Biofuels: Regulations and Incentives

The Intergovernmental Panel on Climate Change has presented three strategies for climate change mitigation: (a) conservation – conserving an existing carbon pool thereby preventing CO2 emissions to the atmosphere; (b) sequestration – increasing the size of existing carbon pools thereby extracting CO2 from the atmosphere; and (c) substitution – using biomass instead of fossil fuels or energy-intensive products thereby reducing CO2 emissions. Many countries worldwide now promote the development and use of biofuels as part of their “substitution” strategies.

Biofuels Incentive Programs

United States

The U.S. has many state and federal regulations and incentives to promote biofuels. The state of Washington has the most with 4 incentive programs and 13 laws for biofuels. Notable regulations and incentive programs include:

Section 1501 of the Energy Policy Act of 2005 (Public Law 109–58) and EPA 40 CFR Part 80 (Regulation of Fuels and Fuel Additives: Renewable Fuel Standard Requirements for 2006) – The law requires petroleum distributors to add renewable ethanol to domestically sold gasoline to promote the nation’s growing renewable economy with requirements to identify and trace origin.

Renewable Fuels Standard Program – The national RFS Program was developed to increase the volume of renewable fuel that is blended into gasoline and other transportation fuels. In response to the Energy Independence and Security Act of 2007 (EISA), signed into law by President Bush in December 2007, the U.S. Environmental Protection Agency has raised the 2008 Renewable Fuels Standard to 7.76% to meet the new requirement that all transportation fuels sold contain a minimum of 9 billion gallons of renewable fuel in 2008, as set by the EISA.

Biodiesel Mixture Excise Tax Credit – Biodiesel blenders registered with the Internal Revenue Service are eligible for a volumetric excise tax credit in the amount of $1.00 per gallon of pure agri-biodiesel (e.g. biodiesel made from soybean oil) and pure biodiesel made from other sources (e.g. waste grease) blended with petroleum diesel.

European Union

To promote the use of biofuels for transport, the EU adopted directives urging member-countries to set a 5.75% biofuel target in 2010 and 10% biofuel target in 2020. The EU wants its members to set the said targets for the quantity of biofuels that should be available in the market.

Another EU directive pertains to taxation of energy products and electricity. Member-countries are allowed to apply a total or partial exemption of taxation for biofuels because biofuels are currently more expensive than fossil fuels.

United Kingdom

The Renewables Obligation incentivizes electricity-generating facilities within the UK that uses renewable sources. Ofgem, the agency responsible for issuing the Renewables Obligation certificates, is considering the appropriate approach for biodiesel.

The UK government has also set up the Renewable Fuels Agency to implement the Renewable Transport Fuel Obligation, which obliges fossil fuel suppliers to ensure that biofuels account for 3.5% by volume of the fuel supplied in the UK by 2010. Funded by the Department for Transport, the RFA administers the monthly reporting process required of fuel companies under the RTFO and issues Renewable Transport Fuel certificates in proportion to the quantities of biofuels registered.


The Australian Government’s Biofuels Policy has set a target of 350 megaliters of biofuel use by 2010, up from 28 megaliters in 2005. The Australian Government also lends its support to the research and development of new biofuel technologies through its Renewable Energy Development Initiative.

Since 2003, Australia’s Biofuels Capital Grants Program has funded projects to support new or expanded biofuels production capacity. The program believes that its completed projects will increase Australia’s biofuels production capacity by 291 megaliters.


Under the Environmental Protection Act, starting January 1, 2017 the province of Ontario requires fuel suppliers to use ASTM D6866-16 testing to determine biogenic carbon content of cellulosic ethanol when derived from municipal solid waste (MSW). According to Ontario Regulation 535/05 Ethanol in Gasoline, the composite sample tested will be comprised of samples collected weekly during a quarterly period.


As part of efforts to promote biofuel use in the country, the Japanese government established a joint council of government agencies, universities, and 16 leading companies to develop innovative technologies to mass-produce low-cost bioethanol. The government is promoting biofuel use to lessen the country’s dependence on imported fossil fuels and to reach its greenhouse gas emission targets.

Many countries now have different regulations governing the use of biofuels. They also have different incentive schemes to encourage society to use biofuels instead of fossil fuels.