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Renewable Energy Demand Reshapes Global Vegetable Oil Markets

7 Jun 2024 9:39 am
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Mumbai, 5 Jun (Commoditiescontrol):The global vegetable oil market is undergoing a dramatic transformation driven by the surge in renewable energy demand, particularly in the transportation sector. As one of the largest contributors to global greenhouse gas emissions, the transportation sector's shift toward renewable energy is critical for meeting climate goals outlined in the 2015 Paris Agreement.

Over the past two decades, the consumption patterns of key vegetable oils—palm, soy, rapeseed, and sunflower—have shifted significantly. Initially almost exclusively used for food, approximately 27 percent of these oils are now directed toward biofuel production. This trend is especially pronounced in major economies such as the United States, Brazil, and Indonesia.

The United States stands at the forefront of this shift, with its renewable diesel production capacity set to quadruple by 2024. This expansion is fueled by regulatory frameworks like the Renewable Fuel Standard (RFS) and the California Low-Carbon Fuel Standard (LCFS), which have created a robust incentive structure for biofuel production. As a result, US farmers are increasing their soybean acreage by about 3 percent this year, driven by higher returns from the energy sector.

However, the rapid expansion in biofuel production has also led to a significant decline in the prices of D4 Renewable Identification Numbers (RINs), which cover renewable diesel and biodiesel. Prices have plummeted by approximately 75 percent from mid-2023 to May 2024, prompting some biofuel producers to idle plants or revert to fossil fuel production due to squeezed profit margins.

To counter these challenges, the biomass-based diesel blender credit (BTC) will be replaced by the Clean Fuel Production Credits (CFPC) by early 2025. The CFPC aims to mitigate competition from imported biodiesel, better manage supply, and enhance sector profitability. This transition is expected to have significant implications for the global vegetable oil supply and demand dynamics.

(By Commoditiescontrol Bureau; +91-9820130172)

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