Tackling the Hidden Emissions of Waste Oil Feedstocks

November 04, 2024

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(SkyNRG) SkyNRG’s approach to displacement greenhouse gas effects. -- Policy is increasingly considering the indirect land use change (ILUC) effects associated with food and feed commodities. However, indirect emissions related to the displacement of feedstock are assessed to a much lesser extent. This means that even though sustainable aviation fuel (SAF) is compliant with the criteria set forth in the EU Renewable Energy Directive (RED), demand for certain waste feedstocks could still lead to increased production of virgin vegetable oils, with unintended land use change and greenhouse gas (GHG) impacts.

SkyNRG goes above and beyond compliance and sets rigorous sustainability criteria for the SAF we source and supply to our customers, and the feedstocks we plan to use in our own SAF capacity projects. One such criterion is that we avoid feedstocks that are estimated to have a high risk of displacement GHG effects.

In this blog, we aim to shed light on the topic of displacement GHG emissions, how it is currently considered in the regulatory space and what corporates can do to minimize high displacement risks.

What is displacement?

In the context of SAF, feedstock displacement refers to the effect of drawing waste or residue feedstocks away from preexisting end-uses (Figure 1). Since waste and residues cannot scale with increased demand, they are considered to be ‘inelastic’. Due to demand for waste and residue feedstocks from biofuels, the feedstock may be priced out from its existing end-use and be substituted by a cheaper feedstock that meets the same needs. These substitutes can have significantly higher GHG emissions. This effect is referred to as an indirect GHG emission or displacement GHG emission. So, while the goal of biofuels is to reduce GHG emissions, this effect can actually result in an unwanted increase in GHG emissions at the system level.

Figure 1: Possible displacement effects in a waste oil SAF scenario in the situation that the waste oil substitute for the chemical producer is virgin palm oil.

For example, palm fatty acid distillate (PFAD), a processing residue from the refining of crude palm oil, is an approved feedstock to produce SAF under ReFuelEU in various EU member states.[1] However, PFAD is a feedstock that is already high in demand to produce oleochemicals, soap and pet food. Increased demand from SAF could therefore lead to the substitution of PFAD with alternative feedstocks, such as palm oil, since it is the most likely substitute based on characteristics and price.[2] As an example, this means that the PFAD that was used in pet food, could become replaced with palm oil. The emissions associated with this demand for virgin palm oil is known as the displacement effect. This illustrates that in the case of PFAD, emissions at the system level could even increase if all the substituted material is palm oil.

How regulation handles displacement

Including displacement GHG emissions in a lifecycle analysis is not required at a regulatory level in the EU. The RED does not include such emissions in its GHG methodology. However, displacement effects are taken into consideration when adding feedstocks to the EU’s approved list of feedstocks for biofuels (Annex IX Part A & B). Feedstocks can only be added to the annex if there are no significant risks of distortive effects on markets (Figure 2), which would generally also imply a low risk of displacement emissions. However, there is no measure of what constitutes ‘significant risk’ and therefore feedstocks could still end up on Annex IX that lead to significant displacement emissions. As a producer of renewable fuels and a company buying EU RED-compliant fuels, this is an area in which additional due diligence is essential to mitigate risks of inducing significant indirect GHG emissions.

Figure 2 Assessment process to add new feedstocks to Annex IX of the EU RED.[3]

How SkyNRG deals with feedstock displacement

SkyNRG’s SAF sustainability requirements go beyond regulatory requirements, and we strive to mitigate displacement risks by carefully selecting the feedstocks we use. For every feedstock we consider using for our production facilities, and for those used for the SAF we source from third-party capacity, we collect evidence on displacement and present this information to our independent Sustainability Board.

Our independent Sustainability Board, comprised of members from academia and NGOs, provide sustainability advice and serve as a sounding board for new feedstocks. To date, SkyNRG has sought to only source SAF from feedstocks that have received positive advice from our Sustainability Board.

To enable our Sustainability Board to provide advice on displacement and compare results with other feedstocks, we rely on a methodology proposed by the ICCT.[4] The final deliverable is an estimated on the displacement risk that can be expected in today’s market. Key inputs to this assessment are:

Detailed feedstock description and properties
Inventory of existing uses in different end-use markets (e.g. cosmetics, pet food)
Inventory of material substitutes
“Order of dispatch” in which these substitutes replace the diverted feedstock
Quantity of substitute material used per unit of feedstock substituted

These inputs make up the key parameters to a displacement assessment. It is also essential to perform a sensitivity analysis to see how this calculation is affected by changes in the market, which an important element of the analysis as feedstock markets are dynamic. Because of this, we have committed to reassessing a feedstock every five years.

Not all displacement is equal

Displacement is a complex topic because it is hard to predict market dynamics in general, let alone in counterfactual scenarios. In addition, detailed feedstock data is often hard to come by. An added layer of complexity is that not all displacement is equal. SkyNRG holds the view that displacing a feedstock used for energy, e.g. heating in a boiler, is not as severe as a feedstock used for chemical production. This is because heating and other energy applications have more viable decarbonization options such as electrification, while most chemicals can only decarbonize through use of biobased feedstocks. Moreover, the EU’s waste hierarchy considers that biomass should be used first in the applications with the highest environmental added value, where energy recovery is the lowest possible use for biomass.[5] In displacement assessments, we therefore consider a feedstock still permissible when the material displaces end-use related to energy recovery in industrial applications or for the production of biofuels in other sectors, like road or maritime.

The discussion boils down to the question “How should a limited biobased feedstock be utilized and where can it best reduce climate impact?” SkyNRG believes that it should be prioritized for end-uses that have no other decarbonization option, such as aviation and chemicals production.

Final note

Fortunately, more attention is being given to displacement GHG emissions (e.g. in the SABA Sustainability Framework)[6], and there is a clear desire from customers to include such thinking in sourcing decisions. It is also evident that legislation is lagging behind in considering the system-wide GHG effects of increased demand for waste-based biofuels. To maintain trust in biofuels as a meaningful solution in the transition to meeting our climate targets, we need to get this right and demonstrate that the renewable fuels sector can responsibly scale up biofuels. Players involved in this space have the tools to get more familiar with the concept of displacement emissions and should take responsibility for the GHG effects that are induced in their supply chains.

In addition, we urge the European Commission to better communicate about the indirect emission impacts associated with the feedstocks listed on Annex IX of the RED and ensure that it is supported by thorough analysis. This enables consumers to make better purchasing decisions and developers will be more likely to focus on low-risk feedstocks.

Are you interested in learning more about displacement GHG emissions, how SkyNRG performs these assessments and how it has impacted sourcing decisions? Feel free to reach out to policyandsustainability@skynrg.com. READ MORE