Oct-2024

Unlocking ROI from low-carbon fuel investments

Involving compliance expertise early in the development of a renewable diesel or sustainable aviation fuel investment of a project can make or break long-term success.

Kristine Klavers
EcoEngineers

Article Summary

The success of low-carbon fuel projects depends on market factors like feedstock availability and prices, as well as regulatory mandates, incentives, and in-house net-zero goals. For renewable diesel (RD) and sustainable aviation fuel (SAF) projects specifically, detailed compliance requirements span over every phase of the value chain: from feedstock production and delivery to the process technology chosen to produce the fuel; and through the mode of transportation of delivering products to market and end use by consumers. Most importantly, successfully investing in low-carbon fuel projects like RD and/or SAF, whether supported by mandatory government programmes or voluntary initiatives, requires detailed regulatory experience and knowledge, a comprehensive strategy, and strong financial and technical expertise to ensure efficient project execution and avoidance of costly pitfalls. Bottom line: the success of an RD/SAF project hinges on a thorough understanding of regulations and the inclusion of compliance requirements throughout all the project development stages and with full understanding by every team member.

Real-time examples
Pathways to RD/SAF project success are further explored with real-time (RT) examples of projects. These RT examples highlight the importance of taking proactive steps for the implementation of robust feedstock, technology, and fuel compliance practices in RD/SAF projects early in the engineering, procurement, and front-end planning phase. These implementation steps are instrumental in setting investors and stakeholders on a path to realising long-term value creation for their RD and/or SAF investment.

Additionally, the importance of tracking the chain of custody of the feedstock supply is outlined. Tracking begins at origination and moves to procurement and use, ensuring compliance and pathway registrations with regulatory bodies while avoiding costly delays. The outlined RT examples explain the importance of understanding carbon intensity (CI) scores. By involving the compliance and regulatory engagement teams early in every phase of the RD/SAF project development, companies, investors, and their stakeholders can realise ROI.

Compliance is key in regulated fuel markets
Transportation fuel producers are increasingly under pressure to reduce the CI of their products to comply with state and federal low-carbon policies, industry and company-driven carbon reduction goals, and Scope 3 emission targets. Scope 3 emissions are indirect greenhouse gas (GHG) emissions that occur in a company’s value chain, including suppliers and customers. Understanding the regulatory frameworks, compliance requirements, and market mechanisms that underpin low-carbon fuel projects is crucial to unlocking credits and incentives, maximising profitability, and avoiding ‘greenwashing’.

Currently, three major regulatory programmes in North America govern these markets: Canada’s Clean Fuel Regulation (CFR), the US Renewable Fuel Standard (RFS), and California’s Low Carbon Fuel Standard (LCFS). LCFS-type programmes exist in Oregon, Washington, New Mexico, and British Columbia, with several US states considering implementing their specific renewable fuel regulations. All low-carbon fuel regulations have different compliance regulations and guidelines that must be met to unlock the sought-after financial investment support. Some examples of specific compliance requirements for the US Environmental Protection Agency’s (USEPA) RFS and California’s LCFS programme will be provided further into the discussion.

For RD and SAF projects, compliance ensures that renewable fuel producers can accurately generate and monetise credits under the RFS and LCFS programmes. These credits are crucial for offsetting the higher production costs of renewable fuels compared to traditional fossil fuels, making the projects financially viable. In the absence of full compliance, producers risk disqualification from the programmes, reputational damage, project delays, and loss of market access, making it imperative for producers to stay up to date with regulatory changes and maintain the required rigorous practices like documentation and reporting.

Compliance is not just about meeting regulatory obligations but is a strategic necessity for maximising the economic potential of RD and SAF projects. It ensures that producers can participate in the RFS and LCFS markets, secure the financial incentives needed for project sustainability, and contribute to broader carbon reduction goals.

Follow the RINs ‘recipe’ for success
The US RFS programme is a national policy that requires a certain volume of renewable fuel to be used to replace or reduce the quantity of fossil fuels used in the transportation and home heating oil markets. Obligated parties, like refiners and importers, achieve compliance by obtaining and retiring enough Renewable Identification Numbers (RINs) to meet their annual renewable volume obligation (RVO) for four different renewable fuel categories (D3, D4, D5, and D6) as shown in Figure 1.

Unlocking RIN values for biofuels like RD and SAF is straightforward as long as companies follow the ‘recipe’ of the USEPA‘s approved pathways by following its prescribed combinations of fuel type, feedstock, production process, and GHG reductions compared to baseline petroleum-derived fuels. These pathways are listed in Table 1 to §80.1426 under Subpart M of the RFS (see Figure 2). Note that Pathway H includes co-processing with petroleum (D5 RIN).

If a producer’s fuel pathway already exists in Table 1 §80.1426, the next step is to complete the RFS registration process. This process includes a third-party engineering review of design documents, organisational structure, operating and environmental permits, process flow diagrams, energy usage, and production inputs and outputs. An on-site inspection is performed by a licensed professional engineer who completes and submits an ‘engineering review’ report with supporting documents to the USEPA for acceptance. Although the on-site inspection can proceed if the facility is not in production, the facility must be ‘substantially complete’. This means that construction is complete and all necessary equipment is installed.

Before the registration information is submitted to the USEPA, the company must designate a Responsible Corporate Officer (RCO) who assumes full legal liability for all information provided to the USEPA on behalf of the company. The company is required to provide supporting evidence of the individual’s authority to accept this responsibility. Delays in project completion and attempts to assign a non-qualifying individual as an RCO are common causes of delays in the registration process.

Many feedstocks, even those listed in existing, approved pathways, must meet multiple regulatory requirements to be considered as ‘qualifying’ feedstocks under the RFS. Virgin, crop-based oils that are sourced from crops grown in North America, such as soybean and canola oil, qualify under the RFS with minimal supporting information. However, crop oils sourced from outside North America will qualify only by providing extensive evidence of agricultural land use of all farmland since 2007, including supply-chain traceability and segregation, for which the USEPA requires Global Positioning System (GPS) coordinates. Though time-consuming, this information, in some cases, can be obtained from governments and farmers who have tracked their lands for decades.

Waste-based feedstocks such as biogenic waste fats, oil and greases (FOG), including used cooking oil and tallow, require supply-chain traceability to the point of origin (such as restaurant, food service, or food processor) and segregation guidelines. Distiller’s corn oil (DCO) and technical corn oil (TCO), meanwhile, require supply-chain traceability to the ethanol plant and potential farmland traceability. Blockchain providers are now supporting the industry to meet these criteria.