How biofuels are made — and what problems they can (and can’t) solve

Burning fossil fuels for energy remains one of the main drivers of the climate crisis. And while wind, solar, and electrification are moving fast, there are still parts of the economy where replacing liquid and gaseous fuels is difficult — heavy freight, aviation, shipping, high-temperature industrial heat, and parts of the heating sector. That is where biofuels keep returning to the policy agenda in the EU and in Germany: as a bridge option, a niche solution, or a complement where direct electrification is slow.

At the same time, biofuels come with real trade-offs. If the feedstock competes with food production or drives deforestation, the climate benefit can collapse. Europe’s approach increasingly reflects this tension: support biofuels where they are demonstrably sustainable, and constrain them where they aren’t.

What is biofuel?

Biofuel is fuel made from biological material — plants, organic residues, or animal-derived wastes. In everyday language it includes everything from firewood and pellets to bioethanol, biodiesel, and biogas.

In Germany, bioenergy is not a marginal topic: biomass still provides the majority of renewable heat. In 2024, about 76% of renewable heat came from biomass (solid, liquid, and gaseous). That’s one reason the “biofuel debate” in Europe is not only about cars — it’s also about heating systems, district heat, and industrial energy.

Why did biofuels come back?

The first driver is climate. Transport is one of the hardest sectors to decarbonise, and its emissions have continued to rise globally. A widely used benchmark is that transport accounts for about 24% of energy-related CO₂ emissions, with road transport dominating within the sector. 

The second driver is energy security and price volatility. Europe’s energy shocks since 2022 have reminded policymakers that domestic, diversified energy sources can reduce exposure to imported fossil fuels. Biofuels and biomethane are often framed as “local molecules” that can be produced within the EU — but only within the limits of sustainable land and feedstock availability.

The main types of biofuels (and how they are produced)

Solid biofuels are the simplest. Today the dominant modern form is pellets — compressed biomass made from sawdust, wood residues, agricultural residues (like straw), or other organic by-products. The production chain is straightforward: raw biomass is dried, milled, compressed into pellets, and then transported for use in stoves, boilers, and sometimes industrial heat applications. Compared with coal or heating oil, pellets can reduce local air pollutants when used in modern, properly operated systems — but they still require careful sustainability governance because sourcing matters.

Liquid biofuels include bioethanol and biodiesel-like fuels.

Bioethanol is produced by fermenting sugars or starches into ethanol, then distilling and dehydrating it. In EU fuel markets, ethanol is typically blended into petrol.

“Biodiesel” is used loosely in public discussion. Technically, there are different pathways. Classic biodiesel (FAME) is made by transesterification of vegetable oils or waste fats. Another route, common in European decarbonisation strategies, is hydrotreated vegetable oil (HVO), which can be produced from waste oils and fats (such as used cooking oil) and is compatible with existing diesel infrastructure in many cases.

Gaseous biofuels are mainly biogas and biomethane. Biogas comes from anaerobic digestion: microorganisms break down organic material such as manure, agricultural residues, sewage sludge, or organic waste without oxygen, producing a methane-rich gas. If upgraded (removing CO₂ and impurities), it becomes biomethane that can be injected into gas grids or used as a transport fuel.

What problems can biofuels help solve?

Biofuels can support decarbonisation in three practical ways.

First, they can reduce emissions where electrification is slow — especially in segments like aviation and shipping, where batteries are not a near-term solution for most operations. That is exactly why the EU is mandating sustainable aviation fuel (SAF) blending under ReFuelEU Aviation: for example, 2% SAF in 2025, rising over time (with higher long-term targets). 

Second, they can contribute to energy security by diversifying supply — particularly when they are produced from wastes and residues rather than dedicated food crops.

Third, in heating and some industrial uses, solid biomass and biogas can replace coal, heating oil, or fossil gas in specific contexts — which is one reason biomass remains so prominent in Germany’s renewable heat mix. 

The hard part: why biofuels are controversial in Europe

The climate benefit of biofuels is not automatic. It depends on land use, feedstock sourcing, and the full life-cycle emissions.

If forests are cleared to grow fuel crops, or if agriculture expands into carbon-rich ecosystems, emissions from land-use change can outweigh any tailpipe savings. This is why the EU built strong constraints into its renewable fuel rules. Under RED II and continued in updated form, the share of transport fuels made from food and feed crops is capped — with a maximum of 7% (with additional limits linked to a Member State’s 2020 baseline). 

The EU has also moved to restrict so-called high ILUC-risk biofuels (where “indirect land-use change” risks are high). Palm oil has been on a phase-out pathway, and recent EU discussions have extended the same logic to soy-based biofuels. 

Germany’s domestic debate reflects the same tension. In late 2025, Reuters reported that Germany’s cabinet approved a draft biofuels law that would keep the use of food and feed ingredients at current levels, while tightening other rules (including a reported ban on palm oil for emission-reduction crediting from 2027). 

In short: Europe wants “good biofuels” (wastes, residues, advanced pathways), and is trying to limit “problem biofuels” (high land-use risk, high competition with food).

Where biofuels are used in the EU and Germany

Biofuels already sit in European energy systems in three places: heating, transport blending, and industry.

In Germany, household and small-scale heating is a major bioenergy domain (including wood and pellets), which helps explain why biomass dominates renewable heat. 

In road transport, bioethanol and biodiesel/HVO blends are used to meet fuel-supplier obligations, but policy is increasingly steering toward higher-quality, lower-risk feedstocks under RED III implementation.

For aviation and shipping, Europe is pushing new rules that reduce the greenhouse-gas intensity of fuels over time (FuelEU Maritime) and mandate increasing SAF shares (ReFuelEU Aviation). 

So what’s the future of biofuels?

Biofuels are unlikely to become “the” replacement for fossil fuels across the whole energy system — there simply isn’t enough sustainable biomass to do that without unacceptable trade-offs. The EU’s policy direction is essentially an admission of that: cap crop-based fuels, prioritise advanced fuels, and use biofuels where they are hardest to substitute.

In a Germany/EU context, the most durable role for biofuels looks like this: a constrained but important supply of sustainable molecules for the parts of the economy that cannot be electrified quickly — paired with a fast build-out of renewables and electrification wherever possible. RED III’s transport framework (29% renewables share or 14.5% GHG intensity reduction by 2030) captures that “portfolio” approach.

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