Renewable Diesel Outpaces Biodiesel With More Growth Anticipated

The renewable diesel market has been gaining on biodiesel for a while, and now has surpassed it in production capability for the first time. The trend is expected to continue at least into the near future.

With several renewable diesel projects announced recently, production capacity could more than double by the close of 2025, forecasts the U.S. Energy Information Administration (EIA), a Department of Energy agency. The anticipated increase would extend an ongoing streak; capacity has spiked 225 percent over the past two-plus years. Alongside this pattern, biodiesel production will likely decline for the duration of 2023 through 2024, believe industry forecasts.

Only one state buys most of the U.S.-generated renewable diesel—California—and it’s hungry for more, with demand driven by its low-carbon fuel standard (LCFS), which requires that transportation fuels sold in the state be blended with biofuels and in return divvies out a rebate. California’s policy propelled a spike in consumption from 1 million barrels to 28 million barrels from 2011 to 2021.  But the Golden State makes almost none of what it uses. It relies on five states for most of its supply: Louisiana, North Dakota, Wyoming, Washington, and Kansas. What California doesn’t source from these domestic regions it gets from China.

Fuel manufacturers have room to grow, presented with a gap to fill and a captive end market. EIA expects renewable diesel production to hit .216 million barrels in 2024 with consumption reaching .239 million barrels.

Industry forecasters see a different fate for biodiesel, anticipating that existing policies will not provide high enough credit values to maintain current biodiesel profit margins and that less-efficient biodiesel plants will stop or reduce production.

Renewable diesel and biodiesel actually have several commonalities. They are made from the same organic materials –fats, oils and grease –and have similar carbon intensities. The two biofuels deliver similar driving experiences, and they are very close in price.  

But they are produced differently and are chemically very different. Renewable diesel, like petroleum, is refined and cracked; it’s usable as a drop-in fuel with equal performance to diesel and it’s transportable through existing pipelines without the need to blend it. These features largely explain its popularity over biodiesel, which must be blended with petroleum, and it can gel in cold weather.

But perhaps more important to renewable diesel’s emerging growth is who is producing it and how, says Jimmy Troderman, an industry economist at EIA.

“Major oil companies have embraced renewable diesel, and they have been able to convert former petroleum refineries, or units at refineries, into renewable diesel plants that can produce large quantities of biofuels,” he says.

Today, 16 U.S. facilities produce renewable diesel, according to researchers from the University of Illinois and U.S. Department of Agriculture. All but three are retrofits of existing petroleum refineries. The 16 plants, combined, had a production capacity of 2.6 billion gallons by the end of 2022, the authors report.

Substantially more plants are cranking out biofuel, but in much smaller quantities, with the two largest renewable diesel plants able to produce four times as much biofuel as the two largest biodiesel plants. The capacity disparity mostly explains the tailwinds that renewable is enjoying.

Both production and consumption are expected to continue accelerating. Another 16 facilities could be operating by the end of 2025, as reported in farmdoc daily.

But industry experts believe this up-and-coming fuel alternative will grasp only a small share of total diesel consumption due to barriers.

“It would probably take significant advancements in feedstock production to see something like a three- to fivefold increase in U.S renewable diesel consumption. And even with those advancements, those increases may not be realized if electric trucks take a significant market share first,” Troderman says. 

Meaningful expansion, to include branching out beyond California, would require two big changes.

First, more states would have to enact programs like California’s LCFS. Two West Coast states have already made this policy move. Oregon mandates that petroleum sold there be blended with biodiesel or renewable diesel. And 2023 marked similar legislation in Washington. These policies have not yet stoked consumption in those regions, at least by the most recent available documentation. Washington reported no consumption in 2021. Oregon’s begun fueling a smattering of trucks with renewable diesel, but it accounted for less than 1% of the U.S. total.

Besides policy, and for states to act on that policy, the second development needed to scale is advancements in the production of feedstock oils to lower the fuel’s cost.

“There is only so much biofuel feedstock in the world. To produce more will require either converting land for agricultural use, which comes with environmental concerns, or coming up with new ways to produce or collect more feedstock with fewer resources,” Troderman says. 

There has been industry talk about the possibility of scaling up production of crops, such as Camelina, with higher oil contents for biofuel feedstock. And conversation has begun on the possibility of producing feedstock oils in labs in the quest to innovate to further advance what’s proven to be up and coming, but still a fairly small fish in the renewables pool.