Biofuels are now widely used in Asean to cut oil imports and support domestic agriculture. Amid geopolitical turmoil, energy crises and supply shocks can trigger cost increases that spread quickly through the economy. Biofuels are therefore often viewed as a domestic buffer for the transport sector, helping reduce exposure to imported fossil fuels while keeping road mobility less vulnerable to supply shocks.
Road-transport biofuels stand out because they are deployable now, compatible with existing vehicles and fuel infrastructure, and offers a clear, near-term policy lever. Within Asean’s energy transition planning, including scenarios in the Asean Renewable Energy Long-term Roadmap (RE LTRM), biodiesel and bioethanol continue to play an important role while electric vehicle (EV) uptake remains uneven and relatively slow in many markets.
In this window, expanding biodiesel and bioethanol blends effectively carries much of the transport sector’s renewable energy share. Beyond 2030, as EV adoption scales more meaningfully, biofuels and electrification are expected to grow in parallel rather than as substitutes. Given the uncertainty around how quickly different transport technologies will scale across markets and segments, biodiesel and bioethanol continue to be treated as vital fuels in the pathway toward carbon neutrality.
But promoting biofuels to reduce and replace fossil oil is not as straightforward as it sounds. As mandates for first-generation, crop-based biofuels grow, questions around cost, sustainability and land-use impacts become sharper. Biofuels clearly have a role in the transition; however, the harder question that we need to answer and explore is whether scaling first-generation biofuels makes Asean more resilient, or it introduces a new set of vulnerabilities that also need to be carefully managed.
What first-generation biofuels got right
First-generation biofuels have brought tangible gains. Blending mandates for biodiesel and bioethanol have replaced part of the diesel and gasoline that would otherwise be imported. They have diversified the fuel mix, supported local processing industries, and created income opportunities across parts of the agricultural value chain. These benefits explain why governments continue to expand blending targets.
Indonesia’s B40 mandate, for instance, has been framed as a tool to reduce diesel import reliance, with 2025 biodiesel use reported at roughly 14,200 million litres, which contributed to a reduction of around 3,300 million litres of diesel imports that year. Beyond Indonesia, Thailand’s long-running gasohol programme has made ethanol blends a dominant feature of its gasoline market; from January to November 2025 alone, Thailand consumed about 1,139 million litres of ethanol and 1,305 million litres of biodiesel, highlighting that biofuels are already operating at a material scale in parts of Asean.
However, as biofuels become more embedded, oil volatility and sustainability scrutiny start to matter more, and the policy becomes harder to keep stable.
Shift in vulnerability
A resilience lens highlights a simple but often overlooked dynamic. Scaling first-generation biofuels can shift vulnerability rather than reduce it, especially across the energy trilemma of security, affordability and sustainability. The logic is straightforward and it can be seen in a few causal loops.
The irony is that the very problem biofuels are meant to hedge, oil price volatility, can still spill over into biofuels through oil-linked inputs and logistics. The diagram below shows how that spillover can translate into fiscal pressure and policy uncertainty.
As the diagram shows, oil price volatility can raise first-generation biofuel production costs because key inputs such as fertiliser, processing energy and logistics remain oil-linked. When oil prices swing, these input costs rise, pushing up production costs and making the price gap versus fossil fuels more volatile.
To keep biofuels competitive, governments lean more on subsidies, and this creates fiscal pressure. Fiscal pressure then becomes the system’s central constraint. It forces policy adjustments and increases uncertainty about mandates and support. That uncertainty weakens investor confidence and slows cost-reduction efforts, which keeps production costs high and locks in subsidy dependence.
Fiscal pressure is also shaped by sustainability dynamics. As mandates expand, feedstock expansion pressure increases and triggers greater scrutiny over land-use and credibility. Scrutiny raises compliance burden and pushback on biofuel actors, which adds further pressure on policy and public finances.
The exit from this challenge is conditional. If sustainability scrutiny is addressed through credible lifecycle accounting and monitoring, reporting and verification (MRV), biofuels can access performance-based incentives such as carbon market revenues or tradable renewable attributes based on carbon intensity, similar to Brazil’s RenovaBio. This creates additional revenue streams that reduce reliance on blanket subsidies.
In this sense, sustainability governance is not only an environmental requirement. It is also a lever to relieve fiscal pressure and break the subsidy loop that has long constrained biofuel development.
Redesign affordability support, build credible governance
The diagram points to a straightforward conclusion: resilience cannot be assessed through energy security alone. First-generation biofuels can reduce import exposure, but the system becomes vulnerable when affordability is sustained primarily through open-ended subsidies, or when sustainability credibility becomes a binding constraint on scale.
This reframes the policy question. It is not simply how far Asean can push blending mandates but how quickly the region can reduce the structural risks that become more pronounced as biofuels take a larger share of the transport fuel mix.
A first priority is to redesign affordability support so it strengthens durability rather than deepening fiscal exposure. Where support is necessary, it should be predictable, time-bound, and increasingly linked to measurable cost reduction and performance improvements. This reduces uncertainty for investors and limits the risk that fiscal pressure becomes the central point of failure.
A second priority is to treat sustainability governance as an enabler of better policy instruments, not only a compliance requirement. Credible lifecycle accounting and MRV also changes what governments can do. Instead of supporting biofuels simply because volumes are produced, policymakers can tie support to demonstrated performance, such as lower emissions intensity and better process efficiency. This creates additional revenue streams that depend on credibility, including carbon-linked instruments and tradable renewable attributes. Over time, those mechanisms can reduce the need for broad, open-ended subsidies.
These steps strengthen the case for accelerating second-generation biofuels. The point is not to set aside first-generation blends overnight, but to recognise that long-term scale will depend on whether biofuels can grow without becoming either too costly to sustain or too difficult to justify. Second-generation options, particularly those using wastes and residues, can strengthen the credibility of emissions reductions and reduce some of the land-use concerns that follow first-generation expansion.
The practical challenge is in bankability of these second generation biofuels production. In order to increase the investment and bankability of such projects, they will need reliable feedstock supply chains for wastes and residues, clear standards, credible offtake arrangements, and financing structures that reduce early-stage risk. But bankability will not improve through project-by-project fixes alone. Asean also needs a more systematic long-term plan, including an R&D and technology adoption roadmap and a credible cost-reduction pathway, which could be an urgent focus under APAEC 2026–2030.
If Asean wants biofuels to be a resilience tool rather than a recurring fiscal and credibility challenge, the direction is clear. Maintain first-generation deployment in the near term, while building the conditions for higher-integrity second-generation pathways to take a larger role over time.
Dr Tharinya Supasa is head of the Sustainable and Renewable Energy (SRE) Department at the Asean Centre for Energy. Monika Merdekawati is a senior research analyst of ACE’s SRE Department. Zahrah Zafira is a research analyst at ACE.
