Seeing Through the “FOG” of U.S. Feedstock Incentives for Transportation Fuels

Abstract

The demand for fats, oils, and greases (FOG) as biofuel feedstocks has increased in recent years. Further expansions will have uncertain, but potentially significant, effects on food prices, greenhouse gas emissions, and the U.S. farm economy. To address the market-mediated effects of expanding FOG feedstock consumption, U.S. transportation fuel program regulations are being changed in contradictory and precedent-setting ways. On the one hand, the largest U.S. state (California) is curtailing crediting for vegetable oil feedstocks. On the other hand, federal programs are restricting incentives for imported waste feedstocks like used cooking oil and tallow. These policy changes have created uncertainty about the “FOG” that will be used in biofuels production, since assessing the net effect of these changes is challenging. In this paper, I calculate the effect that these revised and proposed policies have on FOG feedstock incentives. First, I describe how federal and state transportation fuel programs incentivize FOG feedstock consumption. Second, I calculate how program adjustments change the incentives for various FOG feedstocks. I find that the changes have little net effect on U.S. soybean oil and distiller's corn oil (DCO) biomass-based diesel (BBD) incentives in California. Elsewhere in the U.S., soybean oil BBD incentives increase. In contrast, incentives for BBD produced with imported feedstocks are considerably reduced. In summary, the revisions imply that FOG feedstock incentives will be higher for DCO than for other feedstocks.