Biodiesel: the state of the states and Canada

By Ron Kotrba | February 07, 2011

The 2011 National Biodiesel Conference & Expo featured a breakout session titled, The State of the States and Canada: Legislative and Regulatory Update, which hosted interesting facts and discussion on opportunities and challenges for the biodiesel industry.

Shelby Neal, NBB director of government affairs, kicked off the panel talking about how by 2015, as various state mandates such as that of Minnesota incrementally increase blend level requirements, there could be a nearly half a billion gallon annual market coming from state mandates and blend incentives alone. Right now state mandates in Oregon, Minnesota, Washington, Pennsylvania, Louisiana and Massachusetts create a roughly 140 billion gallon annual market for biodiesel. “We’ve turned the corner on the sustainability issue,” Neal said, as evidenced by the 48-to-zero vote by the New York City Council for its city-wide Bioheat mandate that will begin in 2012, creating a new 20 million gallon annual biodiesel market.  

Neal also said there’s no other policy that can profoundly impact biodiesel like low carbon fuel standards can, and that if all the states that are considering LCFS policies were to implement them, it would create a 3 billion gallon annual market for biodiesel—at minimum.

LCFS policies were central to the panel as Brian Woods, an environmental analyst at the Vermont agency of natural resources, discussed the Northeast and Mid-Atlantic LCFS initiative. In December 2008, 11 states signed on to participate in the initiative, and a year later the governors of those respective states signed a memorandum of understanding in the development of a multistate LCFS. By the end of the first quarter of this year, an economic analysis is targeted for completion. The goal is to “harness market forces to drive low carbon technology innovation and deployment, and to influence national policy,” Woods said. “A national program would really make a lot more sense though.”

The draft program framework document is being finalized now, Woods said. It’s a four-page document that outlines particular elements, such as how compliance and enforcement would play out. “No decisions have been made and there’s been no commitment yet,” he told the crowd. The recent elections have brought new political faces to the equation, and some of those new people may need some convincing, Woods said. He said there will be a stakeholder meeting either in March or April, with April being more likely.

The next steps in this multistate LCFS initiative, Woods said, are to review the draft framework, complete the economic analysis and review and adopt a decision on moving forward in developing a model rule.  

Also speaking on California’s LCFS was Eric Bowen with Renewable Energy Group Inc., also chair of the California Biodiesel Alliance and former CEO of Tellurian Biodiesel (bought by REG). Bowen also sits on the California Air Resources Board’s LCFS committee.

“There’s trouble in low carbon paradise,” Bowen said regarding underground storage tank issues with biodiesel, and the development of California-specific biodiesel specification particularly regarding NOx emissions.

The goal of California’s LCFS is to reduce the carbon intensity of fuels by 10 percent come 2020.

He gave interesting numbers on the state’s determination of various biodiesel GHG reductions. Compared to the baseline ultra-low sulfur diesel, which displays 94.71 grams of carbon dioxide equivalent per mega joule (gCO2e/MJ), soy biodiesel “well to wheel” is 21.25 gCO2e/MJ. Considering the cultivation and indirect land use change of soybeans factored in, however, one must add 62 gCO2e/MJ to that number, bringing it up to more than 83 gCO2e/MJ. That’s not great, “but it’s still good,” he said. “We believe the science in indirect land use change is rapidly evolving.” Yellow grease biodiesel features 15.84 gCO2e/MJ, while used cooking oil biodiesel has only 11.76 gCO2e/MJ. “That’s the lowest carbon fuel ever scored by CARB,” he said.

For comparison, Bowen also threw the audience some renewable diesel numbers. Renewable diesel made from animal fat displays about 40 gCO2e/MJ.

California is the third largest fuel market in the world, behind China and the U.S. as a whole, Bowen said. The state has an appetite for 16 billion gallons of gas and 4 billion gallons of diesel annually. He said big trading markets are going to develop as a result of the LCFS. In reference to how RFS2 and the state’s LCFS will interact, Bowen said, “Obligated parties will double dip everywhere they can, and that’s certainly going to be the case with California.”

Recent hurdles, however, include the issue with underground storage tanks for B20 blends and below. “We’re working on a standard solution with Underwriters Laboratories Inc., it is ongoing, but it’s not happening at a pace anyone would like,” he said. The U.S. EPA, however, put out a new process that will speed up the work to regulate USTs in California, so that should be cleared up in a year or two.

Another hiccup for biodiesel in California is that the state doesn’t accept the national data on biodiesel NOx, simply because that data was generated with ULSD for the U.S. market, not for California’s. The state’s mog problems and emissions regulations require more stringent fuel regulations, so the state is redoing all the testing with California diesel and early data from that testing shows significant NOx increases. “We think it’s bad data though,” Bowen told the crowd. Depending on type of biodiesel, NOx may increase in blends higher than B5, but he said he hopes CARB will recognize B5 doesn’t cause any NOx increases, and agrees on a performance-based framework for B6 to B20. But the big question mark, Bowen said, will be what about higher biodiesel blends, greater than B20. “We need to find a solution for that,” he said, given the growing but still niche B99-B100 market. He’d be surprised to see a solution by midyear 2012, however.

Rounding out the panel was Gordon Quaiattini, head of the Canadian Renewable Fuels Association. He said an announcement is imminent regarding the start date of Canada’s federal B2 biodiesel mandate, which is important for both sides of the border. There’s a home in Canada for U.S. biodiesel, he said, so the export opportunities for U.S. producers are great as Canada works to build out its own domestic biodiesel industry. The federal B2 mandate will create a 600 million liter (158.5 million gallon) a year market, but Canada’s production tops out at between 160 million to 200 million liters. U.S. biodiesel sent to Canada can also enjoy excise tax exemptions, such as the 14-cent-per-liter excise tax exemption offered in Ontario.

Then there are the provincial mandates in Manitoba, British Columbia and Alberta to consider. On incentives, Quaiattini mentioned the $1.5 billion direct producer payment incentive that was enacted in 2008 and expires in 2017, which, unlike in the U.S., has given some predictability for producers to rely on. He also mentioned the ecoABC plan, a $200 million program to incentivize agriculture producer participation in the biofuel industries. Then there’s the $500 million next generation biofuels program, hardly any of which has been tapped into yet, he said.   

“Arguably biodiesel is the most tested fuel,” he said referencing the Alberta Renewable Diesel Demonstration, the largest on-road cold weather biodiesel test to date, and the off-road National Renewable Diesel Demonstration Initiative. “The debate is over,” Quaiattini said on the question if biodiesel can work in the cold.

“We’ve always embraced a North American strategy,” he said. “We want to build on NAFTA while we build out Canadian production capacity. We are the job creation industry, adding 1,000 jobs each year in both ethanol and biodiesel.”  He said the renewable fuels industry are a $2 billion a year industry in Canada, so as far as the biofuels industry being subsidy dependent, the $1.5 billion producer incentive program has long been paid back to the taxpayers. 


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