What’s Next For Cellulosic Biofuels and the D3 RIN Part 4 – Fueling Heavy Duty Trucks With Fuel From Cows
Read other posts in this series: What’s next for cellulosic biofuels and the D3 RIN?
- Part 1 – The Market That Fizzled
- Part 2 – The Biogas Solution
- Part 3 – Rewind to the Fast Crash of Kior, a Cellulosic Biofuel Company
In 2007, a primary objective of the Renewable Fuel Standard (RFS) was to stimulate development of at least 16 billion gallons/year of liquid fuels made from cellulosic biomass which consists of non-food crops and waste biomass like corn stalks, corncobs, straw, wood, and wood byproducts.
But the 2007 vision of making gasoline from wood chips never materialized and things evolved into a very different reality. Today’s cellulosic biofuel industry generates, gathers, and moves methane from landfills and dairy farms into the combustion chambers of heavy duty trucks. This blog series tells this story with a focus on the D3 Renewable Identification Number (RIN) which is the U.S. federal subsidy designed to enable production of cellulosic biofuel. Today’s episode gives a high level overview of the 17 year, on-the-ground history of cellulosic biofuels.
Part 1 focused on the history of the D3 RIN, which is the primary subsidy driving the potential growth of a cellulosic biofuel industry in the U.S. The D3 RIN started life in the spotlight, as part of a high-profile vision to stimulate growth of an industry that made liquid fuels from wood chips.
But, because that industry never got off the ground, the D3 RIN, in 2010, was effectively deactivated by a workaround called the cellulosic waiver credit (CWC). That move recognized it was impossible for increases in the D3 RIN price to stimulate growth of a non-existent industry. The CWC workaround meant the D3 RIN would be priced higher than other RINs but would not exceed a defined price cap.
The D3 RIN stayed in that neutered state 13 years, until the end of 2022, when it disappeared from the picture, at which point the D3 RIN was put back into service as a subsidy aimed at stimulating 25%/year growth of cellulosic biofuel. That change, at the start of 2023, along with the budding of a new cellulosic biofuel industry, put the D3 RIN back in the spotlight and raised the question of how high its price might go.
The budding cellulosic biofuel industry of 2024 looks very different than the wood-to-gasoline vision of 2007. It consists of the gathering and upgrading of biogas from landfills and dairy farms, transporting that gas through natural gas pipelines, distributing, and delivering it into compressed natural gas (CNG)-fueled heavy-duty vehicles.
Biogas is mostly methane that, in the past, has been flared, used to produce electricity, or emitted directly into the atmosphere. Methane is a potent, heat-trapping greenhouse gas, 100 times worse than carbon dioxide.
In July 2014, in response to input from industry and other sources, EPA modified a rule that opened the door to higher subsidies for biogas. The original rules allowed the production of biogas from landfills, sewage and waste treatment plants, and manure digesters to generate advanced biofuel (D5) RINs. In July 2014, in response to questions from multiple companies, EPA evaluated whether biogas from those sources could be considered not just an advanced biofuel, but also a cellulosic biofuel. The revised ruling allowed CNG/LNG derived from biogas from landfills, municipal wastewater treatment facility digesters, agricultural digesters, and separated municipal solid waste digesters, as well as biogas from the cellulosic components of biomass processed in other waste digesters, to generate D3 RINs when used as transportation fuel.
That decision resulted in rapid growth in D3 RIN generation, from only 55 million RINS in 2014 to over 600 million RINs in 2022. As we explained in Part 1 of this series, with rare exceptions, D3 RINs have higher value than D5 RINs, often much higher. And today, without their price cap, they have the potential to rise in price to whatever level is necessary to subsidize production of the mandated volume.
This route to making CNG/LNG from biogas for use as transportation fuel emerged as the dominant way to generate D3 RINs and capture that large subsidy in the 2020s. Today over 98% of all of cellulosic RINs generated in the RFS program have been for CNG/LNG derived from biogas.
There are over 2000 landfills in the United States that could theoretically produce biogas to be upgraded to pipeline quality natural gas that would be eligible to earn D3 RINs.
D3 RINs are also being generated by producing biogas from anaerobic digestion of animal manure. Large dairy firms are the top source of this biogas. That business is ripe for expansion.
Aemetis, Inc., California’s largest biofuel producer, has a business segment producing and transporting dairy biogas from a network of 9 dairy farm digesters in North America. That business segment started producing positive cash flow in the 2nd quarter of 2024 and is expecting continued growth and substantially increased cash flow in 2025. Aemetis has aggressive long term plans to expand their network of gas-producing dairy farms to capitalize on subsidies from California’s low carbon fuel programs and the federal producer tax credit, along with D3 RINs in coming years, also supported by United States Department of Agriculture loan guarantees.
As we reported in Part 1 of this series, Clean Energy Fuels, based in Newport Beach, CA. produces, procures and distributes renewable natural gas (RNG) and conventional natural gas in the form of CNG to over 48,000 vehicles from 1,000 fleets through over 600 fueling stations it owns, operates, or supplies in the U.S. and Canada. Many of those fueling stations are for private fleets like transit agencies or sanitation companies, but over 200 are accessible to other fleets who are buying natural gas fueled vehicles, increasing sales volumes. Many of these fast fueling stations are strategically located near interstates and in areas near distribution centers with high fleet traffic. Nineteen of them were built with Amazon as their anchor customer and those Amazon stations are increasingly being used by other fleets as well.
With their partner BP, Clean Energy Fuels is participating in development of RNG production from animal manure through anaerobic digestion operations at large dairy farms. Clean Energy Fuels revenue has grown steadily and is approaching $1 billion/year. BP, with its purchase of Archaea Energy in 2022, became the largest RNG producer in the U.S.. Chevron and Total are among others investing in RNG production from landfills and/or dairy farms.
The 17-year quest to make commercial transportation fuels from cellulosic feedstocks is an unfinished story that would not be happening without the RFS and the D3 RIN. This leaves the big question, what does the future hold for cellulosic biofuel and the D3 RIN? Stay tuned for the next episode in this series which will address the economics of this cellulosic biofuels industry and the outlook for its future.
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