Draft

-- Preliminary work product



# Biodiesel Contribution to US CO2 Goals
Update Analysis of Carbon Reduction Impacts September 15, 2015



# David DeRamus, Ph.D. and Collin Cain Bates White Economic Consulting

On behalf of the National Biodiesel BoardDraft

-- Preliminary work product


## Summary of conclusions 2



### • Biodiesel RFS is a critical policy tool to reduce CO2 emissions in transportation sector to support US commitment to reduce CO2 emissions by 26% by 2025

 The transportation sector has furthest to go in reducing CO2 emissions

 Increasing biodiesel production by 350 million gal per year would provide CO2 reduction in 2025 of 56 million metric tons

 56 million metric tons represents 18% of total US reduction commitment in 2025

– equivalent to removing 11.5 million cars from US highways



### • RFS is a simple and effective policy tool

 No infrastructure or vehicle modifications required

 Minimal or no cost borne by retail customers

 No implementation or jurisdictional complexities



### • Biodiesel reduces CO2 emissions by 81% relative to diesel

– at declining cost

 Technology changes have allowed greater use of lower

- cost, lower

- carbon feedstocks

 Feedstock and processing costs have fallen even as biodiesel production has increased

 Biodiesel production capacity and feedstocks are available to support increased output with minimal cost/price impacts



### • Cost of carbon reduction via biodiesel is low: $34 per metric ton of CO2 in 2014

 Recent fall in crude and petroleum diesel prices has increased the biodiesel cost of CO2 reduction

– independent of biodiesel production cost

 Analysis excludes significant biodiesel benefits for health, employment, and energy security

September 15, 2015Draft

-- Preliminary work product 

## The transportation sector has a long way to go to meet US 

## commitments to achieve a 26% reduction in CO2 emissions by 2025 3

Commercial, 83 Residential, 99 Agriculture, 169 Electricity generation, 269 Industry, 310 Transportation, 313 

### Reduction need by sector, million metric tons CO2e (annual)

CO2 emission reduction from increased biodiesel

Remaining reduction need for petroleum diesel and gasoline emissions. 

### Biodiesel could contribute 18% of transportation reduction need...

2025 Biodiesel

Petroleum diesel 

### ...by displacing less than 9% of petroleum diesel by 2025

RFS2 can help US achieve CO2 targets with modest increases in biodiesel volumesDraft

-- Preliminary work product 4

Electricity generation, 31% 

### Transport ation, 27%

Industry, 21%

Agriculture, 9% Commercial, 6% Residential, 6%

Source : 2013 CO2e emissions, EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990

– 2013 (April 2015) 

### S ector shares of 2013 US CO2 emissions Transportation current CO2e share 

## Transportation will have to play a significant role in meeting US CO2 

## reduction commitments

Million metric tons

2005 US CO2e emissions 7,350

Emissions in 2013 6,673

Emissions in 2025 with 26% reduction from 2005 5,439

Additional reduction needed 1,234 US total needed CO2e reduction

2013

- 2025

US commitment to Framework Convention on Climate Change: reduce CO2e emissions by 26% by 2025, relative to 2005 levels 

## 27%

September 15, 2015Draft

-- Preliminary work product 5

Source : 2013 CO2e emissions, EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990

– 2013 (April 2015) 

## Proportional share of US CO2 commitment will require substantial 

## emissions reductions from transportation sector

313

- 500 1,000 1,500 2,000 2,500

2005 2013 2025 Million metric tons CO2e Transportation CO2e Reduction needed from 2013 levels 

## Transportation’s share of 2025 CO2 reduction = 313 million MT

26% CO2 reduction from 2005

September 15, 2015Draft

-- Preliminary work product 

## Increased biodiesel volumes would provide substantial CO2 reduction 

## benefits

• Increasing biodiesel volumes by 350 million gallons per year would reduce CO2 emissions in 2025 by 56 million metric tons

 Total diesel use in 2025 projected at 65.4 billion gallons, with associated CO2e emissions of 804 million metric tons

 Biodiesel could displace 5.6 billion gallons of petroleum diesel in 2025, with 81% relative CO2 reduction 6



## • 2025 net CO2e reduction equivalent to removing 11.5 million vehicles

• Cumulative CO2 reduction from biodiesel for 2015

- 25 would total 422 million metric tons 18% of the transportation share of the reduction need (56 / 313) = 

## 5% of the economy

- wide reduction need (56 / 1,234) 5.6 bg / 65.4 bg = 8.6% of petroleum diesel displaced in 2025
8.6% x 804 mm MT = 69 mm MT gross CO2e from petr. diesel displaced 69 mm MT x 81% = 56 mm MT net CO2e emissions displaced in 2025

September 15, 2015Draft

-- Preliminary work product 

## Biodiesel RFS can ensure CO2 reductions from increasing diesel share of 

## transportation fuel 7

0 30 60 90 120 150

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Billions of gallons 

### US Fuel Consumption

Motor Gasoline Diesel 

##  EIA projects 11% decrease in gasoline use by 2025

 7% increase in diesel

Source: Total US distillate and motor gasoline consmption from EIA, Annual Energy Outlook 2014 (April 2015) reference case


### Mileage standards set in 2012 for cars and light trucks: 54.5 mpg by 2025 model year

– impact largely on gasoline consumption

September 15, 2015Draft

-- Preliminary work product 

## Additional biodiesel volumes are less than 9% of projected diesel 

## consumption 8

Source: Total US distillate consumption from EIA, Annual Energy Outlook 2014 (April 2015) reference case; biodiesel volumes assuming +350 million gallons per year increase from 2014. - 15 30 45 60 75

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Billion gallons Petroleum diesel Biodiesel 

## In 2025, biodiesel volume of 5.6 billion gallons would represent 8.6% of projected US distillate consumption

September 15, 2015Draft

-- Preliminary work product


## RFS is a simple and effective policy tool

• The Clean Power Plan aims for substantial CO2 emissions reductions from the electric power sector

 Projected CO2 reductions are significant, but implementation and jurisdictional issues are complex



## • Impact of mpg standards may be muted by increased travel miles induced by lower fuel prices

 Ethanol blend wall limits scope for CO2 reductions for gasoline

- fueled engines



## • RFS is an existing, effective mechanism to ensure CO2 emissions reductions in the transportation sector

 No infrastructure or vehicle modifications required

 Minimal or no cost borne by retail customers 9

September 15, 2015Draft

-- Preliminary work product



# Analysis of biodiesel CO2 reduction 

# and cost
Updated analysis through 2014 10

September 15, 2015Draft

-- Preliminary work product



## Biodiesel has a significantly lower carbon footprint than petroleum diesel

0 5 10 15 20 25 30

regular diesel canola soy used cooking oil other

recycled grease animal fat distillers corn oil lb CO2e/125,000 Btu 

## Lifecycle carbon emissions, by feedstock 11

On average, biodiesel emits 81% less CO2 than petroleum diesel with current feedstocks Source: USEPA 2010 , USDA/Idaho 2012 Carbon content c ompares favorably to cellulosic ethanol

September 15, 2015Draft

-- Preliminary work product



## Biodiesel exploits a diverse range of feedstocks 12

42% 9% 15% 15% 17%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2011 2012 2013 2014 

## Feedstock shares for biodiesel (including renewable diesel)

Other

Recycled oils/greases

Animal fats

Distillers corn oil

Canola Oil

Soybean oil

Source: EPA EMTS production data; feedstock data for biodiesel from EIA Monthly Biodiesel Production Report; assumed equal renewable diesel feedstock shares from DCO, animal fats, recycled oils

September 15, 2015Draft

-- Preliminary work product 

## Share of biodiesel production from lower carbon footprint feedstocks has 

## increased, even with rising biofuel production

- 440 880 1,320 1,760

0% 10% 20% 30% 40% 50%

2011 2012 2013 2014 Biodiesel Gallons (Millions) Lowest Carbon Feedstock % 

## Biodiesel use of lowest carbon feedstocks

Biodiesel production Distillers corn oil, animal fats, recycled oils/greases 13

Source: EIA Monthly Biodiesel Production Report (February 2015); EPA EMTS data for D4 production volumes..

At the margin, increased biodiesel production has used distillers corn oil or waste grease as feedstocks

September 15, 2015Draft

-- Preliminary work product 

## Lowest carbon feedstocks have fallen in price, while biodiesel production 

## and the share of low

- carbon feedstocks have increased

- 440 880 1,320 1,760

$0.00 $0.70 $1.40 $2.10 $2.80 $3.50

2011 2012 2013 2014 Biodiesel Gallons (Millions) $/gal of biodiesel 

## Cost of lowest carbon feedstocks

Biodiesel production Distillers corn oil, animal fats, recycled oils/greases 14

Source: EIA Monthly Biodiesel Production Report (February 2015); feedstock prices from Jacobsen, translated to $/gal assuming 7.5 lb/gal

September 15, 2015Draft

-- Preliminary work product 

# Biodiesel’s cost of carbon reduction was approximately $34 per 

# metric ton of CO2 in 2014

$158



## $121

$71

$34

$

- $20 $40 $60 $80 $100 $120 $140 $160 $180

2011 2012 2013 2014 $/metric ton 

## Biodiesel cost of carbon reduction 15

Changes in production costs and feedstocks lowered biodiesel’s cost of carbon reduction by 78% from 2011 to 2014

September 15, 2015Draft

-- Preliminary work product 

## Estimates of 2014 production costs were accurate and correctly indicated 

## that continued production at 2013 levels would not increase costs

2013 2014 Forecast

(Jan 2014) 

## 2014 Actual

Production, billion gallons 1.74 1.70 1.76 Weighted feedstock cost, $/gal $3.20 $2.70 $2.67
Avg processing cost, $/gal $0.50 $0.50 $0.50 Total Production Cost, $/gal $3.70 $3.20 $3.17

Wholesale Diesel Price, $/gal $3.01 $2.92 $2.82 

## Biodiesel cost differential, $/gal $0.69 $0.28 $0.34

Cost of 1 metric ton CO2 reduction $71 $29 $34 16

Sources: 2013 production cost analysis with industry processing cost estimate; 2014 cost forecast from World Agricultural Economic and Environmental Services (WAEES) model. 2014 production cost analysis with industry processing cost estimate. EIA price data for CA ULSD.

September 15, 2015Draft

-- Preliminary work product 

# Cost of carbon reduction for biodiesel is based on displaced 

# petroleum diesel, and depends on diesel price

2014 2015 2016 2017

Total Biodiesel Production Cost (2014), $/gal $3.17 $ 3.17 $3.17 $3.17

Wholesale Diesel Price, $/gal $2.82 $1.88 $2.29 $2.58
Biodiesel cost differential, $/gal $0.34 $1.29 $0.88 $0.59

Cost of 1 metric ton CO2 reduction $34 $129 $88 $59 17

Sources: 2014 production cost analysis with industry processing cost estimate; 2016 wholesale diesel price from EIA Short

- term Energy Outlook (STEO), diesel

– refiners price for resale; 2017 wholesale diesel price derived from EIA Annual Energy Outlook WTI crud e forecast and STEO WTI/crude relationship.

Recovery of diesel prices returns biodiesel cost of carbon reduction to near 2014 level. 

## • Calculated cost of CO2 abatement jumps in 2015 because of continued low petroleum diesel price

– despite expectation that 

## biodiesel production cost will remain low

September 15, 2015Draft

-- Preliminary work product 

# Further increased biodiesel production is not constrained by 

# available feedstocks 18

Source: LMC International, “Current and Future Supply of RFS2 Qualifying and Non

- qualifying Oils and Fats for Biofuels,” July 20 13.



# Biodiesel feedstock production forecast

September 15, 2015Draft

-- Preliminary work product 

# Biodiesel production increases are not constrained by available 

# biodiesel capacity

2.4 bill gal



## 0.4 bill gal 0.8 bill gal 

# Biodiesel Production Capacity 3.6 billion gallons

Registered facilities producing biodiesel

Facilities registered, but not currently producing biodiesel

Production facilities not yet registered under RFS 19

Source: Biodiesel plant list 2

- 6

- 13 from Docket EPA

- HQ

- OAR

- 2013

- 0479; numbers are from a combination of NBB, EIA, and EPA databases.

September 15, 2015Draft

-- Preliminary work product



# Contacts 20

September 15, 2015 

## David DeRamus , Ph.D. Partner 202.216.1154

Collin Cain, M.Sc. 

## Principal 202.216.1156

Bates White Economic Consulting 1300 Eye St., NW Washington, DC 20005