Annual Energy Outlook 2022

Consumption of renewable diesel increases as a share of the domestic fuel mix

The share of renewable diesel in the biomass-based diesel market increases

Although biodiesel has historically been the predominant biomass-based diesel fuel produced in the United States, we project a shift toward renewable diesel capacity in the medium to long term.

Biomass-based diesel fuels are fuels produced from biomass, such as waste fats and oils. These fuels are predominately used in diesel engines, but they can also be used as heating fuels.

Biomass-based diesel includes biodiesel and renewable diesel. Renewable diesel is chemically indistinguishable from petroleum diesel, meaning that it meets specifications for use in existing infrastructure and diesel engines. Biodiesel is a mixture of chemical compounds known as alkyl esters and is often combined with petroleum diesel in blends of 5% to 20%, known as B5 to B20, respectively. Renewable diesel is not subject to any blending limitations.

Renewable diesel’s growth is a result of its fungibility, along with higher state and federal targets for renewable fuel production, favorable tax credits, and the conversion of existing petroleum refineries into renewable diesel refineries. These targets and incentives include the Renewable Fuel Standard, the California Low-Carbon Fuel Standard, and the U.S. biomass-based diesel blender credit, which applies through 2022 and allows qualified taxpayers to claim a credit of $1.00 per gallon for biodiesel or renewable diesel blended with petroleum diesel. In response to the improved economics of renewable diesel, capacity has increased in the form of new stand-alone facilities and converted petroleum refineries.

Figure 30.

The current market for biomass-based diesel fuels is constrained by a combination of capacity, feedstock availability, and economics. Because the market penetration for biomass-based diesel fuels is limited by market demand, and renewable diesel and biodiesel compete for the same feedstocks, growth in renewable diesel comes partially at the expense of new biodiesel capacity. In the Reference case, the renewable diesel supply is supported by imported renewable diesel and remains higher than biodiesel supply through 2050.

Biomass-based fuels remain a small but important part of the total fuel mix

Figure 31.

Biomass-based diesel fuels remain a relatively small part of the total diesel market, contributing less than 8% of the total supply in 2050. By comparison, current ethanol consumption as energy in the United States approaches almost 1 million b/d in 2050, almost five times the quantity of biomass-based diesel. So, much more ethanol is consumed as energy than biomass-based diesel fuels because almost all finished motor gasoline sold in the United States is blended with 10% ethanol (E10). However, despite higher blend ratios, future growth of U.S. ethanol consumption as energy is constrained near current levels through 2050 by declining motor gasoline consumption. Renewable diesel, however, does not need to be blended, and biomass-based fuels continue to attract interest and investment because they represent a potential pathway for reducing carbon emissions in the transportation sector and provide an alternative fuel source to petroleum-based diesel fuel. We project that biomass-based diesel will continue to be a growing, but fractional, part of the total diesel fuel mix in the long term.