Top Biofuels

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

Second, the Biodiesel Tax Credit (BTC) is set to expire

at the end of 2022. The BTC allows biodiesel prices
to be competitive with petroleum diesel by granting
companies that blend biodiesel or renewable diesel
a dollar per gallon credit. The BTC has been a crucial
yet inconsistent source of support for the biofuels
industry as it has been reinstated retroactively and
extended numerous times.2 The Build Back Better
Act includes proposals for an extension of the BTC.
S&P Global’s view is that the BTC will be extended in
some form given the bipartisan support this credit
generally enjoys and the track record of repeated
renewals it has been through.

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.

Global Jet Fuel Demand

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

Jet Fuel SAF

Source: S&P Global © 2022 S&P Global

Percent share of SAF offtake agreements by feedstock, 2018-2022 YTD

Other

Engine manufactuer

Private jet management

Airport

Aircraft manufacturer

Airline alliance

Airline

Oil Company

0% 20% 40% 60% 80% 100%

Share of Producer-Partner Offtake agreements (%)

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

Private jet management

Airport

Aircraft manufacturer

Airline alliance

Airline

Oil company

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Share of Producer-Partner Offtake Agreements (%)

Alcohol-to-jet Gasification Fischer-Tropsch Hydroprocessing Power-to-liquids Synthetic biology Unannounced

Note: This chart is intended to be illustrative, not comprehensive of all agreements.

Source: S&P Global © 2022 S&P Global

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
expansion growth is expected to
continue in 2022 and through 2025
Renewable diesel, alternatively known as hydrotreated
vegetable oil (HVO), has come to account for an
increasing share of credit generation under the
California LCFS program (31% in 2020 vs. 4% in 2012).3
The primary appeal of renewable diesel is that it is a
“drop in” fuel with similar properties as fossil diesel fuel
that does not face blending limits.
An increasing number of refineries, particularly in
North America, have made investments in recent
years to facilitate the production of renewable diesel.
Renewable diesel provides a path for refineries in
a future where total refined product demand has
already peaked in North America and decarbonization
of transportation fuels continues. Renewable diesel
3 California Air Resources Board (CARB) LCFS Quarterly Data.
production also generates LCFS credits and the BTC
depending on the configuration. Together, they account
for around 31% of the value of soybean oil based
renewable diesel. The impact of renewable diesel
capacity growth on LCFS credit as well as D4 and D5 RIN
prices is a potential risk. Additional risks to renewable
diesel capacity growth include supply and cost of
feedstocks, and greater than expected penetration of
EVs. Some renewable diesel conversion projects have
encountered delays due to feedstock costs and limited
feedstock pretreatment capacity or PTU which has
further increased feedstock costs.
S&P Global expects approximately 40 thousand b/d of
US renewable diesel capacity to come onstream in 2022.
Between 2022 and 2025, renewable diesel capacity
in North America could increase to 413 thousand b/d
based on announced projects.
5) As Renewable Diesel (RD) plants
come onstream followed by increased
demand for SAF, pressure to secure a
steady supply of feedstocks, especially
low CI feedstocks, will intensify
Biodiesel, renewable diesel and SAF demand in
North America is forecast to more than double between
2022 and 2030. This will correspond to feedstock
demand increasing at a similar rate. For comparison,
feedstock production increased 30% from 2010 to 2020.
A feedstock gap is expected to emerge by 2023 and
become more pronounced over the next couple of years
if the planned renewable diesel capacity comes online
and conventional biodiesel production remains.
Several feedstock supply levers will need to be pulled to
increase feedstocks availability.
These include a) increase in feedstock production,
primarily vegetable oils; b) redirect fat and grease
supplies to biofuels from existing lower value uses,
such as animal feed; c) redirect oilseed, vegetable oil,
fat and grease exports to domestic markets.
Pulling on these levers will also require a major logistical
undertaking as the flow of feedstocks is redirected to
the upcoming renewable diesel refineries. Redirection
of oilseed trade will have knock-on effects, such as
incentivizing production of vegetable oil, including
palm oil, and increasing production of oilseeds,
including soybeans and rapeseed, as well as spurring
greater investment in oilseed productivity in main
supply regions.
Additionally, production of biofuel dedicated oilseeds
(e.g. camelina) or biomass to liquid fuels are expected to
grow and support the supply of lower carbon intensity
feedstocks; the impact can be significant in the future,
but not in the near term. Another available lever is
technological advances (such as gene editing solutions
to enhance oilseed production), which are at various
stages of development and are not expected to make
immediate contributions to feedstock supply.
A constraint in the short term (2025) is the limited
oilseed processing capacity in North America to crush
soybean and canola into oil and meal. Soybean oil
generally results in higher CI compared to fats and
greases, but it has the largest and most consistent
production scale compared to all other feedstocks.
Soybean processing capacity utilization reached
peak levels in 2021. Capacity demand is greater than
the expansion planned for 2023 -2025, and greenfield
capacity usually requires around 16-24 months to
bring onstream. Progress in bringing additional oilseed
crushing capacity online and announcements of
additional investments during 2022 will determine the
severity of the feedstock gap and pressure on soybean
oil price and other feedstocks in the coming years.
Moreover, an increasing number of partnerships
between refineries and agricultural feedstock producers
in recent years is evidence of the growing integration
between the two industries, such as Marathon/Archer
Daniels Midland (ADM) and Chevron/Bunge.
In September 2021, Chevron and Bunge signed a
memorandum of understanding to create a joint venture
that will increase Bunge’s soybean processing capacity
at two of its facilities and explore other low carbon
feedstocks. Chevron would have offtake rights to use
the feedstock to produce renewable diesel and SAF.
6) In 2022, applications for RNG project years. Under the California Cap-and-Trade and LCFS
programs, credits can be generated through voluntary
pathways may surge in the CA LCFS destruction of methane from anaerobic digestion of
Renewable natural gas (RNG) qualifies for either a livestock manure for at least 10 years.5 In or after 2024,
D3 or D5 RIN under the RFS, and it has been the primary regulation is expected to require manure methane
means of meeting the cellulosic ethanol targets in emissions reductions from livestock and dairy projects.
recent years. Similarly, RNG has come to comprise Projects that submit applications after such a regulation
a greater share of credit generation in the CA LCFS comes into effect will no longer be able to receive
program, rising from around 1% of credits generated the credit unless the methane reduction is additional
a decade ago to around 13% in recent quarters.4 to what is required. In anticipation of the elimination
Approved RNG pathways, especially ones using manure of the methane reduction credit in the near future,
as feedstock, have highly negative CIs. S&P Global’s view is that manure-based biogas project
Applications for RNG project pathways outnumber applications could continue to surge under the CA LCFS
applications for all other pathways, especially as the program to ensure timely qualification.
methane emissions credit could expire in a couple of

RNG carbon intensities by feedstock

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Source: S&P Global © 2022 S&P Global

4 CARB LCFS quarterly data.

5 LCFS FAQ “Credit Generation for Reduction of Methane Emissions from Manure Management Operations,” Revised September 16, 2020.
7) Will 2022 see significant
advances for certain advanced
biofuels and feedstocks?
Advances in technology have been and will continue to
be integral to the development of the biofuels industry.
Policies have often been designed to promote the
adoption of advanced biofuels alongside conventional
biofuels for reasons including achieving greater
greenhouse gas reductions and addressing issues
arising from competition between food and fuel. For
example, under the RFS, required volumes have been
stipulated for advanced biofuels, but total required
volumes have generally been met with conventional
biofuel, such as corn ethanol.
Alcohol-to-jet (ATJ) is not established, but a larger
quantity of SAF is expected to be produced from this
process in the coming years. GEVO and LanzaJet are
examples of companies leading the efforts to develop
ATJ, which converts alcohol, such as ethanol, into jet
fuel. ATJ provides another outlet for ethanol to be
converted into a high value product. In January 2022,
Microsoft announced that it would invest $50 million in
LanzaJet’s first ATJ plant to be constructed in the state
of Georgia. Last year, GEVO signed a memorandum of
understanding to produce SAF using ethanol produced
by ADM. In March 2022, GEVO announced SAF offtake
agreements with Delta Airlines and members of the
Oneworld Alliance.
In light of the expected tightness in feedstock supply,
attention has increasingly turned to the next generation
of low carbon feedstocks. Some desired attributes of
next generation feedstocks include classification as a
non-food crop, double crop production (i.e. production
outside the regular spring to fall cycle), negligible
indirect land use change (ILUC) assessment, and ability
to serve as cover crop, which means the crop is planted
to cover the soil and can result in reduced greenhouse
gas emissions. ILUC measures the expansion of
cropland to produce biofuels which increases emissions.
Crops, such as pennycress, camelina, and carinata, are
in the development stage. While some hurdles still need
to be overcome (e.g., uptake by farmers who may be
reluctant to switch to lesser-known crops), these new
biofuel purpose crops have great potential to become
part of the low carbon feedstock portfolio. Additional
investment in companies that develop the supply
chain for these types of crops and farmers allocating
increasing acreage to planting these crops will be signs
to watch for in 2022 and beyond.
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