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Renewable Diesel Booms Despite Concern Over Effect on Food Prices – WSJ

  • U.S. production of the plant- and animal-derived biofuel soars
Annual production of renewable diesel tripled in the past few years and is projected to keep climbing.
Annual production of renewable diesel tripled in the past few years and is projected to keep climbing. (Mario Tama/Getty)

Bob Henderson, WSJ

NEW YORK
EnergiesNet.com 04 07 2023

U.S. production of renewable diesel hit 5 million gallons a day for the first time in January, according to recent U.S. Energy Information Administration data, continuing a two-year boom.

The biofuel is a key part of federal and state government plans to mitigate climate change by cutting carbon emissions. Production has swelled since 2021. Incentives from the Environmental Protection Agency and the state of California, combined with pandemic-depressed demand for conventional fuels, motivated many energy companies to start retooling refineries to make renewable diesel.

Annual production tripled between 2019 and 2022, to 1.49 billion gallons, according to the EIA. The agency forecasts that it will reach 3.34 billion gallons next year, as oil companies such as Phillips 66 and renewable-focused companies including Global Clean Energy Holdings Inc. GCEH -1.25%decrease; red down pointing triangle continue converting refineries.

Renewable diesel is made in a way similar to that for conventional, petroleum-based fuel typically powering trucks and trains, but by using plant oils and animal fats instead of crude oil. That difference can translate into a reduction in carbon emissions of up to 83%, according to the California Air Resources Board.

Biofuels such as renewable diesel and sustainable aviation fuel are part of federal and state plans to decarbonize the transportation sector. While electric cars are rapidly infiltrating the nation’s highways, electrification of vehicles that can’t easily stop to recharge would be a much bigger challenge.

“Electric semis, especially long-haul electric semis, they are still a ways off,” said Tristan Brown, director of the Bioeconomy Development Institute at the SUNY College of Environmental Science and Forestry.

Renewable diesel is made from the same stuff as another biomass-based fuel called biodiesel, which is already mixed in low concentrations into much of the nation’s diesel supplies, much the way ethanol is blended into gasoline. But renewable diesel, unlike biodiesel, is similar enough to its petroleum-based cousin to serve as a drop-in replacement.

“Oh my gosh, are we going to have to change the filters?” Bill Crotinger, founder and president of the Oakland, Calif., asphalt and concrete recycler Argent Materials, said he wondered when he switched his trucks, excavators and other equipment to renewable diesel in 2020. “The answer is no,” he added. “You’re not going to know the difference.”

In December, monthly production of renewable diesel surpassed that of biodiesel for the first time, according to the EIA. But renewable diesel and biodiesel together still only comprised about 6% of the country’s diesel consumption last year, according to EIA data.

A drawback is that renewable diesel is expensive to make. A producer of renewable diesel who sold it in California for the same price as its conventional cousin would have lost an estimated $3.88 a gallon last year if not for government incentives averaging $4.59 a gallon, according to an S&P Global Commodity Insights model.

The EPA mandates that refiners blend a certain volume of biomass-based diesel into their trucking fuel. Companies exceeding their quotas earn tradable credits that they may sell to others who can then satisfy their own blending obligation by buying the credits instead. Fuel makers get a dollar-a-gallon tax break for blending biomass-based diesel.

California, Oregon and Washington state have mandates for their fuel makers to reduce the carbon footprints of their products each year by a given amount, and issue their own tradable credits that the overachievers can sell to the laggards. Canada is in the process of implementing a similar program.

The tradable credits are both carrots and sticks. CVR Energy Inc. Chief Executive Dave Lamp said he and his team calculated that it was more economical to convert part of their Wynnewood, Okla., refinery to renewable-diesel production than to keep buying credits to satisfy the EPA, which was adding about $8 a barrel to production costs.

“That’s the difference between running a plant and not running a plant,” Mr. Lamp said.

In December, the EPA surprised many in the burgeoning industry by proposing to increase its biomass-based diesel blending mandates through 2025 by less than 200 million gallons a year. That is a fraction of the roughly 3 billion gallons a year of production increases that announced projects from refinery-retooling projects and new partnerships between energy and agricultural companies could bring, the EIA estimates. That mismatch could cut the value of federal tradable credits and impair those projects’ economic prospects.

The EPA is trying to balance carbon-emission goals with other concerns. The renewable- diesel industry is increasingly relying on vegetable oils for feedstocks because supplies of suitable waste-product substitutes such as used cooking oil and animal tallow are running thin. Soybean oil prices have already been driven up by demand from fuel makers, and the EPA is concerned that the renewable-diesel boom could further boost already-surging food prices.

The agency is also worried that elevated vegetable-oil prices could have other unwanted consequences such as increased palm-oil production, which is associated with deforestation.

Farmers and fuel producers argue that they can make efficiency gains and diversify feedstocks to avoid such harmful effects.

“We’re in a strong debate with the EPA right now,” said Donnell Rehagen, chief executive of Clean Fuels Alliance America, a trade association representing biofuel makers.

The agency’s final decision is expected in June.

Write to Bob Henderson at bob.henderson@wsj.com

wsj.com 04 07 2023

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