The renewable diesel boom threw another lifeline to the soybean market to boost domestic demand. Now, a recent proposal from the California Air Resource Board (CARB) could threaten future demand.
The proposed changes to the state’s Low Carbon Fuel Standard (LCFS) include a cap on biomass-based diesel produced from soybean oil and canola oil. If implemented, the change would cap renewable diesel and biodiesel production from crop-based feedstocks at 20 percent of total production.
California accounts for 97 percent of U.S. renewable diesel consumption. Renewable diesel and biodiesel serve as a direct substitute for standard petroleum diesel fuel. Bloomberg reported that the change could lead to further closure of biodiesel plants in the U.S., which have already faced pressure due to competition with renewable diesel. In March, Chevron announced the closure of two biodiesel plants, citing poor margins.
CARB noted in its proposal that the LCFS should prioritize other feedstocks, such as used cooking oil (UCO).
“As auto manufacturers comply with increasing ZEV sales requirements and as California prioritizes waste feedstocks and advanced decarbonization technologies, the State must ensure that other regions are able to also access increasing volumes of low-carbon alternative fuels,” noted the proposal.
Unfortunately, UCO does not benefit U.S. producers. Rather, it benefits Chinese exporters. UCO has a lower carbon intensity score compared to crop-based feedstocks, which led to record imports of the waste feedstock in the fourth quarter of 2023 and the first quarter of 2024.
The proposal could ultimately increase credit prices of renewable identification numbers (RINs), which have fallen more than 70 percent from their 2022 highs. The Environmental Protection Agency defines RINs as the “currency” of the Renewable Fuel Standard program, and credits are used to comply with renewable volume obligations.
The renewable diesel boom was the main driver of the decline in credit prices, which has pressured renewable fuel production margins.
The new proposal could benefit canola and soybean oil slightly by lowering their carbon intensity score. However, biofuel producers would have to prove that the feedstocks did not come from land that was converted to cropland after 2008, another provision of the LCFS that seeks to ensure that the demand for crops in renewable fuel production does not encourage land conversion.
CARB noted that the proposed changes would not take effect until Jan. 1, 2028, to allow time to adjust feedstock supply contracts.
Growth in U.S. soybean oil usage is expected through 2024/25. Biofuel accounts for nearly 50 percent of total U.S. soybean oil demand, which has helped drive record soybean processing. California phasing out crop-based feedstocks could likely negatively impact soybean oil and whole soybean oil demand in the future.
Current crush trends have helped compensate for the lack of whole soybean exports lost through strong competition with Brazil. The inability to regain global export share could challenge domestic and foreign demand for U.S. soybeans and products.