Fill ‘Er Up

Photo: Jason E. Kaplan
Ian Hill, founder of SeQuential, stands up top the company's biodiesel facility near Salem

Oregon just doubled its low-carbon fuel program goals, making it the strongest in the nation. But wildly fluctuating oil prices and the need for a technological revolution make you wonder: Can we get there?

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A lot has changed since Ian Hill founded SeQuential with business partner Tyson Keever in 2002. Back then the Eugene biodiesel company rode the bleeding edge, the only organization in Oregon collecting used cooking oils from restaurants, refining them into fuel and selling it by the barrel from a pickup truck.

Buying the stuff — which can be blended with petroleum-based diesel to create a less polluting, less carbon-intense fuel without having to retool the engine — took a leap of faith.

“Biodiesel had 0% share of the market, and our product was more expensive than petroleum-based diesel,” recalls Hill.

0620 IanHill IT4A1952Ian Hill, co-founder of Eugene biodiesel company SeQuential. Photo by Jason E. Kaplan

Today SeQuential is the longest-running commercial biodiesel producer on the West Coast. With 350 employees and more than $100 million in yearly revenue, the vertically integrated company collects used cooking oil from 20,000 West Coast restaurants, trucks it to one of its two refineries and transforms it into 50 million gallons of biodiesel a year. It even has a branded filling station in Eugene where motorists can buy a variety of diesel blends.

And biodiesel’s 0% market share? It is now up to 8% in Oregon, according to Hill.

A success story for sure, SeQuential must credit a good portion of its accomplishments to actual credits earned through Oregon’s first Clean Fuels Program. Enacted in 2009 and implemented in 2016, the program called for the reduction of the state’s transportation fuel mix’s carbon intensity to 10% below 2015 levels by 2025.

A market-based solution, the Clean Fuels Program does this by rewarding clean-fuel producers, such as SeQuential, with credits that oil and gas producers must buy before importing that more carbon-intense, and therefore dirtier, fuel into the state.

In the four years since implementation, fuel importers purchased some 3 million credits to cover compliance. Low-carbon energy producers have generated an estimated 3.6 million credits.

The Oregon Environmental Council estimates that the Clean Fuels Program is responsible for eliminating 3.6 million tons of carbon pollution — the equivalent of taking 778,000 cars off the road for a year.

Gov. Kate Brown’s March executive order will strengthen that standard to 25% below 2015 levels by 2035. This is in conjunction with the state’s overall emissions goal of reaching 80% below the 1990 level by 2050. These goals mean more credits and more opportunities for innovators like Hill.

RELATED STORY: Credit Program Could Revitalize Clean Fuels Sector

But can producers meet those ambitious standards? And what will it cost the transportation sector, Oregon’s largest in-state sector of emissions?

Even the experts are not sure.

“We haven’t had a comprehensive study of different polices to see how we get to 80% reduction in 2050,” admits Cory-Ann Wind, clean-fuels program manager at the Department of Environmental Quality, which administers the program.

Still, she feels that the executive order acknowledges transportation’s large carbon footprint — around 40% of total greenhouse gas emissions in the state — and the importance of the Clean Fuels Program.

“Just expanding the program will not achieve all of the reductions,” she admits. “But it is a way to start transforming the market and see how technology responds.”

Transportation emissions have been creeping up since 2008’s recession, thanks to low fuel prices spurring more driving in bigger, less efficient cars.

The program takes a three-prong approach to changing that course: encouraging the purchase of cleaner-running vehicles like electric cars or plug-in hybrids; encouraging the adoption of cleaner fuels like electricity, ethanol, biodiesel or renewable diesel; and advocating for better land use and planning that encourages people to drive less.

Eugene Water & Electric Board has figured out how to generate credits within those first two prongs. The state’s largest customer-owned utility, Eugene Water & Electric was excited to play a role as long as it did not unfairly impact its ratepayers.

“Not everyone is going to buy an electric vehicle or any vehicle for that matter,” explains Jason Heuser, public policy and government affairs director. “The nice thing about this program is the revenue doesn’t come from ratepayer dollars. That lets us be creative.”

0620 jasonIT4A2053Jason Heuser, public policy and government affairs director at Eugene Water & Electric Board. Photo:Jason Kaplan

Heuser says that credits have been a growing revenue source as more electric vehicles enter Eugene Water & Electric Board’s service territory.

The utility is using the windfall to create a series of grants and loans to encourage customers to buy level-two smart chargers. This equipment charges vehicles much faster and can be programmed to run off-peak, when electricity is cheaper, cleaner and more plentiful.

The credits are also letting the utility explore installing level-two smart chargers in multifamily housing units.

Heuser characterizes the program as flexible and user friendly, requiring only about 15 full-time hours a year to administrate. “That’s important,” he says. “There are 38 publicly owned utilities in Oregon, and some are really small. This works for everyone.”

Conversely, big investor-owned utilities, such as Portland General Electric, can participate in big ways.

This year Portland General Electric awarded $2.25 million in grants generated by credits to help organizations such as Ride Connection, Meals on Wheels People, and the Native American Youth and Family Center buy electric vehicles and charging infrastructure.

It is no surprise that electric utilities are generating credits and revenue, but they are not the only sector poised to benefit from the Clean Fuels Program. After all, not everything can run on electricity, no matter how popular that idea may be. “It’s sexy to say ‘electrify everything’ right now,” says Wind. “But I don’t think it’s possible.”

She does see a path for 100% adoption of electric vehicles for personal use or light trucking as the technology grows more robust and comes down in price. But for the rest, it will be quite a while before the region sees electric long-haul trucks, garbage trucks, transit buses, boats or planes. If ever.

Renewable diesel, however, can possibly fit some of that bill. Similar to the biodiesel fuel SeQuential produces, renewable diesel is also made from vegetable oils or animal fats.

Unlike biodiesel, its refinement process demands large, centralized production similar to refining petroleum. This production model will also make it easier to get the product to market.

Because of this, SeQuential’s Hill predicts a lot of growth in renewable-diesel producers. But he does not view them as competitors. “Gas and diesel, which have been dominant in the market for over 100 years, are our competitors,” he says. “Besides, renewable diesel still has a long way to go.”

The fact that biodiesel can still be blended into renewable diesel up to that same 20% further eases Hill’s mind.

Hill is also comforted that the predicted burdensome spike in fuel prices, the main talking point against the original program, never came to pass. For 2019, according to the Department of Environmental Quality, the average cost of the Clean Fuels Program at the pump was 2.57 cents per gallon of gasoline and 2.94 cents per gallon of diesel.

Hill notes that, after normalizing for road taxes, Oregon had the cheapest diesel fuel prices in the region. “With the Clean Fuels Program in place, we are on average around 25 to 27 cents less than Washington state because we incentivize the replacement.”

Oil and gas companies are making efforts to make cleaner fuels. Some members of the Western States Petroleum Association are credit generators, spending “hundreds of millions of dollars a year on research and development—and are successfully finding new ways to develop and deliver cleaner, more sustainable energy,” says Jessica Spiegel, association director of the Northwest region.

That diversification is seen in oil companies owning EV-charging stations and investments in renewable diesel and renewable natural gas made from methane produced by long-term waste streams like wastewater, agricultural manure, landfill and other waste.

Jana Gastellum, deputy director for programs at the Oregon Environmental Council, credits that diversification directly to the program. “They were not doing this before the public policy,” she says. “It is helping change behavior in business practices.”

0620 jana IT4A1739Jana Gastellum, deputy director for programs at the Oregon Environmental Council. Photo by Jason E. Kaplan

So what does the Clean Fuels Program mean for the transportation sector? “It means more options are now in place,” according to Gastellum.

She sees opportunities for school districts and transit entities, which are big fuel consumers, to become credit generators. She also sees a benefit to moving to more price-stable fuels as opposed to diesel, the price of which “bounces around all over the place.”

That cost of oil, however, has been trending way down thanks to the unique one-two punch of an early March price war between OPEC and Russia, followed by worldwide shelter-in-place orders in response to the COVID-19 pandemic. Wind estimates the shutdown resulted in an estimated 50% drop in the demand for gasoline nationwide.

The demand for diesel — the fuel powering the heavy-duty trucks that supply the country’s essential grocery and hardware stores — has dropped much less than gas. Sean Hill, an economist at the Energy Information Administration, is forecasting both fuels to gradually recover with gasoline ending 2020 down 10% and diesel falling only 5%. The demand for corresponding renewable fuels is expected to follow suit.

In the short term, the decreased demand brought down crude oil prices to a 70-year low in April. Will that lead to a collapse in credit prices for clean fuels?

“There is no direct correlation between oil prices and the Clean Fuels Program,” says Wind. She adds that decreases in high-carbon fuels lower deficit generation and demands for credits, “which may dampen the supply of credit-generating fuels until the next equilibrium is established.”

Right now credit producers like SeQuential are confident the Clean Fuels Program is flexible enough to weather a slowdown. Others are not so sure. Dayne Delahoussaye, senior advisor of public affairs at Neste, a renewable diesel producer, reported that oil-producing states are pressuring the Environmental Protection Agency to lower federal standards and give relief from blending requirements during a webinar on the future of the environmental commodity market.

“States like California and Oregon are moving forward and not reducing their aspirations,” he said during his segment. “So far governments haven’t blinked, but that’s the next thing to watch.”

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