California forecasts robust growth in biodiesel, feedstock demand

By Graham Noyes | May 22, 2017

Over the past decade, California has developed a complex policy framework pertaining to greenhouse gas (GHG) emission reduction including policies that drive demand for low carbon fuels. The original authorizing statute was the Global Warming Solutions Act of 2006 (AB 32) and set GHG reduction mandates for 2020. In 2016, AB 32 was extended and expanded by a pair of bills: 1) SB 32 that established a 40 percent GHG reduction requirement below 1990 levels by 2030, and 2) AB 197 that established environmental justice and legislative oversight provisions. These three laws form the statutory foundation authorizing the full range of GHG regulatory programs in California, including the low carbon fuel standard (LCFS). The California Air Resources Board (ARB) is the agency with primary authority over GHG regulations in the state, and is responsible for planning how to achieve the overall reductions, for measuring progress, and for administering the LCFS. 

The ARB proceeding that forecasts how GHG reductions will be achieved across the entire economy is known at the Climate Change Scoping Plan. The original scoping plan was approved by the ARB governing board in 2008. The first update to the scoping plan was approved on May 22, 2014. Due to the passage of SB 32, the board is in the midst of approving a second update with a public board meeting set for June 22-23 when final approval is likely. 

The final proposed scoping plan provides ARB’s projections regarding the quantity of GHG reductions that can be achieved from the use of low carbon fuels in the LCFS, including biodiesel and renewable diesel. The specifics of these projections cannot be determined by the scoping plan document itself but instead by analyzing the models underling the scoping plan. The key models for these purposes are the PATHWAYS model and the Biofuels Supply Module.

To ARB’s credit, the agency conducts its proceedings with high degrees of transparency, public participation and engagement with stakeholders. Consistent with this, ARB staff provided valuable feedback regarding the nature of these models and the quantities of biodiesel, renewable diesel and alternative jet fuel forecast to be supplied to the California market between 2018 and 2030. These forecasts all include California’s existing LCFS requirement of a 10 percent reduction of carbon intensity (CI) in its transportation fuel market between 2010 and 2020.

Within the scoping plan, there are six different scenarios modeled. This article focuses on the three of these scenarios that contain the most biofuels modeling:  1) The reference scenario wherein there are no modifications to existing policies (business as usual or BAU) and the LCFS remains at a 10 percent reduction level; 2) scoping plan A wherein cap-and-trade is extended and the LCFS ratchets down another 8 percent to achieve an 18 percent CI reduction by 2030; and 3) alternative No. 1 wherein there is no cap-and-trade program and, to compensate for this, the LCFS ratchets down another 15 percent to achieve a 25 percent CI reduction by 2030, and California institutes a renewable diesel credit of $0.34 per gasoline gallon equivalent (GGE). Note that all of the following demand projections are in GGEs.

Looking first at biodiesel, the ARB models project California biodiesel demand at 265 million GGE in 2020 under all three scenarios. In later years, however, biodiesel demand increases most rapidly under the BAU scenario, reaching 791 million in 2025 and 806 million in 2030. Under scoping plan A, biodiesel increases to 761 million in 2025, but demand then slides to 741 million in 2030. Under alternative No. 1, biodiesel enjoys strong growth to 630 million in 2025 but decreases to 548 million in 2030, likely due to the impact of the renewable diesel credit.

Renewable diesel is forecast by ARB to experience even more rapid growth in California. In 2020, it is at 740 million GGE in all three scenarios. Under the BAU scenario, renewable diesel increases to 843 million in 2025, then drops down to 548 million in 2030. Under scoping plan A, renewable diesel demand increases to 1.2 billion in 2025, and 1.1 billion in 2030. In the most bullish scenario, with the help of the renewable diesel credit in alternative No. 1, renewable diesel achieves 1.6 billion of demand in 2025 and increases to 1.8 billion in 2030.

On the topic of alternative jet fuel (AJF), ARB is currently evaluating a proposal brought forward by Airlines for America (A4A) and a group of fuel producers that I represent to expand the LCFS program to enable AJF uploaded in California to generate credits on an opt-in basis. However, as this is a proposed regulatory change, AJF has not yet been integrated into the various demand scenarios. 

Turning to the issue of feedstock, California’s demand profile is quite distinct from the national average due to the premium credit value that fuels produced from low carbon feedstocks receive in the LCFS program. The following figures from ARB’s 2016 LCFS reports represent not the relative percentage from a volume perspective, but instead from a credit-generating perspective based on GHG reduction. From this vantage point, biodiesel and renewable diesel produced from roughly equal quantities of distillers corn oil and tallow generated about 73 percent of the LCFS credits; used cooking oil was next prominent with 21 percent credit share; and canola, fish oil and soy collectively generated the remaining 6 percent of the credits. ARB lumps distillers corn oil with the other top-producing feedstocks as wastes or residues rather than “conventional crop-based fuel generation.”

Looking to the future, the PATHWAYS model takes a similar approach and does not differentiate other than between waste and nonwaste feedstocks. In 2020, biodiesel is anticipated to be derived 100 percent from waste feedstocks under all three scenarios, and renewable diesel is 83 percent waste-derived. In 2025, nonwaste feedstocks deliver about half of the feedstock to both fuels in all scenarios except alternative No. 1 wherein biodiesel continues to be 100 percent waste-derived. In 2030, under the BAU scenario, feedstock remains at about half waste oil for biodiesel and renewable diesel. With a more robust LCFS, there are higher waste oil feedstock penetration for both fuels. Under the third scenario in 2030, with a renewable diesel credit, the feedstock mix is 62 percent waste for renewable diesel and 72 percent for biodiesel.

ARB does not provide forecasts regarding the specific types of waste and nonwaste feedstock that will be used for low carbon fuel production under these scenarios. However, a key component of the Biofuels Supply Module is the USDA’s billion ton study so that study should be cross-referenced for additional insight. ARB welcomes input to both its scoping plan and Biofuels Supply Module from the industry. Click here to access scoping plan documents and to submit a comment. 

Author: Graham Noyes

Managing Attorney, Noyes Law Corp.



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