by Michele Rubino (Biofuels Digest) ... Take California’s climate change mitigation efforts – and specifically the LCFS (Low Carbon Fuels Standard), the State’s flagship Program aimed at decarbonizing the transportation sector. Back in 2015 the Program was emerging from years of vicious lawsuits, aimed at damaging and delaying it. The petroleum lobby was still doing its bit to attack and sabotage the policy (the so oft used phantom fuel argument). I clearly sensed that California’s legislators and regulators – backed by its citizens – would have the spine to stay the course. Unlike Congress and the EPA – whose actions have undermined the Renewable Fuels Standard (the federal biofuels program). I was right. Four years on, the LCFS is the gold standard. Industry relies on it to make investment decisions on low carbon fuels projects. Other jurisdictions are looking to emulate it. It is a bright spot in the midst of America’s depressingly weak stance on fighting climate change – but one that bodes well, as California typically leads the way when it comes to environmental legislation in the United States.
...
Credit prices are now in the $200/ton CO2 range. That is right! Emitting CO2 in the transportation sector in California costs $200/ton. Next time someone says that a tax of at least $100/ton of CO2 emitted is needed to make any attempt to combat climate change meaningful – feel free to tell them that 30% of the economy (that is the contribution of the transportation sector to overall GHG emissions) of the largest State in the US (and the 7th largest economy in the world) has a $200/ton CO2 “tax”. The value of this carbon market is in the billions of dollars.
The market signal from these credit prices is unmistakable and has had a broad and deep impact, spurring innovation and driving investment decisions. Just three examples:
1. Biomass based diesel use is growing rapidly. It represents more than 20% of diesel consumption in the State. Many more renewable diesel projects are on the books (with biodiesel being less in favor). If only a handful of these materialize that will mean a lot more barrels. The push to use low carbon intensity feedstocks (such as used cooking oil and animal fats) is driven by LCFS. These will eventually run out, but the price signal will drive innovation in feedstock (enter algae-based biofuels!).
2. The pace of development of Renewable Natural Gas (RNG) projects is remarkable. Pipeline grade natural gas derived from biogas is virtually sold to fleet operators that use natural gas in their heavy-duty vehicles. The market penetration of RNG for fleets using Compressed Natural Gas (CNG) in the state is reaching 75%+. A lot more fleets will be switching to natural gas engines, fueled by RNG. All of this would never be happening without the LCFS. These RNG projects not only offset the use of fossil fuels, but also prevent flaring at landfills and leakage of methane emissions from farm waste. Biogenic feedstock to support the development of these projects and the conversion of more heavy-duty vehicles to RNG are abundant. We have not even started exploiting the potential of agricultural or food processing residues. The organic fraction of MSW (municipal waste) is the next frontier (driven by California’s organic landfill diversion requirements). Large companies (such as Chevron) are investing in RNG. Pathways for RNG > Power > Electric Vehicles are in the works, expanding the opportunity for RNG use in transportation.
3. Fuel ethanol is an industry experiencing severe pain. The demand-killing RFS waivers granted to refiners by the Trump administration is only adding to the damage caused by the administration’s trade policy to the farming economy. With demand for ethanol under pressure, industry players are turning to other sources of value – and getting creative. Enter the LCFS. Innovation and efficiency improvements in process and feedstock (less use of fossil fuels, better use of by-products) reduces Carbon Intensity of the fuel they produce – which can be monetized in the LCFS. The irony is that in 2015 these same mid-western ethanol players (see POET) were fighting tooth and nail (in the courts of public opinion and law) against the LCFS, which they saw as discriminatory to their products. Circumstances can make for strange bedfellows!
California’s regulators have unequivocally demonstrated that the LCFS is truly technology agnostic. They are not in the business of picking winners and losers or skewing the policy in favor of in-state players. All technologies are welcome – as long as they can provide the most cost-effective mean of reducing carbon emissions. The State’s soft spot for electric vehicles (very inappropriately referred to as ZEVs – Zero Emission Vehicles), the result of vicious air pollution in the State’s largest metropolitan areas, is still palpable (a Tesla please). However, the LCFS targets are mostly being met with renewable diesel produced from waste feedstock in Louisiana (Valero and REG) and Southeast Asia (Neste), RNG produced in farms as far as Wisconsin and that all-so-hated ethanol from the Midwest (and its less hated analog from Brazil).
And now to three highlights from the conference:
1. Graham Noyes, the executive director of the Low Carbon Fuels Coalition (or LCFC) – a trade organization based in California and dedicated to promoting clean fuel policies across the country and beyond – gave the audience an update on the expansion of such policies beyond California. Progress is truly remarkable – beyond any expectation one could have had in 2015. Oregon has implemented a carbon (no pun intended) copy of the LCFS. British Columbia has a clean fuels standard. Washington State was a narrow miss last year – but the political environment in parts of that State are very favorable. Laws establishing policies similar to the LCFS are in the works in the Northeast. Also, Midwestern States – burned by the failures of the federal government to live up to its promises to the farming constituencies – are mulling the idea of taking things in their own hands. Even European countries, under the umbrella of the latest Renewable Energy Directive passed in Brussels, are transforming their biofuels blending mandates in CO2 reduction standards (never tell a European that they lag behind the US in any initiatives having to do with fighting climate change – they will not appreciate it!). Graham’s intuition that the sub-national jurisdiction is the right target has paid off. Politics at the national level are too complicated. The LCFC has come a long way from its humble beginnings, having over 20 members and now one of the most recognized trade organizations in the industry.
2. Mike Lewis from Pearson Fuels (a California low carbon fuel distributor and member of the LCFC), gave us an update on the expansion of E85 (85% ethanol blends with gasoline for use in Flex Fuel Vehicles) distribution and use in the State. Just a few years ago, this low carbon option was out of favor, caught in the crossfire between California and the Midwestern ethanol constituencies and the dwindling incentives to automakers to produce such FFVs. Since then E85 has made a remarkable comeback. Pearson Fuels is selling more and more of the fuel, opening a station a week. With demand and infrastructure established, Mike is turning to sourcing lower carbon components of E85. On ethanol, this means the highest performing (in terms of carbon reduction) ethanol from the US and Brazil. At the event Mike presented an improved product where the gasoline component is also renewable (naphta in this case) resulting in a further reduced carbon intensity.
3. Dayne Delahoussaye from Neste Oil (the Finnish state oil company turned global renewable fuels market leader in just a decade) gave us an update on his company’s overall approach to sustainability. As the global leader in renewable diesel production (and the major single supplier of LCFS credit generating fuels in California) Neste is looking to expand feedstock options beyond traditional oilseeds and the current lower carbon options (waste animal fats and used cooking oils). Dayne also spoke about the potential of using waste plastics as feedstock for alternative liquid fuels, an obvious opportunity that has consistently failed to gain much traction. However, the waste plastic recycling value chain in the US (if there ever was one worth this name) has broken down due to import bans from China and others of the hardest to recycle plastic waste. The sad consequence is that these streams are heading straight to landfills across the country. We’ll see if this lessens the aversion of California’s regulators (shared in fairness by many other parts of the world) to using the hardest to recycle waste plastic as alternative fuel (= burning it).
A sense of pride and success in what has been accomplished over the last few years was palpable. READ MORE
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