For SAF’s Take-off, Look to India’s Policies

Aviation Fuel/Sustainable Aviation Fuel (SAF)BioRefineries/Renewable Fuel Production Business News/Analysis California Environmental Protection Agency Federal Agency/Executive Branch Federal Regulation Funding/Financing/Investing Global South India Marketing/Market Forces and Sales Opinions Policy White House

April 29, 2024

Print This Article Share it With Friends

by Eric McAfee (Aemetis/Biofuels Digest) ... We win wars by issuing Cost Plus contracts to defense contractors so they can build new production capacity to produce the weapons of war.

SAF is just such a weapon, but our leaders have not been willing to enforce firm mandates of SAF blends with clear incentives in order for airlines and industry to work together to build renewable fuels to fight the war against climate change and for cleaner air.

SAF is not the first renewable fuel that has been proposed and then developed successfully. Please note the informative experience of the Government of India as it responded with a plan to replace imported petroleum diesel with domestic renewable biodiesel – in the year 2007 National Biofuels Policy of India.

The Cost-Plus model

To avoid delay for busy readers, the India government has now mandated that the three large companies that own 70% of the oil refineries in India must purchase biodiesel on a “Cost Plus“ basis. Thereby, the price of biodiesel offered by the three oil marketing companies in India considers all of the input costs and then adds a profit margin in order to increase the production of renewable fuel, while transferring the risks and benefits of incentives to the customer.

The airline industry should do the same in order to rapidly grow the production of sustainable aviation fuel in order to decarbonize aviation. Airlines are much better positioned than startup renewable fuels producers to influence the creation and expansion of government and private industry incentives such as Scope 3 emissions credits, IRA production tax credits, LCFS credits, and federal RFS RIN credits.

Airlines already have mechanisms to collect additional revenue from passengers, including corporate frequent flyer programs and increased ticket prices, to offset the higher cost of blending SAF into petroleum jet fuel.

...

Unlike the U.S., India does not have domestic crude oil reserves from which to draw and produce petroleum fuel products for transportation. India is dependent upon importing crude oil and diesel for transportation fuel, gradually depleting the economic strength of the country as its exports of IT services and garments creates U.S. dollars which are then immediately sent to foreign countries to purchase crude oil and petroleum products.

In 2007, the India rupee traded at approximately ₹50 to one US dollar, which has now depreciated to more than ₹80 per one US dollar. That reduction in national value is what happens when more than $100 billion per year of U.S. dollars are needed to purchase petroleum for the operation of the India economy.

...

n 2007 and still today, India does not see battery operated trucks or hydrogen powered trucks as a wide-spread solution to the country’s problem of buying imported crude oil to produce petroleum diesel.

As California is learning, mandating trucking companies to pay 100% to 400% more to purchase battery-operated trucks that are loaded with batteries instead of cargo, then charging trucks for many hours every day at nonexistent charging stations at truckstops which would draw massive amounts of electricity from an over-loaded electric grid, is not a solution for anyone other than a small, heavily subsidized group of demonstration vehicles that drive short distances with light cargo.

India also knows that hydrogen is a highly pressurized, expensive fuel that does not exist at any meaningful commercial scale for use in transportation. According to CARB, almost all hydrogen vehicles in California are the forklifts that received $1 billion of California LCFS funding in the past ten years. Hydrogen can be moved only a few miles (using trucks since no one will allow a hydrogen pipeline near their kids school), does not have fueling stations (Shell just shut down all seven of its hydrogen stations in California), and there are no commercially viable hydrogen trucks. And, hydrogen is more expensive as a fuel than any renewable biofuel alternative.

Using renewable electricity to power the splitting of water to make hydrogen which then cannot be moved even short distances, then converting hydrogen back into electricity to power “hydrogen”-electric trucks, wastes about 70% of the energy value. This waste of energy and the resulting poor economics was noted recently by the County of Los Angeles when the board of supervisors approved a small demonstration of how the hydrogen economy would work.

...

So, a large country with a clear need to solve its dependence on imported petroleum fuels has successfully achieved the launch and rapid growth of a domestically produced biofuel to increase the wealth and independence of the nation. India is now leading the way on the blending of renewable fuels, as shown in the recent international COP meetings where India Prime Minister Modi led the formation and promotion of the U.S./Brazil/India renewable fuels consortium.

How did the notoriously bureaucratic and slow-moving Government of India, working within a democratic and often chaotic political environment, achieve measurable and rapid progress toward such a Grand Challenge to blend renewable fuels?

For the first years starting in 2007, the Government of India failed miserably. Biodiesel plants were funded by investors based upon the good intentions set forth in the 2007 National Biofuels Policy for the adoption of renewable fuels, but the oil refiners in India priced biodiesel relative to the price of petroleum fuels. As a result, very few gallons of renewable biodiesel were sold in India until the 2018 National Biofuels Policy in India made it illegal to export or import biodiesel, thereby specifically increasing domestic investment in new renewable fuels capacity in the country.

India had learned. The political leaders learned that failing to support the domestic agricultural economy had real political implications. In 2020, partially driven by the Covid crisis, India realized the strategic value of its ag sector as the second largest sugar exporter in the world: sugar can make ethanol which replaces imported crude oil necessary for gasoline production.

Cost-plus and India’s success

...

India government realized that investors simply need to know that they will receive a return on their investment.

...

How White House weakness drives renewable fuels down, oil companies up

In the case of renewable fuels, the major players are oil companies that will be displaced gradually as their petroleum products are not needed.

...

Ethanol containing 110 octane sells wholesale for only $1.80 per gallon in California today, but a 90% petroleum blending mandate enforced by CARB prevents more than a 10% blend of ethanol, so prices to consumers are about $6.00 per gallon at the pump for 91 octane gasoline.

...

The White House (and EPA) decision in mid-2023 to set the RFS Renewable Volume Obligation below actual production capacity for all fuels except cellulosic renewable natural gas was a financial windfall for major oil companies at the cost of the failure to grow the renewable fuels industries in the US.

As a direct result of this single White House and EPA decision on the RVO, RIN prices crashed from $1.80 in Q2 2023 to $0.36 for D4/D5/D6 RINs in Q1 2024. The loss of billions of dollars of revenues for renewal fuels producer was a gain of billions of dollars of profits for oil companies in the US.

Side note: Major oil companies are significant renewable fuel producers now and will be the largest producers of renewable fuels in the future. Their general political opposition to higher blends of renewable fuels is simply an attempt to slow down the inevitable 100+ years of transition to renewable fuels. Crude oil will be increasingly difficult and expensive to find and produce over the next 100 years, and renewable fuels will continue to be cleaner, domestic, job-creating and a lower cost fuel for consumers. Major oil companies are simply pursuing the survival of their sunk costs in oil refineries and other infrastructure, including the massive value of oil reserves.

...