When people think about renewable energy, it’s usually solar, wind or hydropower that spring to mind. So, it may come as a surprise for some to learn that bioenergy, produced in a sustainable way, is also expected to be a valuable component of the energy mix to reach net zero in 2050. Moreover, that in the years ahead, its target contribution to energy supply is set to be of a similar order of magnitude as wind or solar1.
In this blog, we discuss bioenergy and its potential role in achieving zero emissions, and how in our view, it represents a significant long-term opportunity for investors.
What is Bioenergy?
Bioenergy is a form of energy generated from burning biomass fuels, which derive from recently living organisms, primarily plants. It is extremely flexible and can be used for multiple purposes, including electricity generation, and as a fuel for transport and heating.
And it arguably ticks a lot of green boxes!
What’s more, bioenergy’s ability to produce energy on demand gives it a distinct advantage over other renewable sources of energy, such as wind and solar, which are intermittent.
Currently accounting for 2.4% of global electricity generation3, current forms of biomass are already far more energy efficient than natural gas, generating 230 tons of CO2 per kWh produced vs 490 tons for natural gas4.
Today, modern bioenergy accounts for around 55% of renewable energy and more than 6% of global energy supply5.
Playing an important role in reaching net zero
Given its green credentials, it’s little surprise that modern bioenergy can play a critical role in the energy transition and achieving net zero.
Notably, the Intergovernmental Panel on Climate Change (IPCC) plan for bioenergy’s contribution, as a source of primary energy, to increase from 10% today, to 18-22% in a 1.5 °C scenario by 2050. The International Energy Agency (IEA) has similar ambitions, foreseeing modern bioenergy’s contribution to meet almost 20% within the same timeframe6.
The IPCC acknowledge bioenergy as “important” to fighting climate change, describing it as “a high-value and large-scale mitigation option to support many different parts of the energy system”. Further, that bioenergy can be “particularly valuable for sectors with limited alternatives to fossil fuels (e.g., aviation, heavy industry) and production of chemicals and products”7.
No way to Net Zero without negative emissions from BECCS according to the IEA and IPCC
Bioenergy’s ability to be carbon negative via the aforementioned BECCS process – the most advanced form of modern bioenergy – is viewed as critical to achieving the “net” in net zero for both the IPCC and the IEA pathways, which are the most widely recognised.
Sustainability improving with next bio-fuel generations
There’s work to be done, though. The traditional bioenergies (often referred to as first-generation biofuels) used today are not the ones that we will be using tomorrow. First-generation biofuels include ethanol which has historically been produced from the fermentation of foods and agricultural products (e.g. beetroot, wheat, sugar, cane, corn) or biodiesel fuels primarily produced from vegetal oils (colza, sunflower, soy, palm) as well as animal oils and used oils.
These traditional biofuels are very often polluting, and harvested in a unsustainable, inefficient way, involving intensive land use.
Over time, they are to be replaced by second-generation biofuels produced from straws (annual agricultural residues), wood cellulose (forestry residues), waste products from industry, municipal solid waste or household waste (e.g. waste-to-energy to produce biomethane). Second-generation biofuels do not compete with arable land, nor require significant marginal land and have a higher energy yield per land area. In the transition phase, as new generation biofuels develop they may be blended with previous ones but should ultimately replace them.
There is even work under way on third-generation biofuels produced from marine organisms such as seagrass and microalgae, but development is still at an early stage.
Investing in a more responsible future
The global energy crisis has generated unprecedented momentum behind renewable sources of energy, including bioenergy, by exposing the world’s reliance on fossil fuels.
According to a report by the IEA, the world is set to add as much renewable power in the next five years as it did in the entirety of the past 20 years8. It is anticipated that the global bioenergy market will reach nearly USD 160 billon in terms of revenue by 2028, representing a Compound Annual Growth Rate (CAGR) of 7% between 2022 and 20289.
This of course represents a significant opportunity for investors.
Critically, the migration to modern, second-generation bioenergy is supported by public policies.
In the EU, the Renewable Energy Directive includes a cap for food-based biofuels. And there is a phase-out obligation by the 2030s for conventional biofuels that have a high land use impact. The EU green transition plan “Fit-for-55” (which targets a reduction in greenhouse gas emissions of at least 55% by 2030) strengthens sustainability criteria for biomass whilst setting binding targets for the minimum use of new generation biofuels in the Transport sector and biomass.
In the US, the Energy Independence and Security Act provides grants subsidies and loans for R&D, biorefineries that displace more than 80 percent of fossil fuels used to operate the refinery, and commercial applications of cellulosic biofuel.
Companies at the forefront of bioenergy advancements are set to play a significant role in the energy transition. This will require significant help from investors, who will not only be supporting the energy transition, but also stand to gain potentially long-term returns.
Many companies currently producing first generation bioenergy such as ethanol and biodiesel are also playing a significant role in the development of second generation bioenergy. Their existing technologies, expertise and scale may give them a competitive advantage over newer entrants and the ability to make a real difference to the energy transition.
ETF Implementation idea for consideration
The ETF seeks exposure to companies that generate a meaningful portion of revenue from the production, storage, and distribution of biofuels produced from plants, animal oil, and waste, or from products entering in the bioenergy value chain. It is the first ETF10 to offer an exposure to bioenergy growth, along the whole value chain.
Information on Amundi’s responsible investing can be found on amundietf.com and amundi.com. The investment decision must take into account all the characteristics and objectives of the Fund, as described in the relevant Prospectus.
1. Source: International Energy Agency, Net zero 2050 (NZE) Report, 2021
2. BECCS : Bioenergies with Carbon Capture and Storage
3. Source: IPCC AR6 Report
4. Source: IPCC AR5 Report, BECCS : Bioenergies with Carbon Capture and Storage
5. Source: IEA (International Energy Agency): Tracking report — September 2022
6. Source: IEA, Net Zero 2050 (NZE) Report; TES: Total Energy Supply
7. Source: IPCC AR6 Report: Climate Change 2022- Mitigation of Climate Change
10. As of 12/06/2023
Knowing your risk
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