Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Biofuels - along with fertilizer, crop-protection chemicals,
transportation, and packaging - is a major area of intersection
between the agriculture and energy sectors. Over the past 15 years,
biofuels demand rose (see Figure 1) and production increased
globally, becoming a major part of the energy profile of developed
and developing countries. Energy security, farm income support, and
to a lesser extent environmental concerns were early pillars of
biofuels policy. This focus led to policy development that
emphasized mandated levels of biofuels into the fuel mix with
capacity buildout often supported by tax and other government
incentives. While ethanol benefited as an octane replacement and a
focus on reduction of carbon dioxide levels, energy security and
farm price support considerations have driven much of the volume
increases in ethanol.
Biofuels as a "Bolt On" into Agriculture
Consistent with the themes of energy security and farm price
support, most feedstocks currently used in biofuels production are
traditional agricultural products, including crops such as corn,
sugarcane, and palm and other vegetable oils. While the concept of
advanced biofuels and "cellulosic" fuels were introduced in the US
Renewable Fuel Standard (RFS) and Europe's Renewable Energy
Directive (RED) in the early to mid-2000s, these fuels and the
associated feedstocks have not met the volumes originally planned.
This use of food crops already present in the agricultural economy
helped accelerate the development of the biofuels industry, because
it allowed new biofuels plants to "slip into" an existing stream of
agricultural output. Essentially, all biofuels producers had to do
was - in the case of US ethanol, find a surplus region of corn
production and build an ethanol plant close to those supplies. For
Brazil, in some ways it was even easier, as sugar-based ethanol
plants were able to co-locate with sugar production. This gives
these types of plants the ability to switch between sugar and
ethanol production, based on whichever market offers the best
price.
While the buildout of the ethanol industry around food-based
agricultural output had the advantage of tapping into existing
flows of feedstock, it did lead to "food versus fuel" debates. A
few crisis-level episodes occurred where food price rises were seen
as driven, at least in part, by feedstock demand from the biofuels
sector. In fact, ethanol production accounts for almost 40% of
today's corn usage in the US compared with about 12% just 15 years
ago. Within agricultural economy sectors such as animal-feeding
operations, grain processors, and vegetable oil, users have had to
accommodate the increased feedstock usage of biofuels firms. The
"food versus fuel" debate has subsided as agricultural supplies
have grown and the price of agricultural commodities remained low
for the past four years. Yet a resurgence of the "food versus fuel"
debate is always possible as agricultural production is dependent
on weather, policy changes, disease, and other factors that can
limit supply and increase price. For now, biofuels are a critical
component of demand for agriculture.
New Drivers of Demand for Agriculture From
Biofuels
Currently the global biofuels industry sits at a critical
crossroads. Efforts around sustainability and decarbonization have
created an opportunity for the biofuels and agriculture sectors to
play a critical role in lowering carbon dioxide levels from fuel
consumption. As such, biofuels as a solution to developing
renewable, sustainable, low-carbon sources of energy is a major
theme in both commercial and policy organizations considering
future biofuels development. The EU RED and California's Low Carbon
Fuel Standard (LCFS) are policy initiatives that set a trend for
other standards and plans (see Figure 2). These initiatives
emphasized meeting specific carbon intensity (CI) levels in the
biofuel feedstocks so consumers of these biofuels could release
fewer carbon dioxide emissions into the atmosphere. As other states
in the US and countries and regions in the world follow adopting
LCFS initiatives, the demand for biofuels that meet these
standards, and the agricultural feedstocks that support the
biofuels production, will grow.
While the shift toward decarbonization represents a tremendous
opportunity for the agriculture and biofuels sectors, there are
challenges as well. The existing stream of conventional
agricultural feedstocks are not necessarily what is needed to meet
many of the low carbon fuel standards. New biofuels plant capacity
will likely focus on sourcing renewable feedstocks with lower CIs
relative to conventional feedstocks (e.g., corn, vegetable oils) to
meet CI
targets set out in the LCFS policies; these low carbon
feedstocks are often referred as "advanced" or "second generation"
feedstocks. Alternatively, or in addition to new advanced
feedstocks, applying new technologies such as plant genetics,
precision farming, digital
farming and innovative processing technologies to conventional
crops will lower the CI of conventional feedstocks as well.
Examples of advanced feedstocks are byproducts from various
industries, including used cooking oil (UCO), animal fats and
grease, distillers' corn oil, field waste, straw, wood chips, or
energy crops (crops specifically cultivated for biofuels) such as
switchgrass,algae, or wood chips/trimmings from eucalyptus trees.
Because these feedstocks come from waste streams or are cultivated
in a way that actually increases factors such as soil health and
environmental
sustainability, they have a lower CI score and can be used as
feedstocks for biofuels production while meeting LCF standards.
The Challenge and the Solutions
Globally there is a pool of byproduct feedstocks that began the
shift from other uses to biofuels over the past five years.
However, the supply of these feedstocks is inelastic to biofuel
demand - that is, low carbon biofuel demand will not drive beef
tallow production, a byproduct of the beef packing industry. Hence,
at some point increased low-carbon biofuel demand will incentivize
higher production of energy feedstocks or innovation to extract or
collect a greater volume of waste streams from new sources (such as
used cooking oil collection from residential use or from municipal
wastewater).
The technology needed to utilize these next-generation
feedstocks either already exists or is in development,with ongoing
research and investment that will create pathways to fuel
production from these streams. Less apparent is the supply chain
for these feedstocks into new and existing biofuels plants.
Unlike conventional agricultural feedstocks - where the
supply-demand dynamics and price formation are well understood and
regularly tracked - data and information around next-generation
feedstocks is just developing. Fortunately, the IHS Markit position
in
both the energy and agricultural sectors gives us the
opportunity to work with participants in both sectors, as we
jointly develop with our industry, policy, and NGO partners the
data and information systems needed to support the advancement of
next-generation biofuels.
Posted 31 March 2020 by Kevin Lindemer, Executive Director, Downstream Oil and Biofuels, IHS Markit and
Tom Scott, Global Director, Agribusiness Consulting