Are biofuel mandates cost-effective? -- an analysis of transport fuels and biomass usage to achieve emissions targets in the European energy system

Abatement options for the hard-to-electrify parts of the transport sector are needed to achieve ambitious emissions targets. Biofuels based on biomass, electrofuels based on renewable hydrogen and a carbon source, as well as fossil fuels compensated by carbon dioxide removal (CDR) are the main options. Currently, biofuels are the only renewable fuels available at scale and are stimulated by blending mandates. Here, we estimate the system cost of enforcing such mandates in addition to an overall emissions cap for all energy sectors. We model overnight scenarios for 2040 and 2060 with the sector-coupled European energy system model PyPSA-Eur-Sec, with a high temporal resolution. The following cost drivers are identified: (i) high biomass costs due to scarcity, (ii) opportunity costs for competing usages of biomass for industry heat and combined heat and power (CHP) with carbon capture, and (iii) lower scalability and generally higher cost for biofuels compared to electrofuels and fossil fuels combined with CDR. With a -80% emissions reduction target in 2040, variable renewables, partial electrification of heat, industry and transport and biomass use for CHP and industrial heat are important for achieving the target at minimal cost. Abatement of remaining liquid fossil fuel use increases system cost, with a 50% biofuel mandate increasing costs by 128-229 billion EUR, or 39-82% of the liquid fuel cost. With a negative -105% emissions target in 2060, fuel abatement options are necessary, and electrofuels or the use of CDR to offset fossil fuel emissions are more competitive than biofuels. Biomass is preferred in CHP and industry heat, combined with carbon capture to serve negative emissions or electrofuel production, thereby utilising biogenic carbon several times. Sensitivity analyses reveal significant uncertainties but consistently support that higher biofuel mandates lead to higher costs.