Dr.  Scott Gerlt • ASA Chief Economist 

The domestic biomass-based diesel industry, which includes biodiesel and renewable diesel, is growing. Capacity grew from 3.3 billion gallons at the beginning of 2021 to 5.9 billion gallons at the end of 2023, and more capacity is in the pipeline. The biomass-based diesel growth is helping to spur expansion in the domestic soybean crushing industry to provide soybean oil as a feedstock for new renewable diesel facilities. Yet, soybeans are not the only feedstock used to produce biomass-based diesel. Many different types of feedstocks, such as other vegetable oils, used cooking oil and animal fats are also used. Almost all feedstocks have seen increased consumption for biofuels. However, some of the feedstock growth in use has been supplied by increased imports as opposed to domestic feedstocks as EPA originally envisioned. Import growth is pronounced for used cooking oil, which has exceeded EPA’s predictions, thereby pushing out corresponding amounts of domestic feedstocks.

Used cooking oil is oil that is left over from cooking, particularly in fryers. UCO is considered a waste product and therefore carries certain advantages in biofuel programs. California consumes almost all domestically produced renewable diesel. Its Low Carbon Fuel Standard gives UCO a very low carbon intensity score since it is considered a waste product. In essence, the carbon intensity is allocated to the frying use of the oil, leaving the UCO with a minimal carbon intensity. The type of the underlying oil does not matter since the UCO was assumed to just be disposed of at this point. Since low carbon intensity feedstocks generate more credits in California’s program, biofuels produced with UCO are more valuable. This is also true of other feedstocks considered to be waste, such as tallow and yellow grease.

Figure 1 shows imports of several feedstocks that have experienced recent increases. Canola (rapeseed) oil was approved for use to produce renewable diesel starting the beginning of 2023. This has led to increased imports, primarily from Canada. The United States used to be a net exporter of inedible tallow but has now become a net importer. The largest increase in imports of the feedstocks is from used cooking oil, which has gone from less than 300 million pounds in 2021 to over 3 billion pounds in 2023.

Figure 1

The volume of imports is very important in the federal blending obligations set by EPA. While renewable diesel is largely consumed in California, the overall national consumption is set by EPA. The agency set the blending levels last year for 2023, 2024 and 2025. In its rulemaking, EPA noted that plenty of biofuel capacity would likely exist to produce the fuel. The agency questioned the feedstock availability to supply the biofuel plants. As a result, EPA set the blending levels on assumed feedstock availability, not biofuel capacity. If imports of feedstock or fuels exceed what EPA expected, then domestic feedstocks must be pushed out by a corresponding amount over time since the blend levels are fixed through next year.

Figure 2 shows what EPA assumed for renewable diesel and feedstock imports compared to reality in 2023. The agency assumed 649 million gallons of renewable would either be imported or produced from imported feedstock evenly split between soybean oil, canola oil and fats, oils and greases. In reality, about 360 million gallons of renewable diesel were imported. The data doesn’t provide enough detail to positively determine the feedstocks from which it was produced. The increase in canola oil imports in 2023 was large enough to produce 240 million gallons of renewable diesel, whereas UCO and tallow imports were large enough to produce over 600 million gallons of renewable diesel. These feedstocks exceeded EPA’s estimates by about 550 million equivalent renewable diesel gallons, which is close to a factor of two. In other words, almost 550 million renewable diesel gallons worth of domestic feedstocks were displaced by imports.

EPA assumed that in 2024 renewable diesel imports plus renewable diesel produced from imported feedstocks would drop from 649 million gallons to 166 million gallons. This is further assumed to drop to zero in 2025 [i].  If imports remain at their current levels, over 1 billion gallons of biofuels that EPA assumed could be made from domestic feedstocks will instead be produced from foreign feedstocks. The agency assumed the domestic feedstocks came largely from growth in soybean crushing, which is based upon industry expansion to supply soybean oil to renewable diesel plants.

Figure 2

* EPA does not distinguish whether the feedstock was imported then turned into renewable diesel or the feedstock was turned into renewable diesel then imported. Renewable diesel imports in the actual data do not break out the feedstock source.

Notes: Fats, Oils and Greases (FOG) includes UCO and tallow. EPA data does not allow the breakout of renewable diesel imports by feedstock. The chart assumes that all UCO and inedible tallow imports are for biofuel production and that the 2023 increase in canola oil is for renewable diesel production.

Where are the used cooking oil imports coming from? The shipments are primarily from China, which before 2023 sent almost no UCO to the United States (Figure 3). China has been the world’s largest UCO supplier the past several years. Interestingly, in 2023, the U.S. imported about 40% of China’s world imports. Canada is the next largest supplier to the U.S., which is where it sends most of its exports. Malaysia and Indonesia are the second and third largest UCO world exporters, but the U.S. has purchased little directly from those countries. Over 90% of the used cooking oil imports were brought in through the Gulf in 2023 [ii].

Figure 3: Used Cooking Oil Imports Thousand Metric Tons)

The timing of the large jump in imports of Chinese UCO during mid 2023 corresponds to the period when Germany asked the European Union to investigate biofuel imports from China that were labeled as made from waste oils [iii]. The EU also provides incentives for biofuels made from waste oils, and Germany raised concerns about the authenticity of imported biofuels. European imports of China’s used cooking oil fell by almost 600 million metric tons in 2023 compared to 2022 while imports to the U.S. increase by over 700 million metric tons. What was going to the EU was largely rerouted to the United States where concerns over the integrity of UCO imports had not been raised.

Figure 4 shows the economic incentives for mislabeling in the United States. For much of the past two years, used cooking oil prices have been above one of the cheapest vegetable oil (palm) prices in the U.S. Gulf. At times, the UCO-to-palm premium has been over 50% due to the credit value in California’s LCFS. UCO’s premium has recently disappeared, as biofuel credit values have fallen. In other words, the policies have often created an opportunity to capture higher values for imports labeled as used cooking oil. EPA does require that biofuel producers maintain chain of custody data for every gallon of used cooking oil, both domestic and imported origin. However, EPA does not audit the UCO chain of custody for either until an enforcement action has been initiated, which occurs after the RIN has been generated.

Figure 4

While the soybean industry is expanding to help supply growth in the biofuel sector, so are imports. Much of this is simply the market response to incentives. Cases where policies create moral hazards should be carefully monitored to ensure buyers and sellers possess the same information while trading. Last of all, given the fixed nature of the blending levels set by EPA, any underestimation of imports in EPA’s rulemaking results in domestic feedstocks being pushed out. Thus far, this has displaced over 500 million renewable diesel gallons worth of domestic feedstock and could easily rise to a billion or more gallons in 2024.

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[i] Tax credits for biomass-based diesel change in 2025 and will have some effect on this. The Blenders Tax Credit ends in 2025 and the Producers Tax Credit (45Z) starts. Imported BBD is no longer eligible for tax credits, so renewable diesel imports will likely fall. However, the PTC amounts are dependent upon carbon intensity scores which will give an even stronger incentive to import UCO.

[ii] ASA calculations of PIERS data

[iii] https://www.reuters.com/business/energy/germany-triggers-eu-investigation-into-chinese-biofuels-sources-2023-06-07/