Low carbon fuel standard: a petroleum marketer's perspective

By Erin Voegele | January 17, 2012

California’s low carbon fuel standard is a hot topic at this week’s California Biodiesel & Renewable Diesel Conference in San Francisco. During a panel titled “California’s Low Carbon Fuel Standard and its Implications for Biodiesel and Renewable Diesel Production,” attendees were offered a petroleum marketer’s view of the program by a local fuel dealer. The discussion also featured an explanation of what types of biodiesel fuels are likely to be most attractive to fuel markers on a carbon intensity basis.

“We were an extremely early adopter of biodiesel, which has been extremely good for us as a petroleum marketer,” said Bob Brown, special projects manager at Western States Oil Co. Brown also noted, however, that fuel marketers in California face several challenges in offering biodiesel blends to their customers, due largely to complex and ever-changing regulations that impact the fuel within the state.

During his presentation, Brown spoke to attendees about how the LCFS will impact oil distributors and their customers. He also addressed the many hidden expenses that are expected to be associated with program compliance.

“While nobody can truly predict what the future holds with the new LCFS rules, here are some of the complications we foresee for oil distributors,” Brown said. “We think the LCFS will mean a lot more, a lot more market confusion and uncertainty, more cost and pressure on the marketer, more clamoring over the same buck, and more costs and risks.”

Much like the transition that fuel dealers had to make in order to deal with the blenders credit or RINs, Brown said it is going to take oil distributors time to figure out how the LCFS will impact their market and how they will be able to best service their customers and needs. “I’ve already had a lot of trucking fleets and customers calling and asking about the [LCFS] and how it is going to affect them,” Brown said. “We don’t know, other than the fact that it is probably going to end up costing them more money one way or another…How will this all play out in terms of the price we pay for fuel and the price we are able to see for it? I don’t have a clue.”

Brown also addressed the issue of hidden costs to fuel suppliers. He estimates that there will be additional costs associated with sourcing for suppliers, paper work, accounting, testing, blending, tank maintenance, inventory cost, customer care, auditing and reporting. He stresses, however, that his company strongly supports the LCFS. “At Western States Oil we believe that the LCFS will be a successful program in the long run, and we look forward to being part of it.”

During his presentation, Russell Teall, president and founder of BIODICO, addressed why certain types of biodiesel might be more attractive to obligated parties in California under the LCFS. The regulation, he explained, measures the carbon intensity (CI) of fuels by reducing the measurement down to grams per mega joule of carbon dioxide equivalent. This allows all fuels to be compared in a meaningful way.

Under the program, fuel pathways for all fuels—not just biodiesel—are assigned CI values abased on both direct and indirect emissions when applicable. The CI value of biodiesel made from yellow grease is rated almost six or seven times less carbon intensity than biodiesel made from soy oil, Teall said. That rating is due, in part, to the carbon value associated with indirect land use change.

“For compliance purposes, that means that you have to buy seven times less biodiesel made from used cooking oil than from soybean oil in the Midwest,” Teall said. “So, the value of the fuel is going to be much larger. We can’t predict right now what the premium is going to be, for if it is going to be tied to RINs, but we do know this: biodiesel made from low carbon intensity feedstocks is going to be very desirable for compliance purposes.”

In addition to using feedstocks with lower carbon intensity values, Teall said that there are several other steps producers can take to reduce the CI value of their fuel. For example, the distance fuel must travel to get to market impacts its CI value; therefore, local producers will have lower CI values, assuming all other factors are equal. The use of more energy-efficient technologies, avoiding the use of distillation, the anaerobic digestion of waste products and combined heat and power systems can all help reduce the CI value of fuel produced at a plant. 


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