Written on: May 1, 2021 by Paul J. Nazzaro
We make many decisions every day, but some seem so much harder to make than others. As I watch industry leadership groups, fuel wholesalers, biodiesel producers and systemwide stakeholders toil with how to mainstream much-needed solutions to the ever- growing climate crisis, I grimace at the indecisiveness on strategies needed to achieve significant reductions in carbon emissions.
Legislators are being squeezed from all sides to hastily enact measures that they perceive will address climate change and carbon reduction. The path of least resistance for them is electrification, whether for passenger vehicles or home heating, despite some obvious shortfalls of this approach.
These legislators look to California as a low-carbon leader for inspiration and see a ban on the sale of internal combustion engines by 2035 as a bellwether of things to come. What they do not—or choose not—to see, however, is that under the State’s Low Carbon Fuel Standard (LCFS), renewable fuels such as sustainable, low-carbon biodiesel make up more than 80% of all the credits generated under the program.
The takeaway message is that until a vast majority of the power supply is renewable and built out on a much larger scale to accommodate widespread electrification, along with reinforcement and security of the grid, the carbon-reduction value of tomorrow’s electrification promise is no match for the reality of biodiesel’s ability to deliver significant carbon reductions today. However, time is of the essence for Northeast heating oil providers to meet the mounting demands being levied upon the fuel supply chain.
Since 2003, the National Biodiesel Board, National Oiheat Research Alliance, Brookhaven National Laboratories, National Renewable Energy Laboratory and countless industry pioneers have navigated fuel standard developments and technical challenges to be confident that B20—a 20% blend of low-carbon, sustainable biodiesel and ultra-low sulfur heating oil—is fit for purpose not tomorrow, but today. Moving forward, lab and field work already show great promise that blends as high as B50 are performing well in legacy equipment. Thoughtful, deliberate communication planning and marketing pathways have been developed and deployed throughout New England and the Mid-Atlantic to help fuel dealers become more knowledgeable and confident in their new 21st Century offering.
So, all systems go, right? Hardly. It is becoming clear that because the heating oil industry has not sent a bankable signal to low-carbon liquid fuel manufacturers, product availability has become strained at best.
I spoke recently with fuel distributors in key markets to learn that biodiesel is being offered anywhere from 10¢ a gallon under NYMEX to 50¢ over NYMEX. How does this work? Why the volatility? Can we afford to buy and sell a product this far out of the money? An initial gut reaction might be No, but after considering the alternative, which would be the final chapter of buying and selling liquid carbon, the correct answer is Yes.
While we may continue to experience periods of cheap oil and low refined-petroleum product prices, we must read the writing on the wall and be able to understand what it means. Carbon reduction is not a passing fad that will disappear like the legwarmers of the 1980s. The pieces on the policy chessboard have been in play for years, and they are now in place for a checkmate strike on King Carbon. What we don’t want for your home heating oil business is for it to become a pawn of attrition in this battle on climate change in the political arena.
The value of energy sources such as biodiesel and Bioheat® fuel do—and should—come at a premium because, in the simplest of terms, they not only fulfill the job of their carbon-rich counterparts (price X), but they also provide the added service of reducing carbon emissions by up to nearly 90% compared to their petroleum-based equivalents (premium C).
We could further say biodiesel also provides valuable lubricity (premium L) to ultra-low sulfur diesel fuels; domestic job creation (premium J); rural economic revitalization (premium R); cleaner air (premium A); vastly reduced or eliminated equipment- conversion costs compared to electrification (premium E), etc. Thus, if we were to internalize the cumulative societal benefits of biodiesel and Bioheat® fuels in terms of price and value where fossil heating oil would be price X, then the value of biodiesel would naturally be, at minimum, X+C+L+J+R+A+E. Now, 50¢ over NYMEX seems like a steal.
In simple and real terms, how can we mitigate this volatility and ensure the Northeast and Mid-Atlantic regions have access to ratable, high-quality, competitively priced low-carbon liquid fuels like biodiesel? Let’s start with a reality check.
The biodiesel industry currently has available production capacity near three billion gallons per year and adequate markets to offload this production, with California being the most attractive and logical destination for every producer in North America. When I first spoke about biodiesel and Bioheat® fuel to heating oil industry stakeholders in 2003, California wasn’t in play, Minnesota was in its infancy stage to adopt a mandate, and various incentive markets, such as Illinois and others, were developing as well.
People often talk about sticks and carrots in creating demand. The stick would be a State requirement or mandate wherein compliance is mandatory—and a lack thereof would lead to fines, loss of ability to conduct business and other punitive measures. The carrot approach, on the other hand, would provide financial incentives such as a price on carbon and value for carbon reduction like in California’s LCFS. With LCFS credit prices hovering around $200 per metric ton of carbon, this equates to a big, juicy carrot of between $1.50 to $2.00 tacked onto the value of one gallon of biodiesel. On top of federal Renewable Identification Number (RIN) prices and the $1 per gallon federal blenders tax credit, why would a biodiesel producer located anywhere from Boston to Santa Barbara ship their low-carbon fuel anywhere else?
Granted, the prospect that heating oil sectors on the East Coast could become significant players was met with huge interest by low-carbon liquid fuel producers and marketers. The phased-in goal of the Providence Resolution for heating oil to become net-zero by 2050, and the industry’s commitment to it, is a solid starting point. However, fast-track to 2021, the heating oil sector becomes less attractive simply because producers can divert their off-take to incentivized LCFS markets where higher netbacks are available with little heavy lifting.
Time is ticking away
As we continue to debate whether Bioheat® fuel is our future, organize countless meetings to talk through the details, time is ticking away on the industry’s life expectancy. Make no mistake about it: U.S. heating oil businesses are in for the fight of their lives against anxious legislators wanting to bury us and the low-carbon liquid producers delivering their off-take. We need action now—our livelihoods depend on it.
We need Bioheat and we need it now. The time has come to be bold and act with courage as a united industry. Half measures will avail us nothing. We need to amplify our voice and press legislators to establish a regional LCFS, or push New York policymakers to vote its LCFS out of committee, where it has been tabled for more than a year. Any LCFS in the Northeast must go beyond transportation fuel and encompass the heating sector. A big State like New York could be the linchpin needed in a regional LCFS approach that entices surrounding states to join. That will be the cornerstone of our communication with production houses—that we mean business, and we require this low-carbon energy source to build a strong, sustainable future for our companies, neighbors and family.
Step one, developing and committing to the Providence Resolution, has been fulfilled. The goal has been set and the commitments by the associations that represent you have been established.
Step two—the creation of the Project Carbon Freedom coalition—is underway. To complete this phase, join your colleagues and sign up to be a member (projectcarbonfreedom.com) so your singular voice can complement thousands of other supplychain stakeholders eager to secure a place in the new energy frontier. Completing Step two, joining Project Carbon Freedom and participating in hassle-free, effective advocacy campaigns the coalition has created, will provide us with the tools needed to get to the third and final step.
Step three is convincing legislators to make a commitment on a policy mechanism—a regional LCFS—that places a price on carbon and establishes a value for carbon reduction, as in California. This will attract low-carbon liquid fuel producers to sell into our market and put product in place so we can provide our customers with clean liquid heat.
We have the goal and mission: net-zero by 2050. We have the marketing arm and advocacy push: Project Carbon Freedom (but it is imperative you join). Finally, we have identified the policy mechanism needed to enact our mission by incentivizing low-carbon product delivery to New England—a regional LCFS in the Northeast. These three measures are all interconnected and require one another to succeed—much like we in the heating oil business require one another to do the same. ICM