Turmoil in the biomass-based diesel sector, an umbrella term for renewable diesel and biodiesel, could become a roadblock to future investments in biofuels, the US Energy Information Administration (EIA) said this year. That could potentially stall the transition away from traditional fossil fuels.
Some producers of these biofuels have already shuttered plants this year, and industry participants say more are set to go out of business before the year's end.
US renewable diesel production capacity nearly quadrupled following the coronavirus pandemic from just 791 million gallons a year in 2021 to 3 billion gallons by 2023, as refiners sought ways to survive the transition away from their petroleum-based products.
Combined with biodiesel, total US output capacity for biomass-based diesel surpassed 5 billion gallons by 2023.
Renewable diesel is a complete substitute for diesel, whereas biodiesel can only be used as a blend, making the former more attractive for producers.
Both compete for the same feedstock - biomass, such as used cooking oil and vegetable oils - and are more expensive to produce than petroleum-based diesel, so their demand relies almost entirely on governmental blending mandates and tax credits.
But blending targets for biomass-based diesel, set under the US Environmental Protection Agency's Renewable Fuel Standards (RFS) program, generate combined demand of just up to 4.5 billion gallons a year through 2025, according to Scott Irwin, a professor at the University of Illinois.
That is already below existing domestic production, before factoring in imports. By 2025, Irwin estimates US renewable diesel and biodiesel output capacity will top 7 billion gallons.
"The crux of the matter is that market participants convinced themselves that 'if we build it, the EPA will mandate it'. That didn't happen," Irwin said.
The oversupply has cut prices of Renewable Identification Numbers (RINs) - the credits refiners earn under RFS for producing or importing biofuels - to the lowest in five years. D4 RINs tied to biodiesel and renewable diesel fell below 40 cents a gallon in February for the first time since 2019.
