Biofuel Usage Expected to Stay Strong
by Martha Blum (AgriNews) … “I’m very confident biofuels will play an important role in our global energy future, but I expect it to be a bumpy ride,” said Scott Irwin, Laurence J. Norton Chair of Agricultural Marketing in the Department of Agricultural and Consumer Economics at the University of Illinois.
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“We have been stuck at the 10% rate of blending, which is often called the E10 blend wall,” Irwin said.
Biomass diesel production has increased by 2.5 billion gallons annually.
“But the total level is about one-sixth of the size of ethanol,” Irwin said. “The blend rate increased until 2016 to 2017 and now it is stuck at a little below 5%.”
Irwin discussed reasons why usage of biofuels has hit a plateau.
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“The first reason we’re stuck is the non-appearance of cellulosic ethanol since virtually none of the 21 billion gallons that were forecasted has appeared,” he said. “There is a big debate over whether it was never feasible or if the RFS was not implemented in a way that incentivized that production.”
The second reason is the political battle over breaching the E10 blend wall, Irwin said.
“The basic facts about ethanol and biodiesel that’s critical to understand the debate surrounding the E10 blend wall is that ethanol is cheap and biodiesel is expensive,” Irwin said.
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“There is an energy penalty for adding ethanol to gasoline, which reflects the fact that ethanol contains about two-thirds of the energy that petroleum gasoline contains,” he said. “The difference in the price of ethanol and gasoline to adjust for the energy difference has averaged 59 cents per gallon since 2012.”
Many people forget when they look at the economic value of ethanol that it is generally an inexpensive source of octane in gasoline blends.
“The difference between the price of ethanol and the price of aromatics, which is the main source of octane from petroleum components in gasoline, on average for ethanol is $1.13 less than aromatics,” Irwin said.
After subtracting 59 cents from $1.13, the net value of ethanol is 54 cents.
“Divide the 54 cents by 10 to get the net impact on a gallon of E10 ethanol,” Irwin said. “Ethanol on average saves U.S. drivers about 5 cents per gallon — that’s why ethanol is cheap.”
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“Biodiesel is $1.66 more expensive than petroleum diesel,” Irwin said. “Biodiesel is made from fats and oils that have a much higher opportunity cost than corn starch.”
A big question, Irwin said, is what happens to the RFS in 2023.
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The expansion of renewable diesel production that is currently happening parallels the construction of ethanol plants from 2004 to 2010, Irwin said.
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Not all of the feedstock for renewable diesel is soybean oil. It also includes waste grease, fats, cooking oil and canola oil.
“But soybean oil will probably be at least half,” Irwin said.
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“We sell about 17 million light-duty vehicles in the U.S. annually and now about 2 to 3% of the sales are electrical vehicles,” Irwin said. “It will take decades to have a complete transition to electrical vehicles.”
Therefore, Irwin said, he does not see a big impact on the demand for biofuels in the near or intermediate term. READ MORE