The renewable diesel revolution: How California is reshaping world oil markets

Despite all the attention on the new Biden Administration’s efforts to combat climate change, one state, California, is reshaping the world’s oil markets through its progressive climate policies.

Most dramatic has been the state’s shift to renewable diesel (RD). Unlike its green cousin, biodiesel, RD is molecularly identical to conventional ultra-low-sulfur-diesel (ULSD), making it a “drop-in” fuel. No modifications to engines, gas stations or pipelines are needed. It can be mixed with conventional diesel seamlessly. It is made from bio feedstock such as vegetable and animal oils such as canola, soybean, and corn oil, used cooking oil, tallow, and even municipal solid waste; the exact recipe varies. Current production methods reduce carbon emissions 50 to 85% compared to conventional diesel. RD burns cleaner than conventional diesel, producing 30% less particulates. In addition to less air pollution, this also means less wear on engines.

A 20% RD mixture is called R-20. The ferry boats in San Francisco Bay are running on R-100. UPS, Amazon Prime, and Cherokee Freight Line trucks are now switching to RD, at least in California where the fuel is available. Internationally, cargo vessels with diesel-electric engines are adopting the fuel.

Many cities in California – Oakland, San Francisco, Sacramento, San Diego – now exclusively use RD in city-owned heavy-duty trucks, buses and equipment.

Renewable diesel already accounts for 20% of California’s diesel supply and is projected to grow well beyond 50% by 2024, expanding to include jet fuel, where it is called “sustainable jet fuel”. Renewable propane is also produced during the refining process. Renewable gasoline, unfortunately, is still not economically feasible.

California’s RD comes from a variety of sources. It is imported from Singapore (Neste) and North Dakota. At the latter, the Marathon refinery in Dickinson, North Dakota, originally built to refine fracked Bakken oil, has converted to taking soybeans to make RD for the California market.

The California Energy Commission has identified enough proposed RD projects to supply all of the state’s needs in the future.

Increasingly, refineries in California are ramping up to produce RD from local feedstock. Two of the state’s largest refineries, Phillips 66 and Marathon in the Bay Area, are currently closed, using the Covid downturn to retrofit their operations into making RD. They will each produce 20% of the state’s diesel in the form of RD; they will completely cease using crude oil as an input. Other smaller refinery conversions are underway in southern California.

The California Energy Commission (CEC) projects that the state’s overall oil use, already down 20% due to the pandemic, will scarcely rebound and then continue declining in the future.

Washington and Oregon are taking steps to increase RD supply in their states. (Phillips 66 had originally sought to convert their Cherry Point refinery near Bellingham, WA, to RD production but ran into permitting problems. They are now trying again.)

This is all being driven by a combination of federal and state laws. The federal government already offers a $1/gallon tax credit for conversion to renewable fuels. Since the credit is bankable and tradeable, it’s essentially real cash. The program is set to expire at the end of 2022 but is likely to be extended with bipartisan support.

At the state level, California’s ever-lowering cap of tradeable permits under the AB32 cap-and-trade program is finally biting hard enough to change incentives. Carbon credits are now yielding about 30 cents/gallon and is likely to rise. Because this comes from traded permits, it is not a direct payment from government funds.

Combining federal and state incentives, a refinery converting from conventional to renewable diesel reaps an additional $1.30/gallon. If the Phillips 66 project goes to its full 800 million gallons/year, that’s at least a billion dollars each year in subsidies – from tax credits and tradable carbon credit sales.

California has already reduced greenhouse gas emissions 15-20% since the peak in 2004. This has been achieved during a period of significant economic and population growth; emissions per gross domestic product are down about 45%. Because the transportation sector has been among the most challenging for reducing emissions, the RD revolution will go a long way to helping California reach net zero by 2050. The Biden Administration is using California’s carbon reduction measures as a model for the nation.

The RD revolution is a transition to more dramatic decreases in oil use due to electrification of the vehicle fleet.

Mojave Desert bird populations plummet due to climate change

Two recent papers concluded that many breeding bird species in southern California and Nevada deserts have declined dramatically due to climate change.

In their abstract, Iknayan and Beissinger (2018) summarized, “We evaluated how desert birds have responded to climate and habitat change by resurveying historic sites throughout the Mojave Desert that were originally surveyed for avian diversity during the early 20th century by Joseph Grinnell and colleagues. We found strong evidence of an avian community in collapse.”

They re-surveyed 61 sites originally surveyed by Grinnell teams in the early 20th century (primarily between 1917 and 1947).

Of 135 species assessed (which included some wintering and migrating species, as well as breeding species), 39 had significantly declined; only one (Common Raven) had increased. This was in stark contrast to similar assessments they conducted of Sierra and Central Valley sites, where more species had increased than decreased and there were no overall declines (not to say there weren’t winners, losers, and range shifts within those regions).

Figure 1B from Iknayan and Beissinger (2018). Every study site had fewer species than previously– on average each site had lost 43% of their species.

Detailed analyses suggested less rainfall and less access to water was the primary driver. Habitat change only affected 15% of the study sites and was of secondary importance. They found no evidence of expansion of species from the hotter, drier Sonoran Desert (e.g. Phainopepla, Verdin, Black-throated Sparrow) into the Mojave Desert.

Consistent with a community collapse, declines were greatest among species at the top of food chain — carnivores such as Prairie Falcon, American Kestrel, and Turkey Vulture. Insectivores were the next most impacted, and herbivores the least. But the declines affected both common and rare species, both generalists and specialists.

Figure 1B from Iknayan and Beissinger (2018), which I’ve augmented with species labels from the database available in the supplementary materials. Other significant losers (red dots), in order of degree of decline, included Western Kingbird, Western Meadowlark, Black-chinned Sparrow, Lawrence’s Goldfinch, Bushtit, Ladder-backed Woodpecker, and Canyon Wren. The yellow dots are newly invasive species: Chukar, Eurasian Collared-Dove, Eurasian Starling, and Great-tailed Grackle.

A follow-up study by Riddell et al (2020), also involving Iknayan and Beissinger, focused on the thermoregulatory costs — the water requirements to keep cool — for the declining species. They found that “species’ declines were positively associated with climate-driven increases in water requirements for evaporative cooling and exacerbated by large body size, especially for species with animal-based diets.” Larger species get much of their water from the insects they eat. They estimated larger species would have to double or triple their insect intake to meet their water needs, though insect abundance is lowest July thru September.

American Kestrels were among the biggest losers in the study, struggling to meet their cooling needs.

Intriguingly, they found that 22 species had actually declined in body size over the last century, consistent with Bergmann’s Rule, and had reduced their cooling costs up to 14%. These species fared better. Current climate change, however, is at least ten times more rapid than any previous warming event, during which many species evolved. They estimated cooling costs have already increased 19% and will reach 50% to 78% under most scenarios, far outstripping any species’ ability to evolve through the current rapid warming.

These results stand in stark contrast to the Pacific Northwest, where many of the same bird species (e.g. Anna’s Hummingbird, Turkey Vulture, Northern Mockingbird) are increasing. This is consistent with projections which generally show individual declines along species’ southern edge and expansions at the north edge of their range (see Audubon climate projection maps for individual species).

Iknayan and Beissinger conclude, “Our results provide evidence that bird communities in the Mojave Desert have collapsed to a new, lower baseline. Declines could accelerate with future climate change, as this region is predicted to become drier and hotter by the end of the century.”