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Will Canola Oil Use Take Off With New EPA Approval?

January 20, 2023

By J. Alan Weber

The second half of 2022 provided U.S. canola producers quite a bit of optimism regarding new demand opportunities in the biofuels market. It began with the Sustainable Aviation Fuel (SAF) Grand Challenge, a government-wide effort to reach 3 billion gallons per year of domestically produced renewable jet production with at least a 50 percent reduction in greenhouse gas (GHG) emissions by 2030. Then, on Dec. 1, the U.S. Environmental Protection Agency (EPA) issued a final determination that canola oil-based renewable diesel, SAF, naphtha, heating oil, and liquified petroleum gas (propane) met the lifecycle greenhouse gas (GHG) emissions reduction requirement of at least 50 percent under the Renewable Fuel Standard (RFS) to qualify as advanced biofuels. In fact, the EPA final rule conservatively estimated a reduction of 67 percent for canola renewable diesel compared to petroleum-based diesel and similar reductions for the other biofuels.Prior to this new EPA approval, canola oil had been a consistent performer for U.S. biodiesel producers.  More than 1.2 billion pounds of canola oil were utilized in each of the past four years of biodiesel production. The Energy Information Administration, in its January 2023 Short Term Energy Outlook, projects rapid growth of biodiesel and renewable diesel in 2023. The SAF Grand Challenge expects “lipid-based pathways” (fats and oils such as canola oil) to contribute up to 90 percent of the 3-billion-gallon 2030 target.

These positive events are much like the initial euphoria of being upgraded to first class after years of earning reward points. But then, as you are taxiing out to the runway and thinking of a hot meal and your first libation, you hear the plane’s engines wind down. The captain comes over the intercom system and provides no good explanation for why you are now heading back to the jet bridge and your flight has been postponed.

The EPA “turned off the engines” in its proposed RFS volumes for 2023, 2024 and 2025 published in December. The “set” rule as proposed provides minimal growth for biodiesel and renewable diesel volumes – only rising to 2.95 billion gallons in 2025. In 2021, U.S. consumption of biodiesel and renewable diesel reached 3.1 billion gallons and for 2022, it is estimated at more than 3.7 billion gallons. While the EPA’s proposed advanced biofuel volumes are more aggressive, they also appear insufficient to account for the industry’s projected growth.

The EPA’s justifications for limited growth include no contribution from new canola oil supplies and made as much sense as the pilot’s address from the cockpit in my last analogy. In its supporting material, the EPA stated, “we are not projecting any growth in the domestic availability of canola oil for biofuel production through 2025.” Cited in its concerns for canola oil supplies were relatively poor economic returns for canola, lack of additional crush capacity for soft seeds, and lack of clarity on the potential of additional imports.

Over the past 10 years, U.S. canola acres have increased approximately 70 percent, demonstrating economic performance for agricultural producers and an economic fit in crop rotations. Although the expansion of U.S. oilseed processing assets has predominantly focused on soybeans, more than one of these projects will have the ability to process soft seeds like canola. During the 2023 to 2025 timeframe, more than 20 percent of the new crush capacity planned in the United States will have soft seed capabilities. Oilseed processing capacity is also set to significantly expand in Canada, creating the opportunity for additional imported canola oil supplies if required.

In short, although the longer-term outlook remains positive, the RFS program proposed by the EPA underestimates canola’s potential contribution to future U.S. production of biodiesel, renewable diesel, and SAF. U.S. canola producers will need to work diligently to get canola oil “back on the runway” with continued efforts to document the sustainability of canola production and demonstrate the crop’s contribution to U.S. government goals to reduce GHG emissions.

J. Alan Weber is a partner with M4 Consulting based in Columbia, Mo., and the Clean Fuels Alliance America liaison to the U.S. Canola Association.

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