Q&A: Oregon LCFS will Help Biodiesel

March 27th, 2018 |  Mentions

originally posted March 27th, by Argus Media 

San Francisco, 26 March (Argus) — Ian Hill is a co-founder of SeQuential, an Oregon biodiesel producer. In this interview, edited for length and clarity, Hill discusses the importance of Oregon’s low-carbon fuel standard to his business and the changes he hopes to see in the program this year.

Tell me about SeQuential.

SeQuential is the west coast’s longest-running commercial biodiesel producer. We have a production facility in Salem, Oregon. We are also a used-cooking oil collection company. We operate in five states on the west coast. We also market and sell biodiesel directly to end users and to retailers here in Oregon. We have our product at approximately 90 locations in Oregon that are selling B20 or higher blends.

How important are the California and Oregon low-carbon fuel standards (LCFS) to your business?

We are big supporters and big fans of the high-level concept. We think it is the right way to go. It is really good, strong policy.

At this point, we do not move a tremendous amount of fuel into California because we have a pretty active market here in Oregon and because we are able to get product to the retail customer.

The Oregon Clean Fuels Program has the potential to be quite impactful and important to our business, specifically and potentially in the development of other renewable fuels, in particular renewable natural gas. We are very excited about the opportunity there and expect to see some pretty significant development in that area in Oregon.

Initially, we have seen some development there with some of those renewable molecules headed south to California, where the value is a little higher. But over time, as the Oregon market matures and the value grows and the liquidity of the Oregon market gets better, we will see more of those molecules staying here.

Here in Oregon we really feel like we are still beginning. The market is still not transacting a lot of volume and the values are lower than where California is now. But, if I understand my history of the California market correctly, we are hitting higher values earlier than California did at a similar time frame. That is positive. We see that as a good sign.

Oregon regulators approved a series of changes to the Oregon Clean Fuels Program last year, including a $200/metric tonne price cap to limit volatility in the market. Were you supportive of the changes made?

Largely, yes. We think most of the changes were reasonable. A $200 cap — that is fine for us. There is tremendous value there up to that cap.

We have served on the rulemaking advisory committee for the Oregon program since its inception.

What are your priorities for the rulemaking process this year?

Verification — getting that right, making sure that the balance is what it should be, as far as having really good efficacy and validity in the credits and the pathways, but also not too cumbersome. That is the primary focus for this year.

What role do you feel biodiesel will play in the future of low-carbon transportation?

We think that biodiesel has a really robust and rosy future as far as being a replacement for petroleum diesel. The freight sector is going to be one of the later ones to really adopt and see the effects of electric vehicle technology development. We think that there is a long path for biodiesel here in Oregon.

Are you concerned that regulators are focusing too much on electric vehicles?

Biodiesel is perhaps less impacted by electric vehicles than the gasoline and ethanol market.

The development of electric vehicles is a good thing for Oregon and for the Clean Fuels Program because of the credit generation in the later years. We are going to need to have those electric vehicles there. It has to be a balance. We do not want to get carried away, but we are pretty supportive of a focus on pushing for electric vehicle roll-out, especially in congested areas, in urban areas, where air quality is an issue. We do have non-attainment zones in Oregon for air quality, and electric vehicles are a great answer there.

Do you think that low-carbon fuels producers will be able to meet the demand for LCFS credits as the program’s carbon intensity targets ramp up?

I do not think the answer to that is known yet. Time will tell. The ability is there.

Part of the struggle and part of the uncertainty there is what is going on at the federal level, especially with the conversation around the Renewable Fuel Standard and a price cap on RINs. That could have a massive impact on our industry. It would be outside of the LCFS programs, but that federal action would certainly have a dampening effect on growth in Oregon and California. We are really worried about the negative impacts about some potential changes at the federal level.

The forecasting we have seen looks pretty solid and reasonable but it is not a slam dunk. There is a lot of work between here and there. The ways the programs were designed, we have the ability built-in to the program to deal with that. If we do not get the credit generation needed, the program is paused for a period of time until there is a catch-up. It is not a doomsday if we do not hit it right on time, but we certainly are hoping that we do and are trying to plan accordingly.

You were closely tracking the Clean Energy Jobs Act in Oregon, a measure that would have established a cap-and-trade program in Oregon. Why is this legislation important to you?

Cap and invest is a policy that works really well in conjunction with a clean fuels standard. The revenue generation there could be used to help fund projects that would eventually generate credits for the low-carbon fuel standard program. We really see those pieces of policy working well together.

What is your sense of why it came up short this year?

There was a legitimate effort on the part of the Democrats in Oregon to have a bipartisan push and support for this kind of policy, in the view that policy really is better if it is a cross-party policy and it is not just a single party pushing it through. They were not able to get that on the Senate side this year. I would be amazed if we do not get that policy across the finish line next year.