Big Plans for U.S. Biofuels

The U.S. has big plans for its biofuels industry in line with aims for a green transition. Supported by funding from the Biden administration’s Inflation Reduction Act (IRA), the biofuels industry has been given a huge injection of funding for research, development, and expansion. Several hard-to-abate industries are now looking to use biofuels for future operations as companies are being encouraged to decarbonize. 

Mandating Biofuel Use

Biofuel is a source of renewable energy, derived from microbial, plant, or animal materials, such as ethanol, biodiesel, green diesel and biogas. They can come in solid, liquid, or gaseous form, but are most easily transported and burned in the latter two forms. Countries around the globe have increased investment in the biofuels sector in recent years, aiming to repurpose waste to produce clean fuel. 

In June last year, the Biden administration mandated that oil refiners would have to increase the quantity of biofuel they blended into the U.S. fuel mix over the coming three years. The U.S. Environmental Protection Agency (EPA) announced that biofuel blending volumes should total 20.94 billion gallons in 2023, 21.87 billion in 2024, and 22.68 billion in 2025. However, the government faced backlash from the biofuel industry, which believed the mandated blend quantities were not meaningful enough to accelerate a green transition. The government reduced the quantity of biofuels required to be blended into the fuel mix from the original proposal, which promoted a vocal response from industry representatives. 

Kurt Kovarik, the vice president of federal affairs with biodiesel group Clean Fuels, stated, “The industry responded to signals from the Biden administration and Congress aiming to rapidly decarbonize U.S. fuel markets, particularly aviation, marine, and heavy-duty transport, and make clean fuels available to more consumers… The volumes EPA finalized today are not high enough to support those goals.” 

Nevertheless, the EPA said the final rule would decrease dependency on foreign sources of oil by between 130,000 to 140,000 bpd between 2023-2025. 

Major Public Funding for Biofuels

Despite disappointment from the industry, the Biden administration has taken significant steps to accelerate the rollout of biofuels. In 2023, the U.S. Department of Agriculture (USDA) announced plans to invest $500 million in boosting the availability of domestic biofuels. Funding comes from the IRA, and the project is expected to give Americans greater access to clean fuel at the pump. This initiative followed the $50 million Higher Blends Infrastructure Incentive Program (HBIIP) launched by the USDA in 2022. The USDA plans to award $450 million in grants through the HBIIP to improve biofuel infrastructure across the U.S. 

The USDA Secretary Tom Vilsack stated, “President Biden’s Inflation Reduction Act is a historic investment that will expand clean energy, lower costs for Americans, and build an economy that benefits working families and small businesses.” Vilsack added, “By expanding the availability of homegrown biofuels, we are strengthening our energy independence, creating new market opportunities and revenue streams for American producers, and bringing good-paying jobs and other economic benefits to rural and farm communities.”

The USDA aims to increase the availability of higher blends of ethanol and biodiesel derived from U.S. agricultural products, supported by the development of new and retrofitted biofuel-related infrastructure. The agency aims to attract private investment in the sector by awarding grants for up to 75%, or $5 million, of the total project cost to help businesses convert facilities to cater for fuels with a minimum of 10% biofuel for ethanol and 5% for biodiesel. 

Production Boom

Supported by biofuels policies and greater funding opportunities, U.S. biofuels output increased significantly in 2023. In January 2023, the U.S. production capacity of renewable diesel and other fuels rose to 3 billion gallons a year, surpassing U.S. biodiesel production capacity for the first time. Between 2021 and 2023, the U.S. production capacity of renewable diesel and other biofuels more than tripled, while the biodiesel production capacity fell by 13%. In contrast to biodiesel, renewable diesel is chemically equivalent to petroleum diesel, demonstrating similar performance characteristics, which makes it extremely popular. 

Across the U.S., the total biofuel production capacity—which includes renewable diesel, biodiesel, ethanol, and other biofuels, grew to 23 billion gallons per year in January 2023, marking a 6% increase on the previous year. Fuel ethanol contributed 78% of U.S. biofuel production, while renewable diesel and other biofuels accounted for 13%, and biodiesel for 9%. 

Thanks to high levels of public funding and greater pressure from the government for industries to decarbonize, the biofuels boom is set to continue over the next decade. Recent estimates suggest that biofuel production could reach 1.3 million bpd by 2035, an increase of around 53% from today. The role of biofuels is set to continue expanding as hard-to-abate industries search for ways to decarbonize operations in line with U.S. climate pledges. 

The aviation industry will play a major role in the growth of the biofuels industry, as airlines blend higher levels of sustainable aviation fuel (SAF) into their jet fuel mix, following substantial investment in plane infrastructure to prepare aircraft for SAF use. Heavy industries are also expected to invest heavily in the biofuels sector to help power operations with low-carbon fuel.

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