Biofuel Mandates: Out of Sync With The New Transportation Landscape
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Biofuel Mandates: Out of Sync With The New Transportation Landscape

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The following content is sponsored by AFPM

Biofuel Mandates: Out of Sync With The New Transportation Landscape

Biofuel Mandates: Out of Sync With Transportation Landscape

In 2005, the Renewable Fuel Standard (RFS) was enacted so that transportation fuel like diesel and gasoline will contain renewable fuel. The motives behind this were to reduce America’s dependence on foreign oil markets, improve climate initiatives, and bring gas prices down.

However, over time it became evident that the forecasts that the RFS was built on were largely incorrect. This infographic from AFPM dives into the world of biofuel and breaks down why the current policies are out of sync with modern transportation.

But before we begin, let’s first explore the basics of biofuels.

What Is Biofuel?

Biofuel is transportation fuel derived from biological resources, like plants. This is in contrast to fossil fuels like gasoline and diesel, which are made up of nonrenewable petroleum. In addition, biofuels break down into conventional biofuels and advanced ones.

Conventional biofuels are any fuel derived from starch feedstocks like corn and grain. In fact, ethanol derived from corn represents one of the largest components of the biofuel market in America. For instance 97% of gasoline in the U.S. contains ethanol and 94% of that ethanol comes from starch in corn grains.

Advanced biofuels are second generation biofuels. They’re considered more complex, and come from non-food biomass like plant materials and animal waste. More advanced technologies are required to extract fuel from these resources. However, the impact on the food chain is minimized.

Here are two examples of advanced biofuels:

  • Biomass-based diesel: A diesel fuel substitute made from renewable feedstocks
  • Cellulosic biofuel: Fuel that is often derived from cellulose or other non food-based renewable feedstock

The Ethanol-Gasoline Dilemma

Since the 1990s, the amount of ethanol in gasoline has creeped upwards of 10% from less than 1%. This is a problem that stems from gallon specific mandates. As the amount of gasoline consumed in the U.S. declines, ethanol’s portion of the fuel mix represents a larger portion of the overall pie.

YearEthanol consumption (billions of gallons)Ethanol consumption (% of motor gasoline)
202012.6310.02%
201513.959.9%
201012.869.3%
20054.062.9%
20001.651.3%
19951.321.2%
19900.750.7%
19850.620.6%

The bulk of automobiles on U.S. roads as well as water-born engines have what’s referred to as an ethanol limit—the highest ethanol blend a vehicle can safely be fueled with. E10, which is 10% ethanol, is the recommended limit for most existing cars today. And filling up with anything higher may lead to corrosive damage, extensive repairs, and engine failure.

We Have A Problem: Biofuel Mandates Are Too Big

The 10% limit is an issue most didn’t anticipate at the time the RFS came to be, and here’s why things are going awry.

RFS mandates are out of touch with supply and demand dynamics. Biofuel and ethanol consumption in America is near all-time-highs with some 12 billion gallons consumed in 2020. At the same time, gasoline demand is some 30 billion gallons below the forecasts when the RFS passed.

What’s more, this is leading to unintended consequences and ineffective business practices:

  • First, a surge in advanced biofuel imports is occurring. Given the RFS mandate requires more ethanol than the U.S. gas supply can absorb, refiners are forced to pay hefty fees for advanced biofuels from foreign markets. In 2020, the cumulative cost stood at a staggering $5.3 billion, nearly 15x the amounts imported in 2011.
  • Second, these exorbitant import costs are being passed on to consumers in the form of higher fuel costs. For example, the RFS obligations have led to an average 20 cent per gallon increase in 2021.
  • Third, fuel manufacturers are paying billions of dollars in compliance credits to satisfy the RFS’ obligations. In many cases, this expense is greater than total labor and wages expenses and threatens to make businesses in this space anti-competitive.

Reform: Bringing RFS Mandates In Line With Reality

When congress passed the RFS in 2005, few, if any, could have predicted the state of energy markets today.

Key projections like increasing fuel consumption and decreasing domestic crude oil production failed to transpire. As a result, the RFS needs to undergo urgent reform in order to be better aligned with the realities of modern gasoline and diesel markets.

For more information, visit afpm.org

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Operational Health Tech: A New Billion Dollar Market

Operational health tech is poised to be a multi-billion dollar industry. This graphic breaks down how its disrupting healthcare as we know it.

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Operational Health Tech: A New Billion Dollar Market

Many lessons were learned throughout the COVID-19 pandemic, but what has become most apparent is the need to invest in healthcare on all fronts. In fact in just a few short years, businesses, governments, and consumers have had to entirely reassess healthcare in ways not quite seen before.

What’s more, this elevated importance placed on health could be here to stay, and one area in particular is poised for significant growth: operational health tech.

The graphic above from our sponsor Bloom Health Partners dives into the burgeoning market that is operational health tech, and reveals the key driving forces behind it.

What is Operational Health?

To start, operational health is an industry that provides health services to employees to help keep companies running smoothly.

A critical piece of operational health is workplace health, which is expected to soar in value. From 2021 to 2025, the market for workplace health is expected to grow 200% from $6.5 billion to $19.5 billion.

The industry is undergoing a tremendous amount of innovation, specifically in relation to technological advances.

Operational Health Tech: Disrupting Healthcare

The operational health tech industry is disrupting traditional healthcare by providing direct services to employees in the workplace.

For decades now, the U.S. has increasingly become a statistical outlier for healthcare spending relative to health outcomes. For instance, the average American incurs $9,000 in healthcare spending per year, nearly twice that of OECD countries, yet life expectancy is flatlining while other countries see rises.

A worsening and increasingly expensive health dynamic makes the environment ripe for disruption and is allowing for new ideas to be brought to the table.

In addition, people are already responding to these inefficient practices by shifting greater emphasis on health within the job market. For example, studies show that workers care more about healthcare benefits over the salaries when choosing an employer.

Going forward, employees will gravitate towards employers that provide standout health benefits like workplace healthcare options offered by operational health. Here are some additional factors that act as catalysts for this space.

1. Healthcare as Smart Business

What do companies that rank as some of the best to work for have in common? First, they all tend to outperform relative to the S&P 500 on a cumulative stock performance basis. Second, many offer superior healthcare benefits.

Moreover, from 2012 to 2022, companies that were the best to work for saw shares appreciate nearly 500%, compared to around 300% for the broader market. Data like this suggests investing in healthcare and keeping employees happy is smart business that pays dividends.

2. Healthcare as a Differentiator

Since 2020, labor markets have changed dramatically. As a result, employees now have more options and are much more selective about where they work. This is evident from the difference between job openings and hires which has risen to unrecognizable levels. For example, the data shows that there are nearly 12 million job openings, but only around 6-7 million hires in 2022.

Altogether, with an oversupply of jobs relative to workers, employers will have to find new ways to differentiate. One way to stand out is through healthcare and initiatives around operational health tech.

3. The Looming Mental Health Epidemic

Today some 700 million people suffer from some form of a mental health condition and COVID-19 has continued to exacerbate the problem.

Moreover, the cost of mental health for the global economy is estimated to be a whopping $6 trillion by 2030, over double compared to the $2.5 trillion figure in 2010.

Under the umbrella of services operational health tech covers, mental health will stand to benefit. Especially in the years to come as we look for new ways to combat its mounting costs.

Investing in Operational Health Tech

Bloom Health Partners is an operational health tech company looking to revolutionize workplace health by supplying employers with data to better understand their employee base and business.

One way Bloom stands out is with Bloom Shield—its flagship cloud-based big data platform for employee health data management. With Bloom Shield, new health insights become available to make better decisions. Employers can get insight into demographic data and age trends within the workplace, pre-screening detection for cancer and diabetes, and testing for management to tackle the spread of disease.

Click here to learn more about investing in operational health tech with Bloom Health Partners.

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How Environmental Markets Advance Net Zero

The global price of carbon increased 91% in 2021. Below, we show how environmental markets are supporting a greener future.

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Environmental Markets

How Environmental Markets Advance Net Zero

In 2021, roughly 20% of global carbon emissions were covered by carbon pricing mechanisms.

Meanwhile, the global price of carbon increased 91%, bolstered by government, corporate, and investor demand. This puts traditional fuel sources at a disadvantage, instead building the investment case for renewables.

This infographic from ICE, the first in a three part series on the ESG toolkit, explores how environmental markets work and their role in the fight against climate change.

What are Environmental Markets?

First, meeting a goal of net zero carbon emissions involves limiting the use of the world’s finite carbon budget to meet a 1.5°C pathway.

Achieving net zero requires us to:

  • Change how we utilize energy and transition to less carbon-intensive fuels
  • Put a value on the conservation of nature or “natural capital” and carbon sinks, which accumulate and store carbon

Environmental markets facilitate the pathway to net zero by valuing externalities, such as placing a cost on pollution and placing a price on carbon storage. This helps balance the carbon cycle to manage the carbon budget in the most cost-effective manner.

What Is the Carbon Budget?

To keep temperatures 1.5°C above pre-industrial levels, we have just 420 gigatonnes (Gt) of CO₂ remaining in the global carbon budget. At current rates, this remaining carbon budget is projected to be consumed by 2030 if no reductions are made.

Carbon Budget1.5°C1.7°C2.0°C
Remaining GtCO₂4207701270
Consumed GtCO₂247524752475

Each scenario based on a 50% chance of success
Source: IPCC AR6 WG; Friedlingstein et al 2021; Global Carbon Budget 2021

Across three different scenarios, the above table indicates the amount of carbon emissions humanity can emit to prevent the worst effects of climate change.

What are Negative and Positive Externalities?

Second, when companies compensate for CO₂ emissions, they can fall across two categories: negative and positive externalities.

  • Negative externalities include pollution. Carbon cap and trade programs, using carbon allowances, put a cost on pollution.
  • Positive externalities include renewables, such as wind and solar power that generate carbon-free electricity. The value of renewable energy can be expressed with a renewable energy certificate.

Natural capital is another example of a positive externality, which involves the capturing and storing of carbon. The value of this type of natural capital can be expressed using a carbon credit.

Environmental Markets and the Energy Transition

Next, environmental markets can drive the transition to cleaner energy sources by ascribing a cost to pollution and putting a premium on renewables, to change how we use energy.

As one example, in 2013 the UK government introduced the Carbon Price Support mechanism to complement the emissions cap and trade program and weaken the investment case for coal. Between 2013 and 2020, Britain’s overall CO₂ emissions fell by 31%.

Here’s how coal was phased out of the UK’s energy mix, while renewable energy sources such as wind, solar, and bioenergy played a greater role.

DateCoal Gas Wind and SolarBioenergy
Q1 200031 TWh40 TWh0 TWh1 TWh
Q1 200541 TWh36 TWh1 TWh2 TWh
Q1 201031 TWh47 TWh2 TWh3 TWh
Q1 201528 TWh23 TWh13 TWh6 TWh
Q1 20203 TWh27 TWh28 TWh9 TWh

Source: Digest of UK Energy Statistics (DUKES); BP; EMBER via Our World in Data (2021)

Today, less than 5% of the UK’s electricity is coal-generated, with remaining plants expected to be decommissioned by 2024.

How Environmental Markets are Advancing Net Zero

Finally, as governments increase their commitments to net zero, carbon prices are rising towards a level that requires industries to decarbonize and meet those goals.

In fact, between 2014 and 2021, the global price of carbon has increased over sixfold.

DateGlobal Carbon Price (Year End)Annual % Change
2021$47.7891%
2020$24.9637%
2019$18.16-7%
2018$19.56102%
2017$9.6729%
2016$7.52-24%
2015$9.887%
2014$9.2432%

As indicated by the ICECRBN Global Carbon Price (CPW Weighted)
Source: ICE (Apr 2022)

As companies begin to treat their carbon footprints as liabilities, there will be increasing demand for environmental attributes, such as carbon allowances and carbon credits.

Managing Risk and Opportunity

Quoted markets like ICE Futures Exchanges and NYSE allow stakeholders to precisely value positive and negative externalities to:

  • Manage emissions cost effectively
  • Hedge climate transition risk
  • Allocate capital to facilitate the energy transition and build carbon sinks
  • Create an asset class for Natural Capital
  • Invest in assets to meet climate obligations

Everyone is exposed to climate risk which means it needs to be measured and managed.

That’s why balancing the carbon cycle will be critical to managing the world’s carbon budget. Markets are providing greater access, liquidity and opportunity in supporting net zero ambitions.

In part two of the series sponsored by ICE, we’ll look at four motivations for using ESG data.

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