Renewable diesel not sinking LCFS: Valero

Lackluster transportation demand and growing low-carbon fuel use off road outweighed renewable diesel in lowering California Low Carbon Fuel Standard (LCFS) credit prices last year, according to a partner in the largest US producer of the fuel.

Valero senior vice president of alternative fuels Martin Parrish noted lower California fuel demand in 2021 depressed the volume of deficits suppliers to the California market must offset with credits.

"I really think the credit prices have a lot more to do with just less deficits than it has to do with additional credits from renewable diesel," Parrish said.

Parrish also pointed to outsize credit generation from renewable compressed natural gas (CNG) and charging of electric forklifts in the second quarter of 2021, the most recent period of state data available. Release of that data in late October helped to drive spot LCFS prices to $142.50/metric tonne in November, their lowest levels since spring 2018.

LCFS programs set maximum transportation fuel carbon intensity levels that fall each year. Conventional, higher-carbon fuels that exceed those levels incur deficits suppliers must offset by distributing credit-generating low-carbon alternatives.

Credits from renewable CNG more than doubled to represent about 13pc of all credits generated in the second quarter of 2021. E-forklift credits rose by 78pc to 6.4pc of all credits for the quarter.

"I do not know how many times you can replace your forklift to get an e-forklift, but it seems like that would run out at some point," Parrish said.

Renewable diesel made up 30pc of all credits for the same period, higher by 32pc from the same quarter of 2020 and months before Valero joint venture Diamond Green Diesel brought on line an expansion more than doubling, to 45,000 b/d, the capacity of its renewable diesel plants in Norco, Louisiana. Diamond Green was ahead of schedule on a third, roughly 32,000 b/d plant in Port Arthur, Texas, that could begin producing in the first quarter of 2023.

Valero's partner in the company, Darling Ingredients, has helped ensure supplies of low-carbon feedstocks including rendered animal fats. LCFS programs prize such fuels as offering immediate reductions for medium- and heavy-duty vehicles difficult to convert to electric or other fuel systems.

The LCFS credits have kept California a priority market for those fuels. Suppliers gain federal renewable fuel credits, tax incentives and the state credits for fueling the market.

The programs are growing, but slowly. Regulators continue to work on a Clean Fuel Standard (CFS) for Canada expected to begin enforcement next year in a fuel market rivaling California's. Regulators there previously delayed a final rulemaking that expected by the end of last year.

"What really got hurt, demand-wise, was more in Europe on renewable diesel, and probably more in Canada, too, with just the waiting for the CFS," Parrish said. "We expect those to rebound and, with that, more demand globally."

By Elliott Blackburn