Biofuels industry still waiting on subsidies to compete with oil, gas, electric vehicles

The biofuel industry could dramatically reduce tailpipe emissions from cars and improve air quality, but the effects of the pandemic and government subsidies for green competitors like electric vehicles makes future growth a tough road ahead.

Pennsylvania has two biofuel producers, Hero Bx (also known as Lake Erie Biofuels) in Erie and World Energy Harrisburg, which produced about 40 million gallons of biofuel in 2021.

Production peaked in 2018 at 51.8 million gallons and has dipped since the pandemic hit, and it’s not likely to pick back up for the next few years.

“The average gallon of biodiesel or renewable diesel is 74% less carbon intensive than petroleum, according to the Department of Transportation’s model,” said Paul Winters, director of public affairs and federal communications for Clean Fuel Alliance America, an industry trade group. “That’s the carbon emissions. In terms of just pollutants, black carbon from burning it; it cuts that in half, essentially.”

The biofuel market’s main focus is for transportation fuel and home heating oil. The advantage of biofuels is twofold: the reduction of pollutants, and the ability to work in gas-powered vehicles without any changes to the fuel system. Ethanol is already mixed into most gasoline available, and 100% biodiesel fuel can replace diesel without issue.

The potential for biofuels to replace oil and gas, however, is economically constrained. When gas prices are high, biofuels are less appealing because customers cut back their spending. When commodity prices rise, the cost of production goes up because biofuels are made mainly from surplus soybean oil, used cooking oils, and other byproducts.

The industry receives relatively few subsidies from state and federal governments, though one is the federal Renewable Fuel Standard, which since 2005 has required transportation fuel to have a minimum renewable volume. Biofuel proponents would like to see that minimum go up.

“The federal RFS program has never kept up with the industry’s potential for growth and capacity – the numbers the EPA has set for the program have always fallen short of what could actually be produced, which constrains opportunities,” Winters said.

Part of the argument for those subsidies is the benefit of quickly lowering emissions.

“Our industry, through mid-century, we’re still looking at growth,” Winters said. “In order to deliver carbon reductions and emissions reductions as quickly as possible, we’re really the only solution at hand today.”

Another argument is one of fairness: the oil and gas industry already gets a number of subsidies, as does the electric vehicle industry.

“Our industry feels it’s only fair to – that incentive for our industry to kind of match what the electric vehicle industry is getting so that, if the goal to reduce carbon and reduce tailpipe emissions is to do it today, there should be some equity in the incentives,” Winters said.

State governments approved $2 billion in subsidies for the electric vehicle industry in 2021, and more looks to be on its way. While lucrative for companies receiving the spoils, such as Tesla, Ford, and GM, all these subsidies can have unintended consequences, both economic and environmental.

“The introduction of [a biofuel production] subsidy in a setting where the mandate is binding leads to a decrease in the price of fuel ... and thus acts as a consumption subsidy,” GianCarlo Moschini, a professor of economics at Iowa State University, argued in a 2012 paper. “This effect increases consumption, which tends to increase (rather than reduce) GHG emissions (one of the stated objectives of biofuel policies).”