A Common Sense California Biofuels Initiative

Making anything in California is arguably more expensive than anywhere else in the world – and it’s no different for biofuel producers. The cumulative effect of costs (and time) for permitting, labor, regulatory compliance, energy, transportation, and overall operations, creates a challenge for California biofuels producers that simply does not exist to the same degree anywhere else in the country, or for that matter, the world. And many other states and countries financially incentivize the production of biofuels, putting California bio-refineries at an even greater competitive disadvantage.

But in the eighth largest global economy, the California fuel market is far too large to ignore and is, in fact, a highly coveted and competitive market. This is especially true for biofuels, and biodiesel in particular.

With the incentives created by the Low Carbon Fuel Standard (LCFS), California has indeed become the number one place in the world to sell low-carbon biodiesel. That’s because producers can fetch the highest price for every gallon they make. Even after freight costs, there is currently an extra dollar per gallon theoretically available in California.

As I discussed in my last article, without enough blending infrastructure in place there simply are insufficient outlets to absorb all the biodiesel coming into the Golden State. In addition to the market oversupply condition this creates, an unfortunate side effect is that it undermines the market for in-state production, which has created high-paying green California jobs. As I mentioned, because it’s so much more expensive to produce biodiesel in our state, California producers are at a competitive disadvantage to virtually every other producer in the world – even after freight costs to transport their product here.

The question is, what’s the solution? Turns out, there is a coalition of California biofuels producers that have come up with an innovative idea that has gained a lot of traction and momentum in Sacramento. They have asked the state to allocate $210 million from the Cap & Trade Greenhouse Gas Reduction Funds (GGRF) dedicated to support a biofuels initiative based upon stimulating California-based low-carbon biofuel production and benefitting disadvantaged California communities. This is a relatively small amount compared to the more than $3 billion that was raised this year (about 3 times what was expected), especially when you consider that most of the GGRF money is now coming from the petroleum transportation-fuels sector. It just makes common sense to allocate money back to the biofuels that are directly displacing those fossil fuels. And $210 million is less than 7 percent of the total GGRF raised. Remember, biofuels have been providing close to 90% of the carbon reduction under the LCFS and are expected to continue to do so for several more years. Seems like common sense, doesn’t it?

Since each of the biofuels types have different needs, each category (diesel alternatives, gasoline alternatives, and biogas/syngas) will be allocated $70 million (1/3 of the total). Each biofuel category will then establish a program specifically tailored for that biofuel type.

The biodiesel industry will allocate a portion to an in-state production incentive and a portion to grants, which could include wholesale storage and distribution infrastructure. This infrastructure allocation could go towards upgrading the roughly 85% of current California racks and terminals which do not have storage and blending capabilities.

The production incentive will be determined by a combination of the volume of biodiesel produced, the carbon intensity (CI) reduction of that fuel, and the CalEnviroScreen score which is higher if a bio-refinery is located in a disadvantaged community.

The infrastructure funding would de-bottleneck the 85% of wholesale bulk fuel terminals and racks currently not able to blend biodiesel into the diesel supply chain in California, which will be a key part of broadening the market and allowing it to absorb significantly more biodiesel.

It’s important to also point out that this initiative is unique in that the state is only paying for low-carbon fuels it gets – not a penny more. Virtually all other carbon-reduction programs the state has funded over the years fall into the “build it and they will come” category – and it turns out they haven’t been coming as expected. This includes zero-emission vehicle (ZEV) technologies and everything else.

To meet Governor Brown’s objectives, over 7 billion gallons of low carbon biofuels will be needed annually by 2030. Many of these biofuels are already coming from out-of-state to meet the LCFS targets. The LCFS should not be limited to in-state producers, but California produced biofuels are at a competitive disadvantage when other states and countries provide production incentives for which California companies do not qualify. Increasing the production of biofuels in the state would stimulate economic development for the long-term benefit of all Californians. In-state production of biofuels will provide meaningful employment to thousands of Californians in disadvantaged communities – biofuels provide 2 to 6 times as many jobs as their fossil fuel equivalents.

Substantial feedstocks exist in California for in-state biofuel production. These include agricultural, forest, livestock, wastewater and municipal waste, as well as purpose grown crops such as algae, energy beets, camelina, canola, energy cane, mustard, sorghum and others that can be grown on fallow land, intercropped in orchards and vineyards, or cultivated as part of a sustainable crop rotation program. I’ll have more on that in a future article.

Increasing in-state production of biofuels will also help California to meet its waste diversion goals, including AB 1826 (Chesbro, 2014), which requires 75% diversion of commercial organic waste as of January 1, 2015.

Increasing in-state biofuels will help to reduce wildfire impacts by converting forest biomass from high wildfire hazard zones to transportation fuels, as Southwest Airlines has contracted to do.

So if you live or work in California, or your business is biofuels, it’s important that you let Governor Brown and your California legislators know how important this initiative is, and how unique and simple a plan it is. I wish I had thought of it!