November 02, 2020

US Biofuel Volumes Could Increase Substantially under Biden Administration & Aggressive Decarbonization Push

Stratas Advisors

This is an exclusive report from our Renewable & Alternative Fuels offerings.

US presidential candidate Joe Biden’s assertion that his administration would, “transition from the oil industry” shocked many inside the energy industry. Potential policy measures undertaken by a Biden administration could accelerate developing trends in the energy industry and greatly affect the biofuel market in the US and across the world. 

In this piece, Stratas Advisors highlights potential policies under a potential Biden administration as many of President Trump’s biofuel policies are well-known and we have covered many of these policies and their impact over the past four years. While campaign promises and ambitious legislation often do not materialize into actual policy, we have incorporated possible scenarios into our demand forecasts. One scenario anticipates an aggressive decarbonization push from the US, more likely to begin under a Biden administration, and our other scenario is a base-case projection, more likely to occur if President Trump is re-elected.

Joe Biden’s campaign climate plan, entitled a ‘Clean Energy Revolution’, involves $1.7 trillion USD in renewable energy infrastructure to be spent over 10 years. Of which, $400 billion USD has been earmarked for research/innovation and this plan has a stated goal of “ensuring the U.S. achieves a 100% clean energy economy and net-zero emissions no later than 2050.” The Clean Energy Revolution would use the polemic 'Green New Deal’ as a framework and would likely involve some key figures who supported that effort.

In addition, Biden has stated that he supports the House Select Committee on the Climate Crisis’ plan for a clean energy economy. This plan suggests implementing a nationwide LCFS (Low-Carbon Fuel Standard) program, pioneered at the state-level by California, as part of a transition to zero-emission vehicles. The committee’s recommendations did not include concrete details; specific targets and carbon intensity scores would be fleshed out by other congressional committees if this legislation is pursued under a Biden administration. However, the committee did articulate its belief that biofuels were key ‘transition fuels’ that would greatly help reduce emissions through 2030 and then gradually be replaced by other alternative fuels such as hydrogen and electricity. They also suggested that post-2030, biofuels could be used in other sectors such as trucking, shipping, and aviation, with a biojet mandate. A biojet mandate in the US could help HVO producers if they face a future with large decline in diesel demand as electric vehicles (EVs) and other alternative fuel vehicles displace diesel-fueled vehicles through mandates or consumer trends. Conventional biojet, also known as HEFA, can be produced at HVO production facilities with some adjustments to the production process.

In August, the Biden campaign participated in a Renewable Fuels Association (RFA) event and highlighted the Small Refiner Exemptions (SREs) issue to criticize President Trump in crucial agricultural midwestern states ahead of the election.A Biden administration would likely eliminate SREs, which the RFA contends has cost the US ethanol industry billions of dollars in lost revenue and lead to a swell in RIN credit inventories as obligated parties are given exemptions to their compliance with the Renewable Fuel Standard. The Trump administration’s EPA recently rejected SRE petitions for previous years, commonly referred to as “gap year” petitions to try and make amends with the ethanol industry during an election year. However, the Trump administration has increased the amount of SREs granted by over fourfold and angered much of the US biofuel industry.

The potential biofuel volumes under a Biden administration will depend on the detailed specifics involved in any aggressive push to lower carbon emissions and be constrained by prevailing market forces such as feedstock availability and vehicle fleet composition. While a countrywide LCFS might suggest that market trends from California's LCFS program would continue on a larger scale, a limited supply of feedstock would hamstring a large expansion in HVO demand. The limited global supply for HVO feedstock, especially feedstock with a low carbon intensity, would constrain the HVO market's expansion, while FAME’s blending limit and a push for EVs and alternative fuel vehicles would limit the biodiesel market in general. Ethanol’s future volumes would also be limited to changing fleet dynamics and its blending limits. Ethanol blending rates would likely be bound to 15 or potentially 20% by volume as flex-fuel vehicles are not likely to expand as fast as electric and alternative fuel vehicles would under an aggressive decarbonization scenario in the US. 

Our aggressive decarbonization scenario assumes a countrywide LCFS program and an elimination of SREs in the US biofuels market. Under this scenario, 2030 US biofuel demand could reach around 1,370 thousand bbl/d, while our base-case projection is around about 1,120 thousand bbl/d. This aggressive decarbonization scenario would constitute around 220 thousand bbl/d of FAME demand, 245 thousand bbl/d of HVO demand and 905 thousand bbl/d of ethanol demand.  Broken down by feedstocks, the largest three biofuel volumes would be corn ethanol with about 859 thousand bbl/d, soybean oil FAME with 135 thousand bbl/d and animal fats HVO with 73 thousand bbl/d of demand.Animal fats HVO would provide the most relative GHG emissions savings of these three fuels with an average Carbon Intensity (CI) Rating of 34.5 g CO2/MJ  according to the California Air Resources Board, followed by soybean oil FAME with a CI of 54.2 g CO2/MJ and corn ethanol with an average CI rating of 72.5 g CO2/MJ

While these demand numbers represent substantially higher blending rates than in our base-case scenario, the overall biofuel volumes would be constrained by a decrease in the overall gasoline and diesel pools in the aggressive decarbonization scenario given the rise in EVs and alternative fuel vehicles. For reference, 2019 US biofuel demand was about 1,110 thousand bbl/d. 

US LCFS Scenarios

Source: Stratas Advisors

Under our aggressive decarbonization scenario, we predict a potential post-2030 future of declining volumes of biofuels as legacy-fueled vehicles exit the national fleet until biofuel demand more or less reaches a floor. HVO, especially from low-carbon intensity rated feedstocks such as used-cooking oil (UCO), could be one biofuel prominently used in 2050 in diesel-powered trucks and in certain industries such as shipping. Also, the biojet market would likely grow throughout this forecast period through mandates and decarbonization pushes from airlines. However, most of the existing biofuel volumes would have been replaced by alternative fuel vehicles. In this manner, biofuels would have served as “transition fuels” providing lower-carbon emissions while newer technologies, vehicle fleets, and infrastructure are developed and implemented to try and reach a net-zero emissions future in 2050. The biofuels industry could change significantly depending on what happens during the 2020 presidential election and what policy measures are pursued in the near future. 

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