Thanks to all of you who attended last week’s web conference on the Future of HVO! A special thanks is extended to our speakers Bruce Comer, Managing Director of Ocean Park and Eric van den Heuvel, Founder and Partner of Studio Gear Up for their insights, as well as to my co-host Philippe Marchand, Bioenergy Steering Committee Member, European Technology and Innovation Platform (ETIP) and Senior Biofuels Expert recently retired from TOTAL.
Along with Covid-19 crisis resolution in the short term, the long-term fight against climate change is now sharing the top spot on the political agendas of many countries that are targeting net zero carbon by 2050. Transport is going to be the critical sector to decarbonize and consider this: demand growth has outpaced energy efficiency gains and will continue to do so as demand in emerging economies continues to grow. As a result, GHG emissions are rising in many countries rather than declining, including in Europe. Further, not all transport sectors, such as long-haul trucking, can be easily electrified and options to decarbonize this sector are limited.
Meantime, investors, shareholders, banks and consumers are demanding fossil-free energy, net zero and a fast energy transition that will fundamentally change the global refining industry. Add to that regulatory programs requiring the reduction of fuels carbon intensity, such as the California Low Carbon Fuel Standard (LCFS) and the EU’s Fuel Quality Directive and Renewable Energy Directive (RED2/3), and we begin to understand the drivers fueling the massive rise of hydrotreated vegetable oil (HVO), also known as renewable diesel (RD). In the U.S. alone, refiner-backed projects represent 55% of all projects (including planned), and a similar dynamic is playing out in the EU. Refiners in other countries such as Brazil, Malaysia, Indonesia and China are planning to scale up HVO as well.
“Well, let’s step back a little bit on these feedstocks that are used for either renewable diesel and biodiesel. In the short and medium term, these are really difficult markets to move. For tallow and used cooking oil, there will not be a lot of growth. Corn oil, which comes out of ethanol production, is relatively capped. So, you end up with vegetable oil and I would say there’s maybe some gains from yield production, some slight shifts in rotation in crops, but we’re just not going to see a quantum. I think there’ll be pressures on them. I think there’ll be pressures. I was hoping from Eric’s presentation, there might be an opportunity to import feed or fuel from Europe, but I think it might be the other direction.”
“Well, it’s an interesting view. I mean, if you have a look at the current policy developments and you see that for a mainly for road transport, there’s a high expectation on the success of electric mobility. There is a regulation in place to bring them in, especially the CO2 performance standards for light duty and medium duty vehicles. There is also CO2 standards for heavy duties in place, which means that in the near future, they expect, or perhaps also push or force these vehicles to be zero emission based vehicles. The reason why this is, is because they don’t see any movement yet of the liquid fuel sector to actually accommodate a shift to renewables. In this question, it is risky indeed, to have such a strategy, especially when the strategy on electric mobility or zero emission would fail or go much slower than many anticipate.”
“There are issues that could end up in inefficient, sub-optimal, cross border distributions of feedstocks or fuels. Let’s take the U.S. We have the LCFS in California and other states now are erecting their own individual policies. Ninety-five to to 99% of all renewable diesel in the United States has to go to California because California is paying to have it driven there. California then imports renewable diesel from Singapore. The LCFS is very advanced, very much on the vanguard in terms of willingness to pay and reward the lower CI score. However, you’re now starting to realign global resources to feed this policy. What I think we might see, and now you’re starting to see Washington state and Oregon and Western Canada, is that it’ll become a bidding war for these fuels. It doesn’t take a logistics expert that you’re now starting to burn resources, to allocate two pockets of policies that are not aligned.”
“The prices of renewable fuels are expensive. Well, take a country in the Netherlands, I mean, more than half of the price of the fuel that consumers pay is actually taxes, and so the fuels are already very much regulated by tax. As Tammy mentioned it in the introduction, I also represent the Netherlands knowledge and innovation platform on sustainable biofuels. We actually advocated to the government to say, ‘Well, couldn’t you let’s say halve the taxes on fuels based on the carbon intensity of the fuel in which fossil would become more expensive, and with that money, you could actually cover much of the additional costs of the renewable fuel, shifting the balance to renewable fuels and giving them preferences?’ We got a lot of support for that idea. Nevertheless, the government came back that this was too complicated for our tax authority to implement.”