How big is the ‘California window’ for renewable diesel?

California’s Low Carbon Fuel Standard market for carbon credits has been a major driver of demand for renewable diesel.

According to Floyd Vergara, a longtime former official of the California Air Resources Board who is now with Clean Fuels Alliance America, the most recent figures have biodiesel and renewable diesel combined making up one-third of all diesel fuel use in the state.

Renewable diesel, which can be 100% substituted for petroleum-based diesel, and biodiesel are together responsible for by far the biggest portion of the carbon emissions reductions the state has been able to achieve to date. Diesel is the dominant fuel and technology powering California’s commercial trucking sector, with more than 1 million diesel powered commercial trucks registered and operating in the state. About half of all diesel trucks are of the newest generation with near-zero emissions performance.

A Nov. 4 article on the American Soybean Association’s website by ASA chief economist Scott Gerit lays out the facts. The LCFS became effective in 2011. That demand has stimulated production to the point that renewable diesel is now the single-largest fuel segment for generating California LCFS credits. According to some economists, if the demand trend continues, the domestic market for RD will grow enough to absorb all of that added soybean oil output for the foreseeable future, leaving little or none for export. Although soybean oil is about 20% of crushed soybean product by volume, with the remaining 80% soybean meal, their respective values are about 50% each, according to Gerit, thanks to the added value provided by demand for RD.

Another demand boost could be coming as soon as Jan. 1, 2023. If a current CARB proposal for marine vessels is approved by California’s Office of Administrative Law, all harbor vessels, supply boats, fishing vessels, ferries, excursion vessels, tugboats, barges and dredges in California will be required to use either 99% or 100% RD. Stillwater Associates estimates the new regulations could cover 55 million gallons of fuel a year.

Despite these emission reductions and the promise of even more to come from RD, there are signs that some in California’s environmental and regulatory community are already looking ahead to an all-electric future free of all internal combustion engines. On Oct. 27, the Diesel Technology Forum released a statement regarding CARB’s recently considered Advanced Clean Fleets rule, which would require trucking fleets purchase zero emissions vehicles beginning in 2040. The DTF said, “The future fleet policies that California is considering take a narrow definition of qualified technologies; one that largely excludes the primary technologies powering the industry today such as advanced diesel, natural gas, and other internal combustion engines.”

This ACF rule, published Aug. 22 and considered by CARB Oct. 25, would cover big rigs. “The proposed [Advanced Clean Fleets] regulation would require certain fleets to deploy ZEVs starting in 2024 and would establish a clear end date of new medium- and heavy-duty internal combustion engine vehicle sales in 2040,” according to the proposal.

“The environmental community here wants nothing to do with internal combustion engines,” Bernice Creagar, communications director of the California Trucking Association, told High Plains Journal. “Their view is if it burns it is bad.”

Emissions scenarios

The DTF pointed to a recently released study by Stillwater Associates comparing emissions scenarios of new-technology clean diesel engines with all-electric vehicles showing greater emissions reductions with new technology diesel engines in commercial fleet vehicles fueled by alternative fuels. This study found that fueling the diesel vehicles with 100% renewable diesel fuel resulted in six times larger cumulative greenhouse gas reductions by 2032 than the EV scenarios, while B20—a 20% blend of biodiesel with 80% petroleum diesel—provided a 30% greater cumulative GHG reduction.

“The future fleet policies that California is considering take a narrow definition of qualified technologies; one that largely excludes the primary technologies powering the industry today such as advanced diesel, natural gas, and other internal combustion engines … The potential for achieving net-zero carbon emissions using advanced internal combustion engines more rapidly or at lower cost, deserves greater consideration.”

The ACF rule acknowledged that the proposed timetable may raise problems, saying it “attempts to strike a balance between moving the market quickly to zero emissions while recognizing fleets more suited for electrification should lead the way for smaller fleets. Staff recognizes the complexities of applying purchase mandates to fleets affected by the proposed ACF regulation and acknowledges that additional tools may be needed to meet the 100% ZE by 2045 goal set in the Governor’s Executive Order N79-20.”

Crush boom

The rising demand for renewable diesel has spurred in an investment boom in soybean crush plant construction and expansion.

“The soybean processing industry intends to significantly grow over the next few years,” according to Gerit. There have been announcements to date of 23 crush plant expansions, which when completed will add 750 million bushels per year of domestic United States crush capacity. Of the 23 crush plant announcements, 13 are for new plants and 10 are for expansion of current plants, at least two of which have already been completed.

The U.S. currently has around 60 crush plants with a total practical capacity of about 2.2 million bushels per year, or about the crush level for the 2021-22 marketing year, Gerit said. Most of the planned crush plants are in the upper Midwest, west of Ohio and north to Minnesota, where crush capacity had been limited and soy growers were traditionally dependent on exports of their crops. Whether or not all of the announced expansions will actually be completed depends on many factors.

In fact, it’s a question whether soybean acreage will be able to keep up with the demand that is being projected by some sources. Joe Kerns, president of Partners for Productive Agriculture, said, “We’re going to end up making Brazilians rich” because not enough acreage will be available here. Kerns has written that now is the best time ever to be in production agriculture. According to Kerns, about 50% of all renewable diesel is derived from soybeans and that number should grow. Unlike some other feedstocks of renewable diesel, “all parts of the bean can be used.” While canola can be up to 40% oil, versus 18% oil for soybeans, canola meal is only usable for ruminants and can only be included up to 7% in chicken meal. “We know what to do with soybeans,” he said. “Soybean oil was all going someplace before renewable diesel came along.”

Among the unintended consequences Kerns foresees of the booming demand for soybeans (and corn), Kerns says, is accelerated retirements of Midwestern farmers. At some point, he said, farmers will ask themselves, “Why am I in Minnesota in mid-winter?” and they will have the means to retire.

Vergara, both a licensed chemical engineer and a licensed attorney who spent 30 years with CARB before retiring in 2019, admits that CARB has put out some “aspirational” statements on electrification. But he cautioned that many barriers, both technological and regulatory, remain to any envisioned all-electric future for the state. New EV big rigs cost somewhere between $400,000 and $500,000 today, compared to $140,000 to $150,000 for a conventionally powered big rig. Current diesel-powered rigs, which have a lifespan of decades, will be grandfathered in and will continue to operate even after mandates for the purchase or sale of zero emissions new vehicles kick in. To power its projected all-electric future, California will have to expand its grid by 1.9 terawatts. Electric charging stations alone cost $100,000 apiece to install. “We believe electrification will be important for California’s future, but there is no one-size-fits-all approach,” he told High Plains Journal. Other states, especially Washington and Oregon, are following close behind with their own mandates and incentives.

While some uncertainties remain about how state and federal policies will play out in the coming years, demand for renewable diesel—and the soybean oil that is its most important feedstock—seems certain to remain high under any realistic scenario.

David Murray can be reached at [email protected].