USDA: Growth In US Renewable Diesel Production Impacts Global Feedstock Trade

by Erin Voegele (Biomass Magazine) The USDA Foreign Agricultural Service on June 11 published a report discussing how the recent boom in U.S. renewable diesel production has caused market-altering shifts to both foreign and domestic feedstock trade.

U.S. renewable diesel consumption has increased substantially in recent years, from approximately 250 million gallons in 2013 to just under 3 billion gallons in 2023. That growth has been driven largely by California’s Low Carbon Fuel Standard, with the report noting that biomass-based diesel accounts for approximately 60% of the California diesel pool while the rest of the U.S. remains in the low single digits.

The USDA’s report cites several market factors that have aided in the rapid expansion of U.S. renewable diesel production in recent years, including the ability to repurpose oil refineries to produce the fuel. Production of renewable diesel has expanded at the expense of biodiesel production, as the two fuels are made from the same feedstocks. The report notes that biodiesel production has gradually trended down since its peak in 2018, with renewable diesel capacity surpassing that of biodiesel in 2022 and renewable diesel production exceeding biodiesel production the following year.

The growth in renewable diesel capacity and production has bolstered demand for feedstocks, driving explosive growth in U.S. imports of vegetable oils and animal fats, according to the report. The USDA offers several examples, such as the U.S. EPA’s 2022 Renewable Fuel Standard pathway approval that allowed canola oil to become an eligible feedstock for renewable diesel production, which supported record high imports of canola oil. While much of the canola oil imported into the U.S. was used to produce fuel, the USDA also notes increased canola oil imports also helped backfill displaced soybean oil in other markets, such as food production, which had been impacted by increased demand for soybean oil for use as biofuel feedstock.

According to the USDA, the spike in canola oil demand is unlikely to be short-term, as U.S. canola oil imports, food use consumption and industrial consumption are all expected to set records for the third consecutive year in 2024-’25. Much of that canola oil comes from Canada. Approximately 91% of Canada’s canola oil exports were destined for the U.S. last year, up from 50-60% in previous years. The USDA notes that canola oil supplies should remain robust, as Canada has announced plans to expand crush capacities over the next several years.

The imports of several other renewable diesel feedstocks have also spiked in recent years. According to the USDA, the import values of all animal fats and vegetable oils more than doubled between 2022 and 2023, with used cooking oil (UCO) imports more than tripling in 2023 on higher imports from China.

A changing tax credit structure in the U.S. starting in January 2025 is expected to drive additional growth in renewable diesel feedstock imports. The USDA explains that the current blenders tax credit for biobased diesel expires and will be replaced with a clean fuels production tax credit. The change from a blender’s credit to a producer’s credit means that the tax incentive will apply only to biobased diesel produced in the U.S. As a result, demand for biofuel imports is expected to drop substantially. Increased demand for U.S.-produced fuels is expected to drive even higher imports of fats and oils for use as biofuel feedstock, particularly lower carbon-intensity feedstocks such as tallow, UCO and corn oil.

The USDA points out that the boom in renewable diesel production has not only impacted import markets, U.S. export markets have experienced changes as well. U.S. soybean exports have trended down in recent years and the U.S. share of global soybean trade is expected to remain below the 5-year average in 2024-’25.

The domestic soybean crush, however, is expected to set a record for the fourth consecutive year in 2024-’25 as a direct result of expanding U.S. renewable diesel production. Robust growth in U.S. demand for soybean oil has increased soybean meal supplies, leading to record soybean meal exports in 2022-’23, according to the USDA. Increased supplies and higher exports are expected to continue, with 2024-’25 soybean meal exports expected to set a record for the third consecutive year.

Excerpt from Argus Media: Waste from around the world is increasingly being diverted to the US for biofuel production, helping decarbonize hard-to-electrify sectors like trucking and aviation. But as refiners turn away from conventional crop-based feedstocks, farm groups fear missing out on the biofuels boom.

Driven by low-carbon fuel standards (LCFS) in states like California, US renewable diesel production capacity has more than doubled over the last two years to hit a record high of 4.1bn USG/yr in April according to the Energy Information Administration. Soybean and canola processors have invested in expanding crush capacity, expecting future biofuels growth to lift vegetable oil demand.

But policymakers' growing focus on carbon intensity, a departure from the long-running federal renewable fuel standard (RFS) that sets volume mandates for broad types of fuel, primarily benefits waste feedstocks, which generate larger LCFS credits because they are assessed as producing fewer emissions. Argonne National Laboratory's GREET emissions model, which has been modified by federal and California regulators for clean fuels programs, factors in emissions sources like fertilizers and diesel use on farms for virgin vegetable oils but not for used oils sourced from cooking operations.

Refiners trying to maximize government subsidies are thus sourcing waste-based feedstocks from wherever they can find them. Through May this year, imports to the US under the tariff code that includes used cooking oil (UCO) and yellow grease rose 90pc from year-prior levels to more than 1.8bn lb (844,000t). While China represents most of that, sources are diverse, with significant sums coming from Canada, the UK, and Indonesia. Imports of inedible and technical tallow, waste beef fat that can be turned into biofuels, have also risen 50pc so far this year to 800,000lb on ample supply from Brazil.

While soybean oil was responsible for nearly half of biomass-based diesel production in 2021, that share has declined to around a third over the first four months this year as imports surge (see graph).

"Every pound of imported feedstock that comes in displaces one pound of domestically sourced soybean oil or five pounds of soybeans," said Kailee Tkacz Buller, chief executive of the National Oilseed Processors Association.

Even as LCFS and RFS credit prices have fallen over the last year, hurting biofuel production margins and threatening capacity additions, imports have not slowed. Feedstock suppliers, many from countries with less mature biofuel incentives and limited biorefining capacity, might have few options domestically. And exporting to the US means they can avoid the EU's more prescriptive feedstock limits and mounting scrutiny of biofuel imports. READ MORE