Strong summer price gains in California’s state-administered program for carbon reduction in transport fuels is starting to attract the attention of US biofuel investors. Ticket prices eligible for retirement against California’s state carbon cap have trebled from $22/t to $66/t since the start of June as fuel suppliers have focused on California’s expected fall legislative reconfirmation of the scheme, which would subject them to increasingly stringent carbon reduction targets as the state strives to meet a 10% cut in its carbon emissions by 2020.
Given the program’s detailed carbon intensity calculation methodology, higher prices are particularly beneficial to low carbon pathway biofuel producers using inputs such as waste oils and fats. Biodiesel from used cooking oil supplied into the state counts for a near 90% carbon saving relative to fossil diesel, while biodiesel made from corn oil extracted from distillers’ grains before the drying process is ruled to emit just 4% of the carbon of fossil diesel.
US integrated renderer and waste biodiesel producer Darling Ingredients said this week it is considering siting a new conventional biodiesel plant on the US west coast to target LCFS eligible buyers. Darling lacks the integrated supply of cheap animal fats on the west coast it would need to build another capital-intensive renewable diesel plant, while the state’s benign climate also mitigates against the need for the low-CFPP biomass-based fuels which renewable diesel plants produce. Converting high FFA waste oils into biodiesel gives Darling a 10-16cent/lb price advantage over vegetable oil –based biodiesel producers. The “green premium” offered for the firm’s biodiesel output by federal incentives such as RINs and the annual $1/gal blenders’ credit meanwhile is increasingly supplemented by strong LCFS prices.