Driver's Seat - Built-In Advantages Help Drive Shift To Renewable Diesel

The U.S. is poised for a massive build-out in renewable diesel production capacity — a boom spurred by capacity rationalization amongst traditional refineries, increasingly supportive government policies, and a big push by ESG-minded refiners wanting to reduce the carbon footprint of their operations. It also hasn’t hurt that while renewable diesel is produced from used cooking oil, tallow, and other renewable feedstocks, it meets or exceeds the fuel specifications of traditional ultra-low sulfur diesel and thus is considered a “drop-in” replacement for ULSD — there’s no “blend wall” that limits its use. In today’s RBN blog, we discuss highlights from our new Drill Down report, which looks at why renewable diesel is a hot topic, what we can learn from California’s Low Carbon Fuel Standards program, and how much new renewable diesel capacity is in the works.

Last year, when COVID caused demand for transportation fuels to wilt, refiners saw utilization rates tank and several refiners shuttered operations, either temporarily or permanently. And as the refiners gauged their next steps given uncertain future demand, announcements for renewable diesel conversions really picked up steam (see Where Are You Going). Just about every refiner is thinking about renewable diesel these days, and it was a key topic in our recent School of Energy, and for good reason — there are the large financial incentives provided by California’s Low Carbon Fuel Standard (LCFS) and the U.S. Biodiesel Tax Credit, which can make renewable diesel production highly profitable. The U.S. does not have a federal LCFS policy in place. However, at the national level we do have the Renewable Fuel Standard (RFS), which mandates a Renewable Volume Obligation (RVO; see Money for Nothing for more info on RVOs) that must be met every year. [The Environmental Protection Agency (EPA) said November 18 that it would extend deadlines for refiners to comply with RFS obligations from 2019 and 2020. It has yet to issue RFS rules for 2021 or 2022, or volumes for 2023, and has not announced decisions on potential exemptions for small refineries.] Driven by these factors, there’s a lot of renewable diesel production capacity under construction or on the drawing board: From greenfield projects to expansions of existing renewable diesel refineries to conversions of old-school refineries to make renewable diesel and coprocessing within existing facilities.

Renewable diesel, like biodiesel, is a biomass-based fuel that can be burned in diesel engines or used as heating oil for homes. In distinguishing between those two similar-sounding diesel alternatives, there are unique aspects of renewable diesel that give it an edge over biodiesel as a substitute for petroleum-based ULSD. Most important perhaps is that renewable diesel meets or exceeds the fuel specifications of ULSD, and is thus considered a “drop-in” replacement, whereas biodiesel (FAME, or fatty acid methyl ester) is typically limited to blends of 5% (a diesel/biodiesel blend known as B5) to 20% (a.k.a. B20). In fact, unlike biodiesel, which has poor cold-flow properties and runs a risk of containing contaminants, renewable diesel generally has a higher cetane value (an octane-like measurement of diesel and diesel alternatives; see That’s the Good Stuff) than ULSD, promoting more complete combustion and higher engine efficiency, and has comparable cold-flow properties to petroleum-based diesel.