This study proposes a biofuel model in Taiwan that considers the government subsidy policy, market demand, biofuel production cost, and social cost attributes. Biofuel is a prospective alternative and renewable solution to energy and environmental challenges in the transportation sector. However, the development of biofuels is constrained by several factors including the amount of land available (the primary constraint), marketing of residual resources, and technological improvements. Economic feasibility and competition analysis and use of residual resources limited the actual amount of residual resources utilized to produce biofuel. Prior studies have examined the potential to commercialize biofuels where resources are limited. Despite insufficient land availability, biofuel commercialization has the potential to be mutually beneficial and risk-sharing in the supply chain. The contribution of this study is to develop a dynamic system model to explore the potential for biofuel commercialization in Taiwan despite its limited Biofuel resources. Through this model, this study considered E3 vehicles that use a fuel blend of 3% ethanol and 97% gasoline. Data were collected from institutional statistical reports. The results showed there is a large commercial opportunity; however, biofuel resources are insufficient. To deal with this resource insufficient, the Taiwanese government could use this model to develop an appropriate subsidy policy that adjusts prices based on market demand and technological improvements.