An image of two freight ships

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.

Download the report

 

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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

 

Fuelling nature

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How e-fuels can mitigate biodiversity risk in EU aviation and maritime policy

This report, commissioned by Opportunity Green on behalf of the Skies and Seas Hydrogen-fuels Accelerator Coalition (SASHA), explores the biodiversity risks associated with the EU’s efforts to decarbonise aviation and maritime transport. The ReFuelEU Aviation and FuelEU Maritime regulations aim to engender a rapid transition away from fossil fuels and towards alternative fuels; but this raises concerns for nature protection, potentially undermining the EU’s biodiversity commitments under the Biodiversity Strategy for 2030 and the Nature Restoration Regulation. Cerulogy’s report assesses how different fuel pathways – biofuels from crops, residues and waste oils, and synthetic e-fuels – compare in terms of pressure on land, habitats, species, and ecosystems.

Cerulogy modelled alternative fuel demand in the aviation and maritime segments to 2050. We considered four scenarios representing different dominant fuel production technologies: cellulosic residues, cellulosic crops, lipids, and electrofuels. For each scenario, we estimated feedstock and land requirements, and developed a biodiversity risk framework to evaluate land-use change, habitat degradation, species loss, pollution, and agrochemical use. To assess policy coherence, we examined trade-offs and synergies between the EU’s transport decarbonisation goals and its nature and biodiversity policy framework.

Our findings show that, while all fuel pathways carry some environmental risk, electrofuels may represent the lowest overall risk to biodiversity, largely due to their minimal land footprint and reduced pressure on ecosystems, species, and habitats. Even biofuels derived from residues and wastes may have implications for nature when scaled to meet growing fuel demand. The EU’s current approach risks locking in high-impact fuel systems unless it also addresses total energy use in aviation and shipping. Until policymakers are ready to confront demand growth in these hard-to-decarbonise sectors, support for options like electrofuels may be the clearest path for the EU to aligning its climate and biodiversity goals.

Download the report from the SASHA website

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.

Read the paper

 

Vertical Take-off? Cost Implications and Industrial Development Scenarios for the UK SAF Mandate

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In this paper for the International Council on Clean Transportation we consider the industrial development implications of the targets for alternative aviation fuel supply that are being introduced throught he UK’s SAF Mandate.

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4th meeting of the EU expert group on carbon removals

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Cerulogy is working for the European Commission on certification methodologies permanent carbon removals under the EU carbon removal certification framework (CRCF). Dr Malins chaired sessions focused on the certification of DACCS, BioCCS, and biochar carbon removal on the third day of the 4th meeting of the European Commission’s Expert Group on Carbon Removals.

Watch the recording

 

ICCT Global Automaker Rating for 2023

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The second Global Automaker Rating report, published by the International Council on Clean Transportation (ICCT), assesses how global car manufacturers are placed in their adoption of electric vehicles. The report covers technology, market, and corporate governance dimensions. Having supported the first Global Automaker Rating in 2023, Cerulogy were glad to contribute once again by reviewing the methodology, data collection, and data analysis.

Download from ICCT

Stakeholder workshop on the Innovation Fund

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On the 11th June the European Commission DG Climate Action held the 2024 stakeholder workshop on the Innovation Fund. Cerulogy’s Chris Malins hosted the session on the Energy Intensive Industries.

Watch the recording

 

 

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‘Low ILUC-Risk’ as a Sustainability Standard for Biofuels in the EU

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Indirect land use change (ILUC) can add significantly to biofuels’ carbon footprint, and the EU has implemented measures to limit ILUC arising from its energy policy. The paper argues that ‘low ILUC-risk’ certification could be positioned as a gold standard of biofuel sustainability, as it minimises biofuels’ impacts on food markets and on ILUC, and offers possible co-benefits through the adoption of more sustainable farming practices.

In the paper we develop policy-focussed recommendations for the low ILUC-risk framework — these are intended to boost its attractiveness and applicability to feedstock producers around the EU and beyond, and strengthen its environmental safeguards.

For instance, we discuss how the crediting methodology could manage seasonal variability in on-farm yields; the connection between low ILUC-risk and the EU Renewable Energy Directive’s ‘Annex IX’; provisions to facilitate the certification process; and more…

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Low ILUC pilots and guidance

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The final deliverables from Cerulogy’s work with Guidehouse on low ILUC-risk biofuels for the European Commission has now been published. The published documents include reports from five low ILUC-risk pilot audits, certification guidance and a discursive report.

Low ILUC-risk documents