What’s Next for Cellulosic Biofuel and the D3 RIN? – Part 8, A New Industry Emerges

See previous blogs in this series:

• Part 1 – The Market That Fizzled
• Part 2 – The Biogas Solution
• Part 3 – Rewind to the Fast Crash of Kior, a Cellulosic Biofuel Company
• Part 4 – Fueling Heavy Duty Trucks With Fuel From Cows
• Part 5 – Impact of EPA’s Partial Waiver on the D3 RIN Price
• Part 6 – Quantitative Theoretical Modeling of RIN Prices
• Part 7 – D3 RIN Price – Is The Market Off By a Factor of Ten?
• Part 8 – A New Industry Emerges
• Part 9 – Tracking the D3 RIN price

Cellulosic biomass consists of non-food crops and waste biomass like corn stalks, corncobs, straw, wood, wood byproducts methane emitted from landfills and animal manure. In 2007, the Renewable Fuels Standard (RFS) set mandates for generating transportation fuels from these raw materials and other categories of biomass.  The vision was that, by 2024, 16 billion gallons per year of liquid cellulosic biofuel would be made from wood chips in process units resembling small refineries.  As we have detailed in this series, that vision was not realized (see Part 2 for the story of Kior Inc., who spent $600 million on the wood chips vision before going bankrupt having generated only $2 million in revenue).  Today, the vision is that, by 2027, 100 trillion British Thermal Units (BTUs) per year of methane will be captured from garbage dumps and manure piles on dairy farms, piped through existing natural gas distribution systems and a growing network of refueling stations into 20,000 long-haul heavy duty trucks.  This renewable natural gas (RNG) will substitute for 300 million gallons per year of diesel fuel.

Unlike the wood chip vision, the cow manure vision has evolved from an idea to a commercially-proven success, at least in its framework form.  In fact, it qualifies to be called a new industry that is now at a critical mass that could tip it to emerge as the first full-scale commercial success story in the modern story of cellulosic biofuels.  Companies like Aemetis Inc., Archaea Energy and Clean Energy Fuels are making money by capturing renewable natural gas from garbage dumps and dairy farms all around North America.  One project in Idaho has 37,000 milking cows producing manure and renewable natural gas in volumes exceeding what could be produced in a sanitation district serving 100,000 humans.  The RNG is distributed through a growing nationwide network of truck fueling stations to be pressured into the fuel systems of trucks that now include heavy duty Class 8 trucks (aka 18-wheelers) made by Freightliner, PACCAR, and Daimler.  These 18-wheelers are equipped with the ground-breaking new Cummins 15-liter natural gas fueled engine named the X15N.  The X15N-equipped trucks are owned by America’s largest national freight carriers like J.B. Hunt and Knight-Swift, and are now starting to move cargo cross-country, fueled by renewable natural gas that substitutes for petroleum diesel fuel.  

To see how this industry works, you must know the RNG supply chain is not separate from that of conventional natural gas.  RNG is gathered and cleaned to pipeline quality at its source and then injected into existing natural gas pipelines.  The injected RNG is not eligible for subsidies until a corresponding volume of natural gas is actually withdrawn somewhere downstream for use in fueling vehicles; so the RNG molecules injected are not the same as the LNG molecules burned.  But the credit for RNG production depends on matching the volume supplied with a corresponding LNG volume demanded somewhere else and used for transportation.

Cummins’ introduction of the X15N engine was the latest breakthrough in the young industry’s capabilities.  It has been tested by some of the country’s most demanding fleets like Walmart, Knight Swift, UPS and Amazon and receives high praise for its power, torque, fuel economy and the ability to reduce greenhouse gas emissions.  The freight transportation sector is otherwise hard to decarbonize – big trucks can’t run on windmills or solar panels, batteries haven’t fared well in such big vehicles, and hydrogen-fueled 18-wheelers are unlikely.  Natural gas is the natural fit.

Waste Management started using natural gas fueled trucks in the 1990s. In the last ten years, many other smaller fleets, who buy less than 50 trucks per year, joined in to help get the new industry on the road. Garbage trucks, municipal transport vehicles and materials trucks owned by companies like Cemex, the world’s largest construction materials company, have proven natural gas to be an effective, economical alternative over 10 years of service in commercial fleets.  These fleets use mostly smaller 9-liter or 12-liter natural gas engines and are conveniently refueled at their dedicated sites.  In the garbage truck market, trucks equipped with these smaller engines, first introduced in 2008, reached 50% of new purchases within a few years.  Since 2021, Amazon has run local fleets consisting of hundreds of RNG-fueled trucks using dedicated refueling facilities at their warehouses and other locations nationwide, which are also accessible by other public fleets.  When Amazon started, they bought 2,500 gas-fueled trucks in 18 months.  The 2024 rollout of Cummins X15N engine has now opened the door for scale up to cross-country heavy duty Class 8 trucks (aka “eighteen-wheelers”) nationwide which would make this a full-scale American success story.   

Cummins and other industry experts say the challenge for 2025 is to broaden the base of fleets who buy 30-ish trucks per year, which will drive construction of more refilling stations and fill out the infrastructure to where large fleets can start buying 10s of thousands of RNG-fueled eighteen wheelers per year.  At that point, economies of scale will kick in to further fuel the growth.  There are thousands of fleets that have not yet used natural gas.  Clean Energy Fuels aims to sign up 25 new fleets equipped with the X15N engine in 2025, which is new fuel sales volume for them that’s been non-existent until now. New stations can be built quickly once the best locations are known.   Cummins says they are able to deliver X15N engines as fast as demand requires from their Jamestown, New York plant that can turn out many thousands of engines per year.  

The new RNG-to-freight transport story is among the most interesting in the world of fuels today and there is good reason to be bullish on its future.  Unlike the wood chip vision, the RNG-to-freight transport vision is built on a solid framework that has demonstrated all the essential components of a full-blown industry, on a commercial scale.  That’s why we are calling it an industry already, a young industry on the threshold of emerging as a full-scale American success story.