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U OF ILLINOIS AG ECONOMISTS REPORT ON THE EXPLOSIVE GROWTH OF RENEWABLE DIESEL
Dec. 26, 2023
By Maria Gerveni and Scott Irwin, Department of Agricultural and Consumer Economics, University of Illinois and Todd Hubbs, Department of Agricultural and Consumer Economics, University of Illinois
The growth in renewable diesel production capacity in the U.S. was dramatic in recent years, with capacity in the last two years expanding by 1.8 billion gallons, or 225 percent (farmdoc daily, March 8, 2023). One of the most discussed and debated aspects of the renewable diesel boom is its impact on feedstock markets, such as soybean oil. In a previous farmdoc daily article (May 1, 2023), we examined historical feedstock usage trends for the combined total of renewable diesel and biodiesel over 2011 through 2022. Our most recent farmdoc daily article (December 11, 2023) article examined feedstock usage trends for biodiesel alone, and found that soybean oil dominated as a feedstock for FAME production. The purpose of today's article is to investigate feedstock usage trends for renewable diesel over 2011 through 2022. This is the 12th in a series of farmdoc daily articles on the renewable diesel boom (see the complete list of articles here).
Analysis
The two main types of biomass-based diesel (BBD) fuels used to comply with the U.S. Renewable Fuel (RFS) mandates are "renewable diesel" and "FAME biodiesel." Although renewable diesel and FAME biodiesel are produced with the same organic oils and fats feedstocks, their production process differs substantially, resulting in the creation of two fundamentally different fuels (for details see farmdoc daily, February 8, 2023).
Table 1 lists the most common organic oils and fats feedstocks used to produce renewable diesel (this list is the same for FAME biodiesel). The first group consists of vegetable oils that are produced by crushing vegetable seeds, such as soybeans and canola. The second group consists of animal fats that are by-products of slaughtering animals. Yellow grease is a unique type of feedstock because it can be made up of various kinds of fats and oils. A key component of yellow grease is used cooking oil; hence, the category "waste fats and oils." It is not hard to grasp the diversity of fats and oils in yellow grease when one thinks about all the different vegetable oils and animal fats that are used for cooking in retail food businesses. This makes yellow grease something of a catch-all type of feedstock. Lastly, it is important to note that the list of feedstocks in Table 1 is by no means exhaustive.
Following our previous farmdoc daily articles (May 1, 2023; December 11, 2023), we begin by estimating total feedstock usage for renewable diesel. This is based on benchmark estimates of the pounds of feedstock used per gallon in the production of renewable diesel. Xu, et al. (2022) report that an average of 8.125 pounds of feedstock is used to produce one gallon of renewable diesel, which is the assumption used in our farmdoc daily article of May 1st. However, conversations since then with industry sources indicate that 8.5 pounds of feedstock per gallon of renewable diesel is a more widely accepted benchmark. (For example, see the next to last slide in this presentation from Diamond Green Diesel). Therefore, we multiply EIA estimates of monthly renewable diesel production by 8.5 to imply total biodiesel feedstock usage. The monthly production estimates are published by the Economic Information Agency (EIA) of the Department of Energy (DOE) in the Monthly Energy Review over January 2011 through December 2022. We then aggregate to the annual level by summing the monthly feedstock estimates within a calendar year.
Figure 1 presents our annual estimates of implied total feedstock usage over 2011 through 2022 for renewable diesel. The chart highlights the huge increase in feedstock usage that has occurred because of the renewable diesel boom. As recently as 2017 total feedstock usage for renewable diesel was a little over two billion pounds. This surged to nearly 13 billion pounds in 2022, a six-fold increase. Total feedstock usage grew over five billion pounds in 2022 alone. For perspective, the latest USDA WASDE report for December estimates that 61.93 million metric tons, or 136.53 billion pounds, of soybean oil will be produced in the world during the 2023/24 marketing year. Total feedstock used for producing renewable diesel in 2022 represents 9.3 percent of this projection of global production of soybean oil.
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