Diverted harvest: Environmental Risk from Growth in International Biofuel Demand

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In this report for Transport and Environment, we describe the biofuel policy frameworks and targets of the nine leading global producers and consumers: the USA, Brazil, the EU+UK, Indonesia, China, India, Argentina, Canada, and Thailand. The report links these countries’ biofuel feedstock demand to ecological risks, to the carbon opportunity cost of using extra land for agriculture, and to the greenhouse gas implications of relying on biofuels to displace fossil fuels.

We calculate that about 32 Mha of cropland is currently devoted to biofuel feedstock production after accounting for co-product allocation. The benefit of this, as conventionally calculated (i.e. ignoring ILUC), is a 233 MtCO2e/year emissions saving compared to an equivalent amount of fossil fuels. But returning this land to its natural state — and replenishing its above- and below-ground carbon — could provide a much larger carbon sink of 428 MtCO2e/year. While rewilding of agricultural land on this scale is not currently plausible, these numbers underscore the importance of thinking about land use in ways that aren’t readily captured by conventional lifecycle analysis.

Under present policy targets, biofuel consumption in the nine study countries is set to increase from 104 Mtoe in 2023 to 150 Mtoe in 2030. Given existing and future feedstock slates, and constraints on advanced and residual feedstock supply, we conclude that over 90% of this is likely to come from crops: that means an extra 20 Mha devoted to biofuels worldwide. Accounting for the range of crops grown in each country, we calculate that if ILUC is taken into account, biofuel policy in 2030 will increase emissions from transport fuels by 34 MtCO2e/year compared to 2023.

The EU+UK and Thailand are found to have adopted policies that are reducing biofuel-associated emissions down over time. The USA, India, and Indonesia, by contrast, are expected to expand use of high-ILUC palm and soybean oils, and so their biofuel policies are likely to be harming rather than benefitting the climate.

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Full steam ahead?

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Environmental impacts of expanding the supply of maritime biofuels for the International Maritime Organisation targets

The UN’s International Maritime Organisation (IMO) is in the process of evaluating proposals for binding targets aimed at decarbonising international shipping. Whatever the ultimate form of this regulation, there will likely be significant implications for the production of biofuels for shipping. Until now, these have played only a minor role in the maritime fuel mix, and there is a risk that the IMO will repeat the mistakes of past fuel policies in other sectors.

This report for Transport and Environment examines and models potential environmental consequences of such a shift, and concludes with policy recommendations for mitigating the worst impacts of biofuel feedstock consumption as well as for reducing future overall demand for maritime fuel.

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Remember the AVMO: Growth of the USA’s renewable diesel production capacity

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Renewable diesel in the USA

Cerulogy’s 2022 report ‘Animal, Vegetable, or Mineral (Oil)?’ explored how aggressive expansion of renewable diesel1 production in the USA impacts markets for vegetable oils around the world (Malins & Sandford, 2022). This retrospective blog post evaluates how the renewable diesel industry has grown in response to various market pressures since that report, which we’ll call AVMO for short, was published.

A renewable diesel construction boom has been underway for some years, fuelled by a generous policy environment. AVMO highlighted that, in 2022, fuel suppliers who were able to stack incentives from the USA’s Renewable Fuel Standard (RFS), the blender’s tax credit, and California’s Low Carbon Fuel Standard, should be able to realise $4 of policy value per gallon of renewable diesel they brought to market. The technology for making renewable diesel is well established — there’s a lot of overlap with petroleum refining – and this $4 policy value would support robust company profit margins. In other words, building new plants was a promising investment.

Back in 2022 when we wrote AVMO, the capacity of existing renewable diesel projects and projects that had been announced came to around 5 billion gallons per year. Feeding these plants would require about 17 million tonnes of lipid feedstock per year (at full utilisation). Exactly where all this material would all come from was a subject of concern for the environmental community, as there are essentially two types of lipid feedstock and both come with sustainability risks.

Biofuels made from residual oils – that is, used cooking oil and low-grade animal fat – are generally considered to be more sustainable than those made from crops in terms of their carbon, land, and pollution footprints. But these feedstocks are in limited supply and may already be used in other sectors. Diverting them for biofuel production may force incumbent users to compensate by switching to virgin vegetable oils; this would negate any benefit from using residue-based biofuels when looking at the big picture.

As for crop-based oils, our AVMO report found that domestic on-farm productivity improvements would be unable to keep pace with biofuel demand. Unabated biofuel demand in the USA would therefore have repercussions on global food markets, raising prices and stimulating land use change.

Recent developments

Fast-forward to the end of 2024 and there is little sign of these issues abating. Figure 1 shows that even more capacity has been deployed than had been expected, and EIA’s updated analysis shows the trend continuing into the future (U.S. Energy Information Administration, 2024d). Capacity utilisation in existing plants varies month-on-month depending on input costs and demand levels, but over the past two years it has mostly stayed in the 70-80% range (U.S. Energy Information Administration, 2024c, 2024a)2. In 2024, we expect to see actual production surpass 4 billion gallons.

Figure 1    Announced capacity expansion and observed trends in USA renewable diesel production capacity
Source: U.S. Energy Information Administration (2021, 2024d)

One possibility we discussed in 2022 was that growth in renewable production would divert feedstock from the biodiesel industry, leading to reduced biodiesel supply3. In fact, EIA data (Figure 2) show a biodiesel market that has been fairly stable since at least 2020, with no obvious indication that growth in the renewable diesel market is reducing biodiesel consumption.

Figure 2    Monthly biodiesel and renewable diesel consumption in the USA
Source: U.S. Energy Information Administration (2024b)

The EPA sets its annual RFS obligation at a level it considers to be in line with sustainable growth of feedstock supply. Figure 3 looks back in time to show that supply of bio-based diesel has consistently exceeded the RFS obligation, with a clear acceleration in recent years.

Figure 3 Consumption of bio-based diesel compared with the supply obligation under the RFS, in units of ethanol gallons equivalent per year4
Source: U.S. Environmental Protection Agency (2024)

Feedstock

This has some worrying implications for virgin vegetable oil markets. Most of the rise in USA vegetable oil demand over the past decade can be traced to biodiesel and renewable diesel (Figure 4). In 2023, these accounted for nearly a third of total consumption, having risen by 4.5 Mt (230%) since 2014 (OECD, 2024). This easily outpaced, for example, the estimated 2.6 Mt (23%) growth in domestic soy oil production, and even the 3.5 Mt (24%) growth across all oil and fat production (U.S. Department of Agriculture, 2024a; U.S. Environmental Protection Agency, 2023, Figure 6.2.3-2).

Figure 4    Vegetable oil consumption in the USA
Source: OECD (2024)

The USDA notes that canola/rapeseed imports from Canada have reached an all-time high, while net exports of soybeans and soybean oil have declined and the U.S. became a net importer of soybean oil in 2023 (U.S. Department of Agriculture, 2024c). As seen in Figure 5, the long-term gradual rise in net vegetable oil imports saw a jump in 2022 with a surge in rapeseed imports and a rapid reduction in soybean oil exports. These trends have been linked to biofuel demand, with the USDA using remarkably strident language in its analysis of the impacts biofuels were having on feedstock trade (U.S. Department of Agriculture, 2024b, 2024c).

Figure 5    USA’s net imports of key vegetable oils
Note: These data cover oils but omit trade in uncrushed soybeans and rapeseed.
Source: U.S. Department of Agriculture (2024a)

The extra demand for vegetable oil at home and abroad, coupled with reduced exports from the USA, has resulted in a favourable market for Brazilian soybeans. These are sold in high volumes on world commodity markets and often at a lower price than competitors (U.S. Department of Agriculture, 2024c). Given the connection between Brazilian soy and deforestation in the Amazon rainforest (Malins, 2020), this relationship is very suggestive of indirect land-use change (ILUC) effects in action, emanating from USA biofuels policy and creating pressure for soybean expansion in South America.

Future developments

The USA’s renewable diesel boom shows no sign of slowing, and the continuing pressure on the vegetable oil market can be expected to lead to ever-increasing reliance on imports. From 2025, federal subsidies for biodiesel and renewable diesel through the 1 $/gallon ‘blender’s tax credit’ will no longer be available to imported fuel, but the restriction does not extend to imported feedstock, and there’s no evidence that the change will seriously affect current trends. Existing and planned renewable diesel facilities are set to continue to be well utilised going forward, meaning lots of lipid consumption.

This positive outlook for the biofuels industry will at best prolong (and probably exacerbate) the sustainability risks highlighted in the AVMO report (Malins & Sandford, 2022). When growth in demand for food commodities outstrips growth in supply, food prices surge (see Figure 6). In the short term, this impacts consumers around the world, including those living in and close to poverty. In the medium term, higher prices drive farmers towards agricultural intensification and expansion. The resulting pollution, land use change, habitat loss, and greenhouse gas emissions should be a cause for concern among environmentalists in the USA and beyond.

Figure 6    Soy oil price, 1990-2023, in 2010 USD
Source: World Bank Commodity Pink Sheet

Footnotes

1 Renewable diesel is also known as hydroprocessed vegetable oil (HVO). We use the term renewable diesel here to fit with the USA context.

2 Recent divergences are seen in May 2024 when production output declined sharply, or in July 2024 when total capacity fell due to sluggish demand putting an operator out of business (Khan, 2024).

3 The highest returns for fuel suppliers are realised in states with an extra layer of policy incentive (such as California’s LCFS), so for a fuel supplier it would make financial sense to cram as much fuel as possible into those markets. Biodiesel is limited by a blend wall; renewable diesel isn’t.

4 RFS obligation levels are stated as a number of ethanol gallons equivalent and we follow this convention (1 EGE = 75,583 British thermal units on a lower-heating basis). Due to the varying energy content of different fuels, 1 EGE translates to about 0.63 gallons of biodiesel or 0.59 gallons of renewable diesel.

References

Khan, S. (2024, September 30). US renewable diesel production capacity posts largest monthly decline on record. Reuters. https://www.reuters.com/business/energy/us-renewable-diesel-production-capacity-posts-largest-monthly-decline-record-2024-09-30

Malins, C. (2020). Soy, land use change, and ILUC-risk. In Cerulogy. https://www.cerulogy.com/soy-land-use-change-and-iluc-risk/

Malins, C., & Sandford, C. (2022). Animal, vegetable or mineral (oil)? Exploring the potential impacts of new renewable diesel capacity on oil and fat markets in the United States. Cerulogy. https://theicct.org/publication/impact-renewable-diesel-us-jan22/

OECD. (2024). OECD-FAO Agricultural Outlook 2024-2033. OECD Data Explorer. https://data-explorer.oecd.org/?lc=en

U.S. Department of Agriculture. (2024a). Oil Crops Yearbook: Dataset. Economic Research Service. https://usda.library.cornell.edu/concern/publications/5x21tf41f?locale=en

U.S. Department of Agriculture. (2024b). Oilseeds: World Markets and Trade. In Foreign Agricultural Service. https://apps.fas.usda.gov/psdonline/circulars/oilseeds.pdf

U.S. Department of Agriculture. (2024c). U.S. Renewable Diesel Production Growth Drastically Impacts Global Feedstock Trade. International Agricultural Trade Report. https://fas.usda.gov/data/us-renewable-diesel-production-growth-drastically-impacts-global-feedstock-trade

U.S. Energy Information Administration. (2021, July 29). U.S. renewable diesel capacity could increase due to announced and developing projects. Today in Energy. https://www.eia.gov/todayinenergy/detail.php?id=48916

U.S. Energy Information Administration. (2024a). Biofuels operable production capacity. Monthly Biofuels Capacity and Feedstocks Update. https://www.eia.gov/biofuels/update/

U.S. Energy Information Administration. (2024b). Table 10.4a Biodiesel Overview. Monthly Energy Review. https://www.eia.gov/totalenergy/data/browser/index.php?tbl=T10.04A

U.S. Energy Information Administration. (2024c). Table 10.4b Renewable Diesel Fuel Overview. Monthly Energy Review. https://www.eia.gov/totalenergy/data/browser/index.php?tbl=T10.04B#/

U.S. Energy Information Administration. (2024d). U.S. Renewable Diesel Fuel and Other Biofuels Plant Production Capacity. Petroleum & Other Liquids. https://www.eia.gov/biofuels/renewable/capacity/

U.S. Environmental Protection Agency. (2023). Renewable Fuel Standard (RFS) Program: Standards for 2023–2025 and Other Changes | Regulatory Impact Analysis. https://downloads.regulations.gov/EPA-HQ-OAR-2021-0427-1114/content.pdf

U.S. Environmental Protection Agency. (2024). RINs Generated Transactions. Fuels Registration, Reporting, and Compliance. https://www.epa.gov/fuels-registration-reporting-and-compliance-help/rins-generated-transactions

 

Biofuels and food markets

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A period of food price inflation starting in 2020, exacerbated by the invasion of Ukraine, brought the ‘food versus fuel’ issue back into the political spotlight in recent years. This review paper for Oxfam discusses the evidence relating to the impact of biofuel mandates on food prices, updating our previous review on the subject, which is available here. It concludes that it is clear that biofuel policies have increased the prices of food commodities globally, and that these price increases have had a net negative impact on the global poor even though some net food producing farmers will have benefitted.

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Accentuating the positive?

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Estimating emissions associated with indirect land use change (ILUC) is a fundamental part of analysing the likely net GHG emissions impacts of biofuel mandates, and in some regulations (e.g. U.S. Renewable Fuel Standard, California Low Carbon Fuel Standard and ICAO’s CORSIA) estimates of ILUC emissions associated with specific feedstocks have been integrated into regulatory lifecycle analysis frameworks. This academic paper, co-authored by Chris Malins of Cerulogy with Richard Plevin and Robert Edwards, examines the development of one particular model for estimating ILUC emissions (GTAP-BIO) and asks how well supported by relevant data and/or analysis various adjustments and innovations introduced to the model over the past decade or so have been.

Particular attention is paid to a series of model amendments that have enhanced the role of intensive responses (increased productivity on existing agricultural land) in the model and reduced the predicted extent of land use changes from biofuel policy. The paper finds that there is a lack of compelling evidence supporting adopted assumptions, and that on more than one occasion model adjustments that have been presented as ‘neutral’ have in fact predictably resulted in reduced output ILUC values. It also notes that while the ‘cropland-pasture’ land category in the U.S. has been made central to the model outcomes there is very little evidence available to confirm that this is a realistic assumption, and that emission factors have been adopted for cropland-pasture conversion that are difficult to justify analytically. Reductions in modelled ILUC estimates ought therefore to be understood as at least as much the result of subjective decisions by the modelling teams involved as the result of any objectively demonstrable improvement in our understanding of the systems being studied.

The paper concludes that it is unclear whether more recent published ILUC estimates are likely to be closer to the ‘real’ average ILUC values for corn ethanol and soy biodiesel than higher values from earlier assessments.

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Risk management

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The recast Renewable Energy Directive, agreed last year, created a new category of high ILUC-risk biofuels, along with defining a role for certifying low ILUC-risk biofuels. This report, undertaken for Transport and Environment, reviews the links between biofuel feedstocks and conversion of high carbon stock land, and looks at the challenges in certifying feedstocks for avoiding displacement. It finds that both palm oil and soy oil production continue to be associated with significant deforestation, and in the case of palm oil with peat drainage, and recommends that these should be categorised as high ILUC-risk by the European Commission.

Reviewing the status of the low ILUC-risk concept, the report draws attention to the difficulty of measuring the impact of productivity improvement projects and the importance of robust demonstration of project additionality, and proposes a an outline for an effective low ILUC-risk certification.

 

Thought for food

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Since the food price crisis of 2006-2008, there has been a lively debate about the impact of biofuel demand on food markets, prices and security, with some biofuel advocates characterising the idea of competition between food and fuel as a ‘myth’. This review for Transport and Environment and Birdlife Europe shows that there is an extensive literature supporting the belief that biofuel demand is likely to cause food prices to rise, and that these price rises will result in significant wealth transfers from consumers to producers and have negative welfare implications for poor households in the developing world. Far from reflecting ’emotional’ responses divorced from the available evidence, concerns about the impacts of biofuel demand on global poverty are well supported and legitimate – while the flat denial that biofuel demand affects food markets is disingenuous and divorced from the mainstream of expert opinion. On the other hand, biofuel demand is only one relatively small factor in the overall picture of global food insecurity, and the benefits of biofuel policy should be compared soberly to the potential negative externalities.

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