By Tom Hance
The primary market for canola oil is food. However, another important and growing market for the oil is renewable biofuel, typically biodiesel or renewable diesel and potentially sustainable aviation fuel (SAF) in the future. The biofuel market is growing as a result of policies and incentives aimed at reducing greenhouse gas (GHG) emissions from the transportation fuel sector.
This trend is not new. For canola, it started in 2005 with the establishment of a $1.00 per gallon federal tax credit for biodiesel. That was followed by the enactment of the federal Renewable Fuel Standard (RFS), which requires fuel suppliers to meet specific annual volume requirements of biofuel use. To be eligible under the RFS, the biodiesel (and renewable diesel) and feedstock used to produce it have to meet a threshold of 50% GHG emission reductions relative to petroleum diesel. The reductions were determined through a lifecycle analysis (LCA) by the U.S. Environmental Protection Agency (EPA) using a combination of “models” that were built by entities at research universities. Data on all inputs (fertilizer, fuel use, etc.) related to feedstock and biofuel production were entered into the models. The LCA also had to include the “indirect” emissions created by feedstock production, including “indirect land use change” (ILUC). The LCA process, particularly went it comes to ILUC, includes some subjective assumptions, making it contentious and controversial.
As the years progressed, the combination of the federal tax credit and increasing volume requirements of the RFS led to additional investment and expanded production and use of biofuels. Then the state of California added another significant driver to the biofuels market: In 2011, the California Air Resources Board (CARB) began implementation of a Low Carbon Fuel Standard (LCFS).
The LCFS is “designed to encourage the use of cleaner low-carbon transportation fuels in California, encourage the production of those fuels, and therefore, reduce GHG emissions and decrease petroleum dependence in the transportation sector. The LCFS standards are expressed in terms of the ‘carbon intensity’ (CI) of gasoline and diesel fuel and their respective substitutes.” Unlike the federal RFS, which treats all biodiesels and renewable diesels the same if they meet the 50 percent threshold, the California LCFS assigns different CI values to biofuels based on their lifecycle analysis, including the feedstock used. The lower the CI, the more value that biofuel has in the market. The California LCFS has resulted in a significant increase in the use of biodiesel and renewable diesel in the state, driving demand for these renewable fuels and their feedstocks. Other states, including Oregon and Washington, have now adopted low-carbon fuel standards that are also based on the CI score of biofuels.
In 2022, Congress enacted a change in the biodiesel/renewable diesel tax credit (and a SAF tax credit) that shifts it to be based on the CI of the fuel. This change takes effect in 2025 and the U.S. Treasury Department is tasked with implementation, which includes deciding what entity and model they will use to determine the CI and tax credit of the fuels. The preferred choice among many stakeholders is the Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model, administered by the U.S. Department of Energy’s Argonne National Laboratory. The U.S. Department of the Treasury and Internal Revenue Service recently released guidance on the SAF credit, which pledges to update the GREET model by March 1, 2024. Pending further guidance from the Treasury Department, this updated model will provide another methodology for SAF producers to determine their lifecycle GHG emissions rates in order to qualify for the SAF credit.
The U.S. Canola Association is working with the Argonne lab and researchers at Purdue University to update the ILUC values, establish a separate LCA for winter canola and incorporate canola into the GREET model. The exact outcome of this work is uncertain, but we are confident that renewable fuels produced from canola oil will have CI scores and values to make it a competitive and attractive feedstock.
The biofuels market is a significant factor in the supply and demand for fats and oils today and its three main drivers are the RFS, California LCFS, and federal tax credit. In 2025, two of those three drivers will be based on the CI scores of fuels and feedstocks. We know from experience that the data, debate, policies and renewable fuels market will continue to evolve so the U.S. canola industry must maintain its work of educating and advocating the benefits of canola oil-based biofuels.
Tom Hance is executive director of the U.S. Canola Association in Washington, D.C.