President of Chevron Renewable Energy Group

(Photo: Iowa Soybean Association / Joseph Hopper)

Challenges facing the biofuels industry

December 21, 2023 | Kriss Nelson

Optimism is growing in the renewable fuels industry as soybean oil continues to be a main feedstock for biofuels. However, the industry isn’t without its challenges.

Kevin Lucke, president of Chevron Renewable Energy Group, spoke during the Iowa Soybean Association’s annual board meeting earlier this week on the growth of the renewable fuels industry and the headwinds slowing that growth.

Chevron Renewable Energy Group

Chevron purchased Renewable Energy Group (REG) in June 2022 and currently comprises 57 terminals and 11 biorefineries, including three in Iowa. The company delivers products to 42 states, six Canadian provinces and 16 countries.

Since the purchase of REG, the company has invested a billion dollars into upgrading and expanding its Geismar, La., biorefinery.

“This project continues to progress and is expected to come online in 2024, taking renewable diesel production capacity from 90 million gallons a year to 340 million gallons a year,” says Lucke.

The company is growing in new sectors as it continues to see biofuels adoption in industries aiming at lower carbon targets, such as marine, rail and mining.

Chevron Renewable Energy Group made several announcements in 2023 about incorporating additional feedstocks, including camelina and winter canola, to produce biofuels.

“We are trying to find more oilseeds that can be made into biofuels,” says Lucke. “We are trying to grow winter canola as a second crop in the southern plains. This year, we had 5,000 acres of winter canola and next year, 15,000 acres of winter canola will be raised in the southern plains of the United States. We are focusing on oilseeds, trying to create more oil per acre of the farmland in the U.S.”

A lot of Chevron Renewable Energy Group’s products are sold in California as the state looks to meet its Low Carbon Fuel Standard (LCFS). Lucke says other states, including Oregon and Washington, have adopted similar standards, and Canada is also considering regulations as a way to reduce their emissions.

“Seeing other states opting into what California has done, we are optimistic for the future of the renewable fuels business,” says Lucke.

Challenges for biofuels

Is all of this growth too good to be true for soybean farmers?

“We are facing headwinds in the biofuels industry,” says Lucke. “Although there is a lot of optimism for growth, it is a struggling time right now.”

Low Renewable Volume Obligation (RVO) : RVOs are determined by EPA as part of the Renewable Fuel Standard (RFS).

“They have set volumes below current and future bio-based diesel production, and it does not have any room for growth,” says Lucke. “This has been, from my perspective, a disaster for us. We need to continue to be very vocal on this point.”

Increased fuel competition

New producers entered the market this year, increasing the bio-based diesel supply.

“The competitiveness is impacting our margins,” says Lucke.

Renewable Identification Numbers (RIN) prices collapse

“Due to low RVO volumes, RIN prices have collapsed over the last four months,” he says, “With low RVOs that drive RIN prices – that is how you monetized the renewable buying obligation.”

Difficult margin environment

Lucke claims the supply and demand imbalance, combined with low RIN prices, has led to challenging margin environments for bio-based diesel producers.

“You are seeing biodiesel plants continue to curtail production due to economics and now plants are looking at closing their doors in this current market environment,” he says.

Challenges for soybean farmers

There could be some promise for soybean oil supplying the Sustainable Aviation Fuel (SAF) market.

“It is a largely untapped market, and almost no one supplies sustainable aviation fuel today,” says Lucke.

However, Lucke warns airlines have been telling them they do not want to rely on vegetable oils.

“They are worried about the food vs. fuel debate,” he says. “Most airline companies are investing into the ethanol to jet side, not the soybean or vegetable oil side. We have work to do to educate the airlines on feedstock availability.”

Many biofuel groups note that ambitious SAF goals will not be attainable without soybean oil. Meanwhile, the U.S. Department of the Treasury and Internal Revenue Service (IRS) issued guidance on the new $40 billion SAF Credit established by the Inflation Reduction Act (IRA). The guidance enables companies currently producing SAF under the RFS to access the base value of the tax incentive.

Soybean oil’s disadvantage

Soybean oil has a higher carbon index (CI) score than other feedstocks.
“Aviation companies are looking for a large reduction in carbon index and soybean oil is a disadvantage vs. other feedstocks we have out there,” says Lucke.

California’s LCFS continues to lower the CI score allowed.

“We estimate that by 2032, soybean oil cannot be used for fuel in California because of the CI score,” says Lucke.

Could cooking oil replace vegetable oil as a primary feedstock for renewable diesel?

In 2023, 320 million gallons of used cooking oil was brought into the U.S. from China.
“That is equivalent to 40 percent of Iowa’s soybeans. That number is large,” says Lucke. “Cooking oil will continue to grow in the renewable fuels space. We will see more imported feedstocks coming from other parts of the world.”

Advocating for growth

It will be a team effort to help advocate to the stakeholders, policymakers, and regulators on the urgency of some of these issues.

“We will need to advocate to the EPA and the administration to increase RVO volumes in the future,” says Lucke. “The EPA needs to hear loud and clear RVO numbers aren’t adequate.”

Work needs to be done to lower the CI score of soybean oil through a science-based approach to indirect land use change in the Greenhouse Gases, Regulated Emissions and Energy Use in Technologies (GREET) scoring model.

“We need to continue to work as a group to get regulators to say that U.S. farmland hasn’t changed in the last 10 years. This is meant for places like Brazil, and it is simply not happening in the U.S.,” says Lucke.

There needs to be an emphasis that biofuels and food must coexist to support climate resilience and food security.

“It’s food and fuel, not food or fuel,” says Lucke. “We have been able to produce both for many years. The yields of corn and soybeans over the last 20 years have increased nearly 40 percent. That is phenomenal if you think of what seed companies and farmers have been able to do.”

Energy and ag needs to work together.

“We need to collaborate across the industry to reach the conclusions we desire,” says Lucke. “It will take all of us working together; historically, this has not been the case. Energy companies and ag haven’t been working together, and this has to change for us to be successful.”