The nation’s railroads, airlines and ocean-going ships offer massive new opportunities for the U.S. biofuel industry, but some significant policy and logistical challenges could stand in the way.
For producers of renewable diesel and biodiesel, the fastest growing sector of the industry, there is hardly a bigger new market opportunity than the Class I railroads, which collectively consume about 3 billion gallons of diesel per year. Many of those railroads are running or testing trains on limited amounts of renewable diesel and biodiesel as they try to meet commitments to reduce greenhouse gas emissions.
Among those carriers is Omaha-based Union Pacific, which has pledged to reduce the emissions from its operations by 26% by 2030, using a 2018 baseline. Efficiency measures will help, but the railroad is also counting on renewable fuels to play a major role. For now, however, the volume of biofuel isn’t necessarily available in the quantity or at the price that railroads need, and extensive testing still needs to take place to ensure locomotives can operate properly on varying fuel blends.
“When you look back at what our stakeholders traditionally want from a railroad, they want a reliable product, they want it fast, and they want it for a fair price. But the mindset is evolving,” said Mark Lutz, an assistant vice president for fuel and environment at Union Pacific.
Mark Lutz, Union PacificUnion Pacific's customers and regulators “also want clean air. And so as that interest has evolved, so has our products to try to meet that demand,” Lutz said, speaking at the recent Clean Fuels Alliance America conference.
Currently, an industry-leading 6% of Union Pacific’s fuel contains renewable blends, and the company wants to increase that to 10% by next year and 30% by 2030, Lutz said.
Other railroads have similar plans.
CSX, which has pledged to reduce its emissions by 37% by 2030 from 2014 levels, started testing a 20% biodiesel blend in certain engines last year. Norfolk Southern aims to use 7% biofuels by 2027 and 20% by 2034. BNSF, which has a goal of reducing emissions by 30% by 2030 from 2018 levels, started a three-year test of a blend of 80% renewable diesel and 20% biodiesel in California in 2022.
Michael Cleveland, director of advanced energy for Progress Rail, a unit of Caterpillar Inc. that manufactures locomotive engines, said biofuels are one of the most important tools the railroads have to reduce greenhouse gas emissions in the short to medium term.
Biofuels have been in use internationally for 30 years, he said. “What has really changed is the interest, the desire from our customers, to do this, and implement these fuels in our operations, and we're rising to meet that goal,” he said.
Other options, such as battery-driven engines, are in development, but battery-driven engines aren’t practical for long distances, he said.
But the railroads face several policy and practical hurdles.
Engines run best on an 80/20 blend of renewable diesel and biodiesel, which act together to reduce damage to engine seals and gaskets, Lutz said. But renewable diesel is largely unavailable outside California — the state’s low carbon fuel standard has the effect of subsidizing the cost of the product there — while biodiesel is primarily available in the Midwest. Elsewhere, trains may have to fill up on petroleum diesel, Lutz said.
Locomotives are currently being tested on varying fuels as they cross the country to see how the engines respond to the changes.
Then there’s the question of biofuel availability.
Soybean processors and renewable diesel producers are ramping up production of the product. Soybean crush capacity is expected to increase by nearly 25% over the next three years. More than 540 million bushels of soybean crush capacity is expected to come online between now and 2026, adding to the existing 2.2 billion bushels of capacity, according to the American Soybean Association.
But cost remains a challenge. Renewable diesel would cost about $1.30 more per gallon in California without the state’s policies, Lutz said.
“Because I'm a business that exists to make money, I ultimately have to make less money to use a cleaner product, and that's a hard choice to make,” Lutz said.
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He also worries the federal government’s efforts to promote sustainable aviation fuel will create competition for the renewable diesel and biodiesel that railroads need. SAF can be made from a variety of feedstocks, including the same vegetable oil, animal fats and used cooking oil that are used to make biodiesel and renewable diesel. But he’s concerned new tax credits created by the Inflation Reduction Act could steer feedstocks into SAF rather than rail and road uses.
Renewable diesel and biodiesel manufacturers also are eyeing ocean-going vessels as a big new market.
Legislation that’s been introduced in Congress called the “Renewable Fuel for Ocean-Going Vessels Act” would allow fuel produced for ships to earn credits, or Renewable Identification Numbers, under the Renewable Fuel Standard. Biofuels for ocean-going vessels are currently excluded from the definition of transportation fuels under the RFS.
But even as the renewable diesel and biodiesel producers try to build new markets on land and at sea, they face another policy challenge: The Environmental Protection Agency last year set the biofuel usage mandates, or renewable volume obligations, for 2023 through 2025 below the amounts the industry can produce, leading to a collapse in RIN prices last summer, according to the Energy Information Administration.
EPA said it was concerned about the impact higher RVOs would have on the price of vegetable oil for food usage, but the decline in RIN prices is weighing on biofuel economics.
Donnell Rehagen, Clean Fuels Alliance America“You're trying to get these new markets, but we recognize that almost goes against us because it doesn't increase the RVOs,” said Gary Louis, president and CEO of Seaboard Energy, which produces fuel from pork fat and distillers corn oil, a byproduct of ethanol production.
“We're really hoping that at least the legislators will see, and the EPA, will see we brought on all this volume. We're generating more RINs. Why don't we go ahead and move the RVOs?”
Donnell Rehagen, CEO of Clean Fuels Alliance America, sees the investments in increased soybean crush capacity as evidence that there will continue to be strong and growing demand for bio-based diesel.
“Those are major investments by major companies, and they would not be making those investments if they didn't see higher demand for our fuels going forward as well. So to me, everybody sees the fact that we should be growing and growing fast, except the EPA, and that's the part we got to fix,” he said.
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