Animal, vegetable or mineral (oil)? Exploring the potential impacts of new renewable diesel capacity on oil and fat markets in the United States
This report provides an overview of the U.S. renewable diesel market and explores the potential market and environmental impacts of increased renewable diesel capacity.
The United States currently supports renewable diesel supply through the federal Renewable Fuel Standard, a biomass-based diesel blenders tax credit, and state level policies. The generous policy environment for renewable diesel has inspired a cascade of announcements of new projects. If all of these announced plans come to fruition, renewable diesel production capacity in the U.S. would increase from just under 1 billion gallon a year to more than 5 billion gallons per year by 2024. This would create 17 million metric tons of additional demand for oils and fats. Predicted increases in domestic soy oil production could support another 300 million gallons of biodiesel production, and increased utilization of waste and residual oils another 150 million gallons. Beyond this, increasing production would mean either an expansion of domestic soy and canola, dramatic increases in canola and palm oil imports, or massive displacement of feedstock from other uses. Domestic biodiesel production is likely to be strongly impacted, with waste oils and fats in particular diverted to renewable diesel production.
Limits on feedstock availability and limits on the support available for renewable diesel production mean that the market will not likely support a 5 billion gallons industry in the near future. However, if a half or a third of the announced capacity is delivered it still represents a massive increase in feedstock demand. There is a high risk that increased U.S. renewable diesel production will indirectly drive expansion of palm oil in Southeast Asia, where the palm oil industry is still endemically associated with deforestation and peat destruction. Consuming millions of metric tons of additional vegetable oil could cause tens of thousands of hectares of deforestation.
Excessive growth in biomass-based diesel could cause market distortions and lead to CO2 emissions from land use change. For states with low carbon fuel standards and similar programs, there is a question to be answered about whether unlimited growth in local renewable diesel supply is the best way to deliver on climate goals. More generally, the growth in vegetable oil hydrotreating as a biofuel pathway risks distracting investment from cellulosic biofuel technologies that in the long-term could be more scalable, more sustainable, and cheaper.