The Environmental Protection Agency's (EPA) recent announcement of mandated biofuel volumes has created uncertainty within the biofuel industry. The EPA's requirements for biofuels in the upcoming years have fallen below industry expectations, raising concerns about the fate of production capacity that companies have been striving to build. This news immediately impacted the stock market, leading to declines in shares of major renewable diesel producers such as Darling Ingredients, Archer-Daniels-Midland, and Bunge.
Industry analysts are warning that the EPA's modest blending requirements for trucking fuel could disrupt numerous projects that were set to significantly increase renewable diesel production capacity. Renewable diesel, along with biodiesel, is produced from plant oils and animal fats, emitting lower levels of carbon compared to crude oil.
The impact of these regulations is already apparent in plans for over 20 new or expanded crushing plants focused on soybean oil, a crucial input for renewable diesel. The American Soybean Association estimates that these plans would raise the country's crushing capacity by over 30%. Following the EPA's announcement, soybean oil futures experienced a 7% decrease.
The industry's growth plans for renewable diesel heavily rely on tradable credits, which contribute to meeting the EPA's requirements for lower-carbon fuels. However, the value of these credits could decline if the supply of renewable diesel and biodiesel exceeds the demand implied by the EPA mandates.
While some analysts believe that the EPA's modest increases in low-carbon fuel levels won't significantly alter renewable diesel's growth trajectory, smaller biodiesel producers may face challenges. Unlike renewable diesel, biodiesel cannot serve as a direct substitute for conventional trucking fuel, impacting its market appeal. In this evolving landscape, the ability to compete and maintain cost-effectiveness will be crucial for producers in the biofuel industry.
Source : wisconsinagconnection