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SP Global Commodity Insights Top Biofuels Market Trernds 2022 and Beyond Whitepaper
SP Global Commodity Insights Top Biofuels Market Trernds 2022 and Beyond Whitepaper
SP Global Commodity Insights Top Biofuels Market Trernds 2022 and Beyond Whitepaper
Market Trends in
2022 and Beyond
1) Policies that create incentives for Similarly, Oregon is scheduled to release new targets in
2022. The current target is a 10% reduction in average
biofuels are expected to continue to carbon intensity by 2025 (vs. 2015 baseline). Planned
spread and become more stringent proposals call for 20% reduction by 2030 and 37%
Policies underpin the growth of biofuels demand. by 2035.1
Biofuel supporting policies have tended to take the In May 2022, British Columbia filed legislation that
shape of mandates that require certain biofuel blends expands coverage of its LCFS to include maritime and
or targets, and initiatives, such as the Low Carbon Fuel aviation fuels, and additional credit generating activities.
Standard (LCFS), which requires a reduction in the
carbon intensity (CI) of transportation fuels over time.
The LCFS is spreading as the preferred policy framework
in key biofuel markets largely because of its emphasis North America LCFS Status
on CIs, which is intended to be technology neutral.
The LCFS and similar programs are currently in force
in California, Oregon (Clean Fuels Program), British
Columbia, and Brazil (RenovaBio). Additional LCFS
programs are expected to be implemented in Canada
and Washington.
By the end of 2023, the entire west coast of the United
States and all of Canada are expected to have LCFS
in place. LCFS in these jurisdictions will affect around
slightly more than 2 million barrels per day (b/d) of
gasoline and 900 thousand b/d of diesel based on 2019
demand, which is when S&P Global expects demand for
those fuels to have peaked in North America.
Several additional states have announced proposals
for LCFS to varying degrees. In April 2022, Michigan
released its “Michigan Healthy Climate Plan,” which
included a recommendation to create a LCFS in the
state. LCFS again failed to pass in New York during the
most recent legislative session as opponents argued for
more aggressive measures to achieve decarbonization.
S&P Global expects lawmakers in New York to make
another attempt next year. On the other side of the
Atlantic, proposals for a revised Renewable Energy
Directive (RED) II that were introduced in July 2021 as
part of the “Fit for 55” legislative package included a
shift in focus from consumption targets to greenhouse
gas (GHG) intensity reduction targets.
More stringent LCFS targets are expected to be set LCFS Programs
in a few key jurisdictions, namely California, Oregon, Existing
and British Columbia. Under its rule making process, Approved
Proposed
California is currently considering changing the CI Proposed, but Unsuccessful
reduction requirement of 20% by 2030 (compared
to a 2010 baseline). California is often regarded as a
successful standard setter by other LCFS jurisdictions, Map up to date as of June 2022
so the state’s decisions will have impact beyond its
borders. In their comments, stakeholders have largely
spoken out in favor of more stringent targets primarily
out of concern for recent drop in LCFS credit prices.
1 “Proposed Targets: CFP Expansion 2022 Rulemaking,” Oregon Department of Environmental Quality.
2) Significant uncertainty lingers over Fuel nesting scheme for Renewable Fuel Standard
specific biofuel related policies
Policy uncertainty poses continual risks for the
biofuels industry, but 2022 will mark a juncture for a
couple of key biofuel supporting policies. Conventional renewable fuel (D6)
Example feedstock: Corn Starch
First, the U.S. federal Renewable Fuel Standard (RFS)’s
Required lifecycle GHG reduction: 20% or more
authority to set volume requirements switches after
2022 to the Environmental Protection Agency (EPA)
from what was laid out in the statute. The EPA has
faced numerous challenges in implementing the RFS
over the years, such as juggling the interests of biofuel
producers, refiners, and even the farm sector. Advanced biofuel (D5)
Example feedstocks: Sugarcane, biobutanol, bionaphtha
While many of these challenges will continue to Required lifecycle GHG reduction: 50% or more
persist, another key issue is that D4 renewable
identification numbers (RIN) generation has come to
exceed its targets to a greater degree in recent years.
The rate of D4 RIN generation is expected to continue
to outpace the rate of change of renewable volume Cellulosic biofuel Biomass-based
obligation (RVO) due to sustainable aviation fuel (SAF) (D3) diesel (D4)
blending and increased biodiesel and renewable Example feedstocks: Example feedstocks:
diesel (RD) blending in states with LCFS. This issue will Corn stover, wood chips, Soybean oil, canola oil,
only be exacerbated as the LCFS continues to spread. miscanthus, biogas waste oil, animal fats
A disconnect between EPA direction, industry growth, Required lifecycle GHG Required lifecycle GHG
reduction: 60% or more reduction: 50% or more
and state initiatives could impact RIN prices, which in
turn could affect investment in the sector. S&P Global
expects the RFS to be supportive of greater biofuel
blending. Source: US EPA © 2022 S&P Global
2 “U.S. biomass-based diesel tax credit renewed through 2022 in government spending bill,” U.S. Energy Information Administration, January 28, 2020,
https://www.eia.gov/todayinenergy/detail.php?id=42616
3) Sustainable aviation fuel is taking Hydroprocessing remains the dominant technology and
bio-oils are still the main feedstock, but gasification
off as the airline industry explores Fischer-Tropsch and other technologies that use
a diverse set of technologies biomass, landfill waste and ethanol-to-jet are emerging
and outpaces policymakers as alternative feedstocks in some recent agreements.
The S&P Global outlook for renewable jet fuel is
The move towards reducing CO₂ emissions from
for growth starting in the latter half of this decade.
aviation has been gaining ground in the last few
The airlines’ foray into a more diverse set of novel
years. An increasing number of airlines have started
technologies could be due to the substantial SAF
to announce GHG reduction targets and offtake
volumes needed yet relatively few fuel choices available
agreements for SAF. There is an emerging trend of
to a large commercial aircraft due to energy density and
airlines – on their own or with fellow members of an
safety requirements. Agricultural innovations also have
airline alliance – investing in non bio-oil technologies
great potential to reduce the CI of feedstocks, such as
and feedstocks, such as biomass and
ethanol, sugar and biomass, compared to waste oils and
ethanol-to-jet fuel.
fat. This trend of airlines signing offtake agreements
with producers utilizing innovative SAF technologies is
expected to continue.
10,000
9,000
8,000
7,000
Thousand b/d
6,000
5,000
4,000
3,000
2,000
1,000
0
30
40
36
38
39
20
33
34
35
26
28
29
23
20 2
24
25
37
22
27
10
16
18
19
13
31
14
15
12
21
17
11
3
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Other
Engine manufactuer
Airport
Aircraft manufacturer
Airline alliance
Airline
Oil Company
Biomass Bio-oils Ethanol Landfill Waste CO ₂ and water Algae Other or unannounced
Note: This chart is intended to be illustrative, not comprehensive of all agreements.
Source: S&P Global © 2022 S&P Global
Percent share of SAF offtake agreements by technology, 2018-2022 YTD
Other
Engine manufacturer
Airport
Aircraft manufacturer
Airline alliance
Airline
Oil company
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Currently, SAF is eligible to generate LCFS credits, for bio and renewable diesel. The now stalled Build
but jet fuel is not an obligated fuel under existing Back Better Act includes proposals for a BTC of $1.25/
programs. Under the RFS, SAF has several approved gallon for SAF that achieves a 50% reduction in lifecycle
pathways and can generate the same RINs as GHG emissions. An additional $0.01/gallon is granted
renewable diesel and biodiesel. In addition, the EU for each additional percentage reduction in emissions
has proposed SAF mandates under the ReFuelEU up to $1.75. Some airlines have also sought to get
Aviation initiative and a few European countries have passengers to contribute to the cost of flying with SAF.
also proposed or implemented their own mandates. For example, KLM announced in January 2022 that it
S&P Global expects additional SAF policy frameworks would begin using a fuel blend containing 0.5% SAF
to follow. on all flights departing Amsterdam, which would result
Notably, airlines are increasingly taking the lead in in increased ticket prices of 1 to 12 euros to cover the
establishing policies and incentives favorable for the cost. These efforts by airlines to keep pressing ahead
uptake of SAF. For example, airlines have been active for SAF supporting incentives and policies are expected
in lobbying for a BTC for SAF that would be higher than continue into 2022 and beyond.
4) Renewable diesel capacity production also generates LCFS credits and the BTC
depending on the configuration. Together, they account
expansion growth is expected to for around 31% of the value of soybean oil based
continue in 2022 and through 2025 renewable diesel. The impact of renewable diesel
Renewable diesel, alternatively known as hydrotreated capacity growth on LCFS credit as well as D4 and D5 RIN
vegetable oil (HVO), has come to account for an prices is a potential risk. Additional risks to renewable
increasing share of credit generation under the diesel capacity growth include supply and cost of
California LCFS program (31% in 2020 vs. 4% in 2012).3 feedstocks, and greater than expected penetration of
The primary appeal of renewable diesel is that it is a EVs. Some renewable diesel conversion projects have
“drop in” fuel with similar properties as fossil diesel fuel encountered delays due to feedstock costs and limited
that does not face blending limits. feedstock pretreatment capacity or PTU which has
further increased feedstock costs.
An increasing number of refineries, particularly in
North America, have made investments in recent S&P Global expects approximately 40 thousand b/d of
years to facilitate the production of renewable diesel. US renewable diesel capacity to come onstream in 2022.
Renewable diesel provides a path for refineries in Between 2022 and 2025, renewable diesel capacity
a future where total refined product demand has in North America could increase to 413 thousand b/d
already peaked in North America and decarbonization based on announced projects.
of transportation fuels continues. Renewable diesel
200
100
Carbon intensity (gCO2e/MJ)
-100
-200
-300
-400
-500
-600
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