The Growing Role of Biofuels and Its Impact on Landowners

May 23, 2024

Biofuels Boom: Unlocking New Opportunities for Farmland Owners

Biofuels have become a critical component in the shift toward renewable energy, offering unique opportunities and challenges for farmland owners. As governments and industries seek sustainable alternatives to fossil fuels, the agricultural sector plays a pivotal role in producing bio-based fuels like ethanol, renewable diesel, and sustainable aviation fuel (SAF). Although production agriculture accounts for a small percentage of overall greenhouse gas emissions, agriculture has the ability to be a large part of the solution.

Types of Biofuels and Production Processes

Ethanol is the most well-known biofuel and is primarily made from corn starch. The process involves fermenting and distilling corn to produce alcohol, which is then blended with gasoline to create a cleaner burning fuel. The demand for ethanol has been steady, largely due to its incorporation into daily fuel usage and special blends like E15, which is now available year-round in many markets.
BioDiesel is refined from vegetable oils or animal fats but has different properties than petroleum diesel. It must be blended with petroleum diesel, up to 20%, in order to be used in diesel engines.
Renewable Diesel is also produced using vegetable oils or animal fats, but through a process similar to petroleum refining. Unlike biodiesel, renewable diesel can directly replace petroleum diesel in engines without modification. This fuel reduces greenhouse gas emissions significantly, making it an attractive option for reducing environmental impact.
Sustainable Aviation Fuel (SAF) is another promising biofuel, made from various feedstocks including vegetable oils, sugars/alcohols, ethanol, and some residues. It can be blended, up to 50%, with conventional jet fuel to reduce carbon emissions from aviation, a major source of greenhouse gases.

Benefits for Landowners

Financial Incentives: Engaging in biofuel production can provide some financial benefits to landowners. For instance, those growing corn for ethanol or soybeans for renewable diesel may find additional markets for their crops, supporting higher commodity prices and farm income stability. Additionally, some biofuel facilities could offer premiums for low-carbon intensity crops, encouraging sustainable farming practices.
Environmental Contributions: By participating in biofuel production, landowners can contribute to reducing greenhouse gas emissions. This not only aligns with global climate goals but also enhances the sustainability profile of their farming operations. Moreover, practices associated with biofuel crop production, such as reduced tillage and the use of cover crops, can improve soil health and reduce erosion.
Government and Industry Support: Many biofuel projects benefit from government incentives, such as subsidies or tax credits, particularly those that lower their carbon intensity. The Inflation Reduction Act, for instance, offers tax credits starting in 2025 for biofuel producers who meet certain environmental thresholds. This would include changes to their current processes, such as carbon capture, and the type of grain or feedstocks they source. Legislative support for these biofuel initiatives can have an indirect impact on value for landowners due to the underlying support of the commodity markets.

Considerations and Challenges

While the benefits might be compelling, landowners should carefully consider the long-term commitments and potential impacts of entering into any contracts or agreements. Crop choices, soil health management, and contract terms with biofuel processors are critical factors that require thoughtful consideration to ensure the long-term success and profitability of these green energy initiatives.

Biofuels represent a significant opportunity for farmland owners to participate in the renewable energy transition. By understanding the types of biofuels, their production, and the potential benefits, landowners can make informed decisions that align with both their financial goals and environmental values. As the biofuel industry continues to evolve, staying informed and adaptable will be key to maximizing the benefits from these opportunities