By Laura Sanicola
(Reuters) - U.S. refiners and biofuel companies are likely to reach less than half the renewable diesel production projected by the U.S. government for 2025 due to policy and feedstock constraints, according to a study released Tuesday from consultancy Cerulogy.
Numerous petroleum refiners across North America are planning to convert facilities to process waste and vegetable oils into renewable fuels, a small but growing market backed by government incentives.
The Energy Information Administration estimates renewable diesel production capacity in the United States could increase fivefold by 2024 from 1 billion gallons currently to more than 5 billion gallons per year.
But Cerulogy estimated the projects are more likely to yield approximately 2 billion gallons of total renewable diesel production capacity in 2025, meaning at least 2 billion gallons of already announced capacity additions are likely be delayed, canceled or downsized.
Achieving EIA predictions would be "exceedingly difficult" and would likely require relying heavily on feedstock imports and a very significant reduction in production of biodiesel - a biofuel made from similar feedstocks but blended with petroleum-based diesel - according to Chris Malins, who authored the report backed by the International Council on Clean Transportation.
Achieving EIA forecasts would require an increase of 17 million metric tons of additional demand for fats, oils and greases for renewable diesel, largely by diverting waste oils and fats from traditional biodiesel production, raising U.S. soy oil production and increasing U.S. vegetable oil imports, the report said.
The Renewable Fuel Standard supports 1.3 billion gallons of renewable diesel generated by 2022.
However, while the U.S. EPA finds the fuel significantly reduces greenhouse gas emissions compared with petroleum diesel, several parties are concerned the increased demand for the oils needed to create it will result in indirect land use change and cause food prices to rise.
Annual production of 2 billion gallons of renewable diesel by 2025 is a "high-end estimate" for what can be achieved without causing strong market distortions, Malins said.
In addition, policies meant to promote renewable diesel are not strong enough. The U.S. Renewable Fuel Standard and state policies such as California's Low Carbon Fuel Standard are meant to achieve growth in renewable diesel.
The U.S. Environmental Protection Agency has highlighted the risk of negative market and environmental impacts if the supply of biomass-based diesel is further increased, Malins added.
(Reporting by Laura Sanicola; Editing by Cynthia Osterman and Andrea Ricci)