EIA projects US renewable diesel supply to surpass biodiesel in near term
In the U.S. Energy Information Administration’s Annual Energy Outlook 2022 reference case, which reflects current laws and regulations, the agency projects that renewable diesel supply (domestic production and net imports) will exceed biodiesel supply in the near term. It predicts that renewable diesel supply will increase to 5.46 million gallons per day in 2022 and 6.09 million gallons per day in 2050, reflecting a significant increase in renewable diesel production capacity in the near term.
EIA projects that production of renewable diesel supply will grow because of its compatibility with existing distribution infrastructure and engines, higher state and federal targets for renewable fuel production, incentives from tax credits, and the conversion of existing petroleum refineries into renewable diesel refineries.
Targets and incentives that contribute to renewable diesel’s growth include the Renewable Fuel Standard, California’s Low Carbon Fuel Standard and the blenders tax credit, which currently applies through 2022 and allows qualified taxpayers to claim a credit of $1 per gallon when the required amount of biodiesel or renewable diesel is blended with petroleum diesel for sale or use in a trade or business. In response to the improved economics of renewable diesel due to these policy actions, domestic production capacity has increased, both in the form of new stand-alone facilities and converted petroleum refineries.
EIA assumes that policies, rather than market demand, drive the adoption of biomass-based diesel fuels in the AEO2022 reference case. Renewable diesel and biodiesel compete for the same feedstocks, so some of the projected growth in renewable diesel production displaces biodiesel production. EIA projects these two fuels will remain a relatively small part of the larger diesel market, accounting for less than 8 percent of U.S. diesel production in 2050.
Although renewable diesel has no blend restrictions, it is relatively more expensive than biodiesel to produce. By contrast, biodiesel is most often blended with another diesel fuel for consumption. Both fuels attract interest and investment because they represent a potential pathway for reducing carbon emissions in the transportation sector and provide an alternative fuel source to petroleum-based diesel fuel.