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Are U.S. low carbon fuel standards driving a structural change in oilseed demand that could support farmland returns?

Overhead view of a road through farmland

Low carbon fuel standards are U.S. state-level programs that seek to reduce emissions of carbon dioxide and other pollutants from transportation fuels. Several fuel sources offer compliance within this scheme, including charging stations for electric vehicles and ethanol. However, one fuel type, renewable diesel, possesses chemical attributes that simplify the switch to low carbon fuel for refiners and motorists alike. In this paper, potential implications for oilseed demand and farm margins stemming from low carbon fuel standards and the expansion of renewable diesel refining capacity are analyzed.

Over the next four years, the U.S. will see renewable diesel refining capacity more than quadruple so that refiners and distributors can achieve compliance and supply low carbon transportation fuel in LCFS states.

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A word on risk
As an asset class, agricultural investments are less developed, more illiquid, and less transparent compared to traditional asset classes. Agricultural investments will be subject to risks generally associated with the ownership of real estate-related assets, including changes in economic conditions, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties. Nuveen provides investment advisory solutions through its investment specialists.
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