Some Economics Of U.S. Biofuels

October 13, 2025

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by Timothy Taylor (Conversable Economist/Talk Markets) Twenty years ago, with the Energy Policy Act of 2005, the US decided to encourage “biofuels” in a big way with the Renewable Fuel Standard (RFS) program, which started with RFS1 and later was amended to RFS2. Gabriel E. Lade and Aaron Smith provide an overview of what has happened since then in "Biofuels: Past, Present, and Future” (Annual Review of Resource Economics, 2025, 17: 105-125).

Probably the main goal of encouraging biofuels was to reduce the extent of US energy dependence on imported oil. However, another important goal was the idea that if fuel could come from crops, and the the carbon dioxide emitted from burning the fuel could be absorbed into next year’s crops, biofuels could be part of reducing overall carbon emissions. The general plan back in 2005 was that biofuels might begin with using corn to make ethanol, which could be added to gasoline. However, the hope was to move toward producing biofuels not from corn–which has a number of other uses–and toward producing ethanol from nonedible parts of plants that were currently being thrown away, or from nonedible plants that could grow with relatively little cultivation, like switchgrass. However, the technology for converting plants other than corn to biofuels, at a competitive price, has been slow to develop.

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My own take is that the Renewable Fuels Mandate was an effort to accelerate technological change–specifically, to find a way to find a way for low-carbon plants (and some other sources) to replace fossil fuels. Two decades later, that hope of a great leap forward in this technology is largely unfulfilled. I’m the sort of optimist who would still support ongoing research in this area. But the main support for biofuels now comes from producers of corn and soybeans, who have become dependent on biofuels as the destination for a sizeable share of their output. READ MORE

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Biofuels: Past, Present, and Future (Annual Review of Resource Economics, 2025, 17: 105-125)
Loss of US Farmland in the 21st Century: The National Perspective from the Census of Agriculture (farmdocdaily)
Low-carbon fuel growth tied to stability in ag markets, Buis says (Brownfield Ag News)
Industry expects steady rise for biofuel production (Illinois Farmer Today)

Excerpt from farmdocdaily: One of the widely-watched variables tracked by the US Census of Agriculture is land in farms. This article is the first of two that examines changes in land in US farms between the Agricultural Censuses of 1997 and 2022. This quarter-century period is of interest because the 1996 Farm Bill enacted a fundamental change to US farm policy by eliminating acreage set aside programs that in various forms had existed since modern US farm support policy began in 1933, thus giving farmers, with a few exceptions, the freedom to decide what crops to plant and not plant. Since this seminal change in US farm policy, land in US farms has declined by 74.7 million acres or -8%. By far, pastureland declined the most, accounting for 88% of the total decline. The other two major farmland categories also declined: woodland by -6% and cropland by -2%. READ MORE

Excerpt from Brownfield Ag News: Many ag and biofuel stakeholders concerned about the farm economy are urging the administration to expand the use of low-carbon fuels.

Tom Buis with the American Carbon Alliance says growth in the ethanol and sustainable aviation fuel markets would boost demand for corn and soybeans.

“What we’re seeing is sort of a real nightmare occurring. The input costs are going up for farmers, and the amount they receive from the marketplace is going down. And what we need more than anything is to create some new demand.”

He tells Brownfield congressional legislation allowing for nationwide sales of E15 year-round would be huge, but suggests more still needs to be done.

“And these other opportunities that we’re talking about here with sustainable aviation fuel, and oil recovery and efforts using carbon, and other utilization, help grow markets going forward.”

Buis says if the U.S. adopts the right policies, higher ethanol blends and the scaling up of SAF will provide lasting market stability. READ MORE; includes AUDIO

Excerpt from Illinois Farmer Today: U.S. biofuel production continues to trend upward, although within the overall trend there are variations in production and the types of biofuels produced.

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Lane Howard, director of biofuels for the National Corn Growers Association, said U.S. ethanol production saw “exponential growth” in 2008-10 as the Renewable Fuels Standard boosted the industry and as blending increased.

“What we’ve seen since is what I’d call steady growth,” Howard said. “Since 2021, we have seen about a billion gallons of growth in production.”

According to the U.S. Energy Information Administration, U.S. ethanol production was mostly level in 2017, 2018 and 2019. After 15.8 billion gallons of ethanol production in 2019, that total fell to 13.9 billion gallons in 2020 as the coronavirus pandemic cut into fuel consumption. But annual ethanol production rose to 15 billion gallons in 2021, 15.4 billion gallons in 2022, 15.6 billion gallons in 2023 and 16.2 billion gallons in 2024.

Howard said updating regulations to allow for E15 to be sold during the summer months would help boost production more.

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Jeff Earl, director of state governmental affairs at Clean Fuels Alliance America, said the trend has been positive for biomass-based diesel.

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Renewable diesel, which can be made with soybean oil, continues to be a larger share of the overall biomass-based diesel industry.

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“Renewable diesel, that will be where we see the most growth,” Earl said.

He said growing infrastructure will help increase biofuel production, as well as supportive state and federal policies.

“We continue to see the expansion of soybean crush,” Earl said.

“Early on, biodiesel was the only renewable fuel for the heavy industry, until the renewable diesel took off,” Earl said.

“Biodiesel and renewable diesel continue to trend up,” he said.

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In addition to federal policy, Earl said state policies such as tax credits, support for building infrastructure and state biofuel percentage standards help grow the industry.

“Missouri, Illinois, Iowa and Nebraska all have some sort of tax incentive program in place that has driven a lot of the biofuel demand in the Midwest,” he said.

Also, western states led by California have implemented low-carbon fuel standards that have helped grow biofuel consumption and production.

“In California, 79% of the diesel in that state is biomass diesel,” Earl said. READ MORE