Written on: November 18, 2024 by Paul J. Nazzaro
In regions like New England and the Mid-Atlantic, biodiesel has taken a leadership role in decarbonizing heating oil, giving rise to Bioheat® fuel, while renewable diesel is gaining ground in both the heating and transportation markets. This journey, however, is fraught with challenges, uncertainties and opportunities, all of which demand an intelligent and collaborative approach from industry stakeholders.
The Growing Importance of Biodiesel, Renewable Diesel
As the world moves toward decarbonization, biodiesel and renewable diesel have become indispensable components of the liquid-fuel mix. Biodiesel, made from renewable sources such as soybean oil, animal fats and used cooking oil (UCO), has proven its viability as a cleaner alternative to petroleum-based diesel. Renewable diesel, a hydrocarbon that is chemically similar to fossil diesel, is also produced from renewable resources and offers the same low-carbon benefits with improved cold-weather performance and shelf life.
Together, these fuels are being increasingly adopted in transportation and heating sectors, providing a way to meet growing regulatory demands for cleaner fuels while maintaining the convenience and existing infrastructure of liquid fuels.
In the Northeast, Bioheat® fuel—a blend of biodiesel and traditional heating oil—has become the go-to solution for decarbonizing the region’s heating-oil market. This transition has positioned the New England area as a leader in reducing the carbon footprint of home heating, an effort that will likely expand into broader markets as policymakers, producers and consumers align on sustainability goals.
Renewable diesel, while still in its infancy in terms of East Coast market penetration, offers another promising pathway for the future. Its flexibility in blending with biodiesel could create new opportunities to leverage the strengths of both fuels, providing a resilient solution to meet both short- and long-term energy needs. The key question moving forward is how the industry will approach blending biodiesel and renewable diesel to meet future demand and regulatory targets—an “all-of-the-above” approach may prove the most effective, but careful planning and coordination will be essential.
The Year Ahead
As the industry prepares for 2025, the expiration of the biodiesel tax credit looms large. This credit, which has provided crucial financial support for biodiesel producers, will give way to the new clean fuel production credit (CFPC), also known as 45Z. This shift is creating significant uncertainty, as the CFPC’s framework is not yet fully understood by many in the industry.
What is known is that the CFPC will base its incentives on the carbon intensity (CI) of feedstocks. Fuels made from feedstocks with lower carbon intensity, such as UCO, will receive more credit value than those made from materials deemed as having a higher carbon intensity, such as virgin soybean oil. This discrepancy will likely lead to increased demand for lower-CI feedstocks like UCO, potentially straining supply chains and creating new competitive dynamics. Industry stakeholders must prepare for these shifts by diversifying their feedstock sources and investing in technologies that can lower the CI of their fuels.
At the same time, several other factors are contributing to market uncertainty. The potential impact of small refinery exemptions (SREs), fluctuations in imports, competition for feedstocks, and the emergence of new markets are all creating additional layers of complexity. As industries such as aviation and marine continue to scale up their use of SAF and biodiesel, the demand for these fuels is expected to grow substantially. This raises important questions about whether the current supply chain is prepared to handle the increased demand and whether the necessary infrastructure—storage, blending and distribution—is in place to support these new, low-carbon fuels.
Infrastructure, Technological Readiness
One of the biggest challenges facing the low-carbon fuel market is infrastructure readiness. While biodiesel and renewable diesel have made significant inroads into various markets, questions remain about the capacity of the midstream sector to handle these new fuels. The infrastructure for receiving, storing, blending and deploying biodiesel and renewable diesel varies significantly across regions, and it is unclear whether all markets are fully equipped to support widespread adoption.
For example, in the heating-oil market, blending Bioheat® fuel requires a deep understanding of the specific characteristics of biodiesel, including its cold-weather performance and interactions with traditional heating oil. Producers, distributors and retailers must be educated on how to handle these blends and effectively communicate their benefits to consumers. Moreover, the technology for producing and blending these fuels continues to evolve, with improvements in production processes and fuel quality on the horizon.
It is essential for stakeholders to stay informed about these developments and be proactive in adopting new technologies that can enhance fuel performance and reduce carbon emissions.
Collaboration is Key
In the face of these challenges, the liquid-fuels industry must resist the temptation to “go on standby” during turbulent times. History has shown that when markets become misaligned or uncertain, there is a tendency to hold off on innovation and wait for clearer signals. Now is not the time to delay action though. The transition to low-carbon fuels is a marathon, not a sprint, and it requires open communication, collaboration and a willingness to adapt.
To succeed, stakeholders across the supply chain—producers, distributors, retailers and consumers—must work together to navigate the complexities of this evolving landscape. Open communication is essential, particularly between buyers and sellers of low-carbon fuels. By fostering strong relationships and sharing information, the industry can better understand the challenges ahead and develop solutions that benefit all parties.
In addition, it is important for the industry to advocate for policies that support the continued growth of low-carbon fuels. This includes engaging with regulators to ensure that incentives like the CFPC are structured in a way that encourages innovation and investment in sustainable energy. It also means educating consumers about the benefits of biodiesel, renewable diesel and SAF, and helping them understand why these fuels are better, cleaner and safer than traditional fossil fuels.
Monetizing the Transition
While the transition to low-carbon fuels presents many challenges, it also offers tremendous opportunities for those who are prepared to seize them. As demand for biodiesel, renewable diesel and SAF grows, so too will the potential for companies to monetize their investments in these fuels. This, however, will require a deep understanding of the market dynamics, regulatory incentives and technological advancements that are shaping the industry.
One key area of opportunity lies in the production of lower-CI fuels. By investing in feedstocks and technologies that reduce the carbon intensity of their fuels, producers can position themselves to take advantage of higher credits under the CFPC. Similarly, companies that can offer innovative solutions for blending, distributing and deploying these fuels will be well-positioned to capture market share as demand increases.
In the end, the liquid-fuels industry must remain focused on its core mission: to provide reliable, high-quality energy solutions that meet the needs of consumers while reducing the industry’s carbon footprint. The road ahead will not be easy but with careful planning, collaboration and a commitment to innovation, the industry can successfully navigate the uncertainties of today’s market and emerge stronger on the other side.
Seizing Opportunity in Uncertain Times
Uncertainty is an inevitable part of any transition, but it also presents an opportunity for growth and innovation. The liquid-fuels industry stands at a critical juncture at which the choices made today will shape the future of energy for decades to come. By embracing the challenges ahead and working together to overcome them, the industry—and, more importantly, the tens of thousands of people who make their living from it—can ensure that biodiesel, renewable diesel and SAF continue to play a leading role in the global effort to decarbonize.
This is not the time to stand by and wait. It is the time to move forward—intelligently, collaboratively and with a clear vision for a cleaner, more sustainable future. ICM
