel market, particularly SAF demand, to meet its decarbonization ambitions, utilizing China’s significant UCO supply base. This obviously would risk curtailing exports of both biofuels and UCO feedstock. There are already some expectations that China will manage SAF exports through a system of quotas. The upshot for the U.S. would be a more restricted flow of UCO and future BBD/SAF imports. Current levels of UCO imports from China into the U.S. are around 250 mgy, nearly half of all lipid biofuel feedstock imports into the U.S. in 2023.
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