The story of biofuel production and demand in the United States in the 21st century is one of growth. The first decade of the century was characterized by rapid growth in ethanol derived from corn, with use of corn for alcohol fuel propelled by aggressive national policy in the form of the Renewable Fuel Standard. Since 2010, use of corn for alcohol fuel has plateaued or decreased, while biomass-based diesel (BBD) fuels biodiesel and renewable diesel have increased dramatically in prevalence under supportive national policy. 

The Renewable Fuel Standard (2)

The RFS is considered the primary driver of biofuel production in the United States. Created under the Energy Policy Act of 2005, the RFS was amended to the RFS2 in 2007 and established the first renewable replacement mandates for diesel. Under the RFS2, companies that refine, import, or blend fossil fuels are required to meet quotas, or Renewable Volume Obligations (RVOs). A producer’s RVO can be met either by producing a certain quantity of biofuel or paying the appropriate amount in Renewable Identification Numbers (RINs), tradable credits generated by the production of biofuel and the currency of the RFS. The RVO system has created a market for RINs, which vary in value by biofuel category: renewable (sometimes referred to as “conventional”) biofuel, biomass-based diesel (BBD), cellulosic biofuel, and other advanced biofuel. In 2006, the RFS required that four billion gallons of renewable fuel be produced; that number ascended to 36 billion gallons in 2022.1

The majority of RFS obligation has historically been fulfilled by ethanol, which falls under the category of renewable/conventional biofuel. Biodiesel and renewable diesel are the two primary types of biofuels that satisfy the RFS’s BBD mandate.

Ethanol

Ethanol is the dominant form of biofuel in the United States, though its share is diminishing. In the United States, ethanol is primarily derived from corn via distillation, while in other countries ethanol may be primarily derived from sugar, crop residue, or wood chips. The U.S. Department of Energy estimates that 98% of commercial gasoline in the United States contains ethanol, with a 10% blend wall (E10) being the most common formulation. Countering a common criticism, the U.S. Department of Energy maintains that ethanol derived from corn demonstrates a “positive energy balance,” meaning that the fuel itself provides more energy than is required to produce it.2

Chart 1: U.S. Ethanol and Biomass-Based Diesel Production Capacity (million gallons)

The share of corn used for ethanol peaked in 2012 at 40% of total domestic corn disappearance after a sharp rise in the first decade of the millennium, following the then-new RFS mandate. Alcohol for fuel use has since averaged 35%, declining in absolute terms since 2021. One boon for ethanol’s future may be demand for sustainable aviation fuel (SAF), for which ethanol is an approved feedstock.

Chart 2: Percent of total disappearance of Corn used for fuel in the United States (million bushels)

Biodiesel and Renewable Diesel

Biodiesel and renewable diesel are the two chief varieties of biofuel for which soybean oil is the primary input in the United States. Palm oil, corn oil, yellow grease, canola, tallow, used cooking oil, algal oil, and others are also constituent feedstocks in the United States, with more prevalent use internationally. Although it does not comprise a near plurality among feedstocks, yellow grease is the fastest growing BBD input in the United States,3 with waste and residual oils growing at the fastest pace globally.4 According to 2022 research published in the journal Environmental Science and Technology, life-cycle greenhouse gas emissions from biomass-based diesel range from 40% to 86% lower than that of petroleum diesel, depending on fuel type and feedstock.5

Share of domestic disappearance of soybean oil for BBD use has increased from negligible at the turn of the 21st century to almost 45% in the crop year beginning October 2022. In that time, domestic disappearance of soybeans to crushing increased 35% from 1,640 million bushels to 2,220 million bushels.6

Chart 3: Domestic Disappearance of Soybean Oil for Biofuel (million pounds)

Biodiesel is a biofuel created through a process called transesterification, yielding a Fatty Acid Methyl Ester (FAME, to which biodiesel is sometimes referred) that can be blended with petroleum diesel up to a 20% blend wall to power unmodified diesel engines. Renewable diesel, conversely, is chemically identical to petroleum diesel, allowing it to be used unblended in unmodified diesel engines. Its chemical resemblance to petroleum diesel also allows for renewable diesel to be transported through pre-existing petroleum pipelines.

The relative usefulness of renewable diesel is reflected in the relative difficulty in its production compared to biodiesel, lending to biodiesel’s historical prevalence in domestic capacity. Thanks to increasing production capacity buoyed by state and national incentive policy, however, renewable diesel production is rapidly accelerating. The EIA reported that renewable diesel production capacity could more than double between 2022 through 2025,7 according to reported capacity and the increased capacity announced by blenders. Operable production capacity of renewable diesel and other biofuels exceeded that of biodiesel in the United States in July 2022 and exceeded biodiesel capacity by 78% in July of 2023.8

Chart 4: Biomass-Based Diesel Production (million gallons)9

Renewable diesel in the United States has historically been produced and consumed in West Coast states; as California, Washington, and Oregon each offer incentive programs for production in addition to being subject to the national Renewable Fuel Standard. Biodiesel production and use, by contrast, is more prevalent in the upper Midwestern states of Minnesota, Iowa, and Illinois.[1] As of 2023, Iowa was the state with the most biodiesel plants (11), comprising 483 MMgal/year of the country’s 2,086 MM/gal.11

Looking forward

Growth will continue, particularly in renewable diesel production, the capacity for which was slower to build but is expected to see strong expansion in the near future. 

Chart 5: U.S. Renewable Diesel Nameplate Production Capacity, Projected 2023-2025

According to Farmdoc Daily, domestic capacity of renewable diesel is expected to more than double between 2022 and 2025 alone. Industry commentator Walter Cronin remarked on BBD growth: “The one limiting factor to the success of the ambitious development of renewable diesel and biojet: the feedstock, namely the only one that can scale to meet the ambitions: soybean oil.” As market dynamics evolve, CME Group will continue to provide risk management solutions for our changing world. Learn more about CME Group’s Soybean complex and suite of biofuel products at www.cmegroup.com/agriculture and www.cmegroup.com/energy.

References

Biofuel and Renewable Fuel Products

Hedge your financial risk in the global biofuels (including waste-based products) and ethanol markets with a wide range of futures and options contracts at CME Group.


All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

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