By Vijay Sankaran and Alison Williams

Despite a purchase of 450,000 gallons of aviation biofuel and biodiesel by the U.S. Navy in December 2011, the overall market for advanced biofuels continues to struggle.  A Bloomberg Study, “Advanced Biofuel Market Struggles to Chart Course” (subscription required) by analysts Vijay Sankaran and Alison Williams explains that federal policy and private investment have not been sufficient to spur production or to meet the mandated targets.

The study shows that private investment in the sector has risen dramatically under a generally favorable policy environment with about $1.9 billion in new investment in 2011.  However, production has fallen behind targets primarily because of a lack of scalable production facilities in the United States.  Without subsidies or other government intervention, greater production requires low costs; low costs occur with economies of scale achieved through greater production. 

The production problem has been exacerbated by the government’s lack of consistent treatment of feedstocks that are approved for biofuel production.  Feedstocks that were previously on the list have been removed and the EPA is weighing which feedstocks will remain on or be added to the list.  A government decision on which feedstocks it will support would help give private investors the guidance they need to make financial commitments.