A new report from TEI provides an overview of the economics of U.S. crop-based fuel production.
By Keith Reid
The Transportation Energy Institute (TEI) recently released “Balancing the Benefits of Biofuels: The Economics of U.S. Crop-Based Fuel Production.” This report was developed for TEI by Stillwater Associates, a transportation fuels consulting firm specializing in mid to downstream markets.
Biofuels possess great potential to contribute to a lower carbon transportation sector, yet questions remain regarding the overall economic and environmental impact of the industry. While biofuels are produced from a wide range of feedstocks, those produced from crop-based feedstocks raise the most questions due to potential conflicts with the use of those same crops for food and livestock feed.
With the broad push for EVs, why are biofuels important? “Even in the most optimistic scenario for electric vehicle adoption, combustion vehicles will remain in operation in the United States for decades,” said John Eichberger, TEI executive director.
“If we care about emissions reductions, like carbon, we must not ignore the emission from these vehicles,” said Eichberger. “We published a study a few years back that demonstrated nearly 75% of carbon emissions from combustion vehicles come from the burning of the fuel. To have an impact, we must reduce the carbon intensity of our fuels, and biofuels are the most viable option today to achieve this objective.”
The report offers a current analysis of the range of economic inputs that go into biofuel production. Conclusions are drawn in some areas, while many remain open as the variables that impact economics are not set in stone. Market conditions, policy shifts and other facts can, in some cases, change an outlook overnight. The report can be downloaded for free at www.transportationenergy.org.
An Overview of the Biofuels Landscape
At present, ethanol, biodiesel (BD) and renewable diesel (RD) combined make up more than 99% of all U.S. biofuel production. The market for sustainable aviation fuel (SAF) is currently in its infancy, with some problematic ramifications. The report notes that with sufficient policy support, SAF will grow over the coming decades and compete for the same feedstocks used for ethanol, BD and RD. The magnitude of the policy incentives and associated rate of growth in SAF production is a public policy decision, so there is no attempt to forecast that in this report. The specific policy enactments will impact the extent to which this results in changing the use of the feedstocks covered by the outlook versus simply increasing the demand for those feedstocks. As these markets evolve, the analysis laid out in the report should evolve as well.
The Current Landscape of Feedstock Production
The primary crop-based feedstocks used to produce ethanol, BD, RD and SAF in the United States are corn, soybeans and canola. Biofuel feedstock acreage jumped sharply between 2010, the first year of the current federal Renewable Fuel Standard (RFS) program, and 2011. Since then, the acreage requirement has been relatively steady at between 40 and 47 million acres per year (average 44.3 million acres). Additionally, per acre yields of each of the primary biofuel feedstocks have been growing steadily over time; the cumulative effect of these trends is that the supply of these feedstocks has grown more rapidly than the acreage dedicated to these crops. Key factors contributing to this steady growth in yields are regular improvements in seeds as well as adoption of improved agronomic practices by the many individual farmers growing these crops.
A large portion of these gross feedstock volumes are returned to feed markets as meal (soybean and canola) or distillers grains (corn and grain sorghum). This net acreage calculation shows that acreage dedicated to biofuel production peaked at 28 million acres in 2012 and has held relatively steady between 22 and 25 million acres since then.
Yes—of 44 million acres total, the yield that is used to produce biofuels is equal to 22-25 million acres, the rest of the production used for other purposes. Not all of the corn, soybean and canola can be converted to biofuels, and the byproducts are used largely to feed livestock. Another part of the study said that absent biofuels production, we would need to increase total acreage by 15 million acres to generate enough food for livestock to replace the biofuels byproduct.
At the same time, biofuel production efficiency has increased over the past decade. The U.S. Energy Information Administration (EIA) in its 2023 Annual Energy Outlook expects 2024 to be the near-term peak for U.S. ethanol, BD and RD production—and therefore also for feedstock demand—given the federal and state incentive programs in place.
The Food Versus Fuel Debate
A relatively old debate in biofuel production has been the claim that the feedstocks are better used, or in fact needed, as an international food source for the human population. Is that the case?
Overall demand for food, both in the U.S. and globally, is set primarily by growth in population and secondarily by economic growth. How overall food demand translates into demand for corn, grain sorghum, soybeans and canola will also be dependent on trends in food preferences (e.g., preference for meat versus vegetables in the diet), which are difficult to predict and outside the scope of this report.
The impact of the production of corn ethanol on food prices and indirect land use change was more significant in the early years of the RFS than it is now. These effects were exacerbated by other factors, including low crop stocks, high energy prices and growing overseas demand for food. Agricultural supply responded to higher prices by increasing productivity, inducing more double cropping, and changing the mix of crops; U.S. crop acres have decreased over time, but acres dedicated to corn and soy have become a larger share of the mix. The mix of livestock products demanded over time has also changed. In the long run, the demand and supply of agricultural commodities tends to be more elastic, and this has helped mitigate the food versus fuel effects.
The interplay between food and fuel is complex. Demand for food, both in the United States and globally, is set primarily by growth in population and secondarily by economic growth. A meta-analysis of the literature on the subject, however, supports the finding that biofuels are not a leading source of high prices of commodities, including food crops.
Making Biofuels Even Lower Carbon
While biofuels currently offer lower carbon profiles than conventional fossil fuels, there remains an ability to reduce that carbon content even further. There is significant potential to lower the carbon intensity of corn ethanol by adopting climate-smart practices for crop production, such as increasing the efficiency of nitrogen fertilizer use, reducing the use of fossil energy for crop production, and increasing soil carbon sequestration. Positive environmental opportunities could be supported if policies take into consideration environmental impacts across agencies and sectors, just as those factors are considered in the transportation sector.
To incentivize continued carbon reductions in the agricultural side of the equation, for example, regulators might consider establishing a mechanism for biofuel producers to earn credit from improved feedstock production processes that will increase the climate change and environmental benefits of biofuels. Government policies that supplement existing policies could be helpful. These might include conservation programs as well as pricing carbon and nitrate emissions to create incentives for the agricultural industry to adopt new technologies that increase productivity while lowering environmental impacts. By creating consistent and growing demand, state low carbon fuel programs and the federal RFS and clean fuels provisions in the Inflation Reduction Act of 2022 can also help drive increased efficiencies in the cultivation of renewable feedstocks and in the production of renewable fuels from those feedstocks. To successfully drive renewable fuel production and adoption, however, these programs must reduce the costs of feedstock and fuel production to the point at which the market can afford their use.
Net Zero Versus Impactful Reductions
One issue not emphasized in the report is the resistance among large segments of the environmental community and some national and international leaders to transportation solutions that do not involve electricity or hydrogen. Any solution that involves combustion must be set aside regardless of the merits involved. This is particularly ironic given the fact that most electricity being generated today does not come from renewable sources but from coal, natural gas and oil. Can this resistance be overcome?
“It has to be, although some leaders do not want to consider any options beyond electrification,” said Eichberger. “But laws and regulations that do not embrace multiple options for reducing emissions impede our ability to achieve our environmental objectives. To improve the environmental impact of transportation while preserving access to affordable and reliable transportation options, we have to support new vehicle technology and lower-carbon fuel products.”
When asked what needed to be done to boost support, Eichberger noted that the wall between those who advocate for electric vehicles and those who advocate for lower carbon fuels must be broken down—these should not be mutually exclusive objectives. Policymakers must open the door to conversation, engage with those who can help achieve our environmental and transportation objectives and develop comprehensive plans that accelerate emissions reductions and preserve a functional and affordable system for all consumers.
Keith Reid is the editor of Fuels Market News.
