Op-Ed: Biofuels: Recent stability and future uncertainty

Source: By Pat Westhoff, Columbia Tribune • Posted: Monday, March 25, 2019

Biofuels were a major driver of changes in farm commodity markets during the boom years for U.S. crop producers. The amount of corn used to make ethanol tripled between 2005 and 2010, contributing to higher prices not just for corn, but also for other crops that compete with corn for land.

Since 2010, the use of vegetable oil to make biodiesel has continued to expand, but the amount of corn used to make ethanol has leveled off. Ethanol went from being a major shifter of grain demand to being a source of stability in the demand for grain.

Nearly all gasoline sold in this country today contains 10 percent ethanol by volume, and annual changes in gasoline use tend to be relatively small. Mandated levels of biofuel use under the Renewable Fuel Standard (RFS) have been fairly steady in recent years. Ethanol exports do vary from year to year, but they are a modest fraction of domestic consumption.

It is easy to tell a story where biofuels continue to be a stable portion of U.S. demand for grains and oilseeds. Under a continuation of current policies, the mandated levels of total biofuel use could remain steady. It is easy to imagine a world where the amount of corn used to make ethanol and the amount of vegetable oil used to make biodiesel are fairly steady over the next ten years and beyond.

However, it is also easy to tell other stories. The Environmental Protection Agency (EPA) has significant discretion in how it implements the RFS. For example, when EPA grants to small refineries waivers from normal RFS requirements, it has the effect of reducing the amount of biofuels that must actually be used. More profound changes in the RFS could also be made administratively or in new legislation.

Proposed rules to make it easier to use a 15 percent ethanol blend (E-15) year-round could prove important. If E-15 became used broadly, it would greatly increase ethanol production and use. For a variety of reasons, however, E-15 adoption may well be limited unless gasoline prices are higher than they are today or policies provide a greater push.

Technology could be a major driver of future biofuel production and use. When current biofuel policies were established, it was hoped that large amounts of biofuels eventually would be made from crops other than corn and soybeans. Such “cellulosic” biofuels were supposed to account for most biofuel production in the early 2020s.

So far, the promise of cellulosic biofuels has not been met. Only modest amounts have been produced, and the per-gallon cost has been much higher than for conventional biofuels. Unless there is a technological breakthrough or a change in policies, cellulosic biofuels may continue to be a small part of the market.

Long-term changes in the vehicle fleet could result in even larger changes in biofuel demand. If electric cars and trucks become widespread, the demand for both petroleum-based fuels and liquid biofuels could decline.

How the biofuel industry develops will be critical to U.S. agriculture. With slowing global population growth rates, the demand outlook for agriculture depends in large part on the prospects for biofuels and other non-food uses of agricultural products.

Pat Westhoff is director of the Food and Agricultural Policy Research Institute at the University of Missouri and a professor of agricultural and applied economics. The opinions expressed here are his own and do not reflect official positions or endorsements of the University of Missouri.