Diesel

Understanding Traditional Diesel vs. its Renewable Alternatives

Alternatives to traditional diesel are beginning to garner serious investment. Outside of farmers, refiners, and scientists, many are unfamiliar with Renewable Diesel and Biodiesel. In fact, many probably don’t even understand the difference between gasoline and diesel much less the different diesel flavors. Why should you? Only Europeans drive diesel cars. In America only large trucks and heavy equipment run on diesel.

However, among those that do understand the difference, the most important are large oil and gas companies. Two of the industry heavyweights – Marathon Petroleum and Chevron – have recently signed massive deals to expand into the Renewable Diesel space.

Obviously, the current domestic political climate, the global push to reduce emissions, and the recent conflagration between Russia and the Ukraine are some of the drivers for these decisions. But fundamentally, the question is the following: What is being made “renewable” and how does “renewable” compare to traditional diesel? Additionally, what is the significance of “biodiesel” and how does it differ from “renewable” diesel?

Diesel Production Overview

Conventional, fossil-fuel diesel is produced as follows:

• Drill – for crude oil
• Refine – run that crude oil through a distillation tower (heat the crude so that the different components separate at their different boiling points– gasoline, naphtha, diesel, etc)
• Market – sell the refined products separately – the two most familiar of which are gasoline and diesel.

Renewable and biodiesel differ from Traditional Diesel (TD) in both feedstock source and process method. The table below lists the respective feed stocks for differnent diesel types.

While traditional diesel is refined from crude oil, renewable diesel is refined from crop oils. Both are refined, the difference is in the feedstock. Despite the difference in feedstocks, the refining processes for traditional and renewable diesel are extremely similar. One important technical detail of the refining process is that both fuels are hydrotreated during the refining process and produce a hydrocarbon.

It is because of these refining similarities that Marathon is able to refit its existing refinery in Los Angeles, California with “relative” ease and switch from producing TD to RD.

Biodiesel does not share that same refining and as a result is a completely different beast. It is similar to renewable diesel in its feedstock – both utilize crop oils, but it has a completely different production process (refined is not the correct term to use). To make Biodiesel, the feedstocks undergo a process of transesterification.

In addition to easily winning word of the day, the process reacts the oils and waste fats with methanol in the presence of hydroxide catalysts. Transesterification is more a chemical reaction to create something new that did not previously exist, than it is refining an imperfect input into a final product. The bottom line is that biodiesel is made in a completely different process from that of regular diesel and renewable diesel. Renewable diesel can make use of expensive, existing refinery infrastructure, BD cannot.

In summary, TD and RD are refined in a similar way, but differ in feedstock. Renewable and biodiesel have similar feedstocks but differ in production processes. Both renewable and biodiesel have chemical differences from traditional diesel. And lastly, traditional diesel is the cheapest to make of the 3 – by far. So why bother with the alternatives?

The Rationale behind Alternative Diesels

Traditional diesel, and all fossil fuels, have two prominent negative characteristics. First, they are non-renewable: oil and gas formation takes millions of years. Second, they are non-environmentally friendly: their production and burning emits, among other pollutants, copious amounts of CO₂.

Biodiesel attempts to be a better option on both fronts. On the renewable front, biodiesel attempts to solve the issue by utilizing organic waste and crops which can be renewably farmed as feedstock. Environmentally, the production process is presumed* to have less carbon intensive production processes – farming and ultization of waste. It also burns slightly cleaner than traditional diesel emitting less CO₂ at the tailpipe.

Renewable diesel, as the name implies, attempts to solve the renewable problem by using crop oils exclusively as feedstock. On the environmental front, it, like biodiesel, is also presumably* produced in a less carbon intensive manner and also emits less CO₂ at the tailpipe when burned as fuel.

The catch is in cost and power content. In addition to being much more expensive, both alternative diesels are less energy dense than traditional diesel – somewhere in the range of 4-8%. Biodiesel has an additional problem of being inconsistent in cold weather – a chemistry byproduct of transesterification. Because of this, renewable diesel is the hotter market of the two and the one which the major energy companies like Marathon and Chevron are pursuing.

Policy Incentives – U.S. Government and the State of California

While not economic in most of the country, one place where selling renewable diesel does make sense is in the State of California.

Two specific policies make RD cost effective:

1. The Renewable Fuel Standard – passed by Congress at part of the Energy Policy Act of 2005 (contains the Biodiesel Tax Credit).
2. California Low Carbon Fuel Standard (LCFS) – took effect in 2011 (contains low carbon fuel credits).

The Renewable Fuel Standard (RFS) contains a Biodiesel Tax Credit – which also applies to “renewable” diesel – for $1.00/gallon. This is the same standard that deals with Small Refinery Exemptions (SRE’s) which have been in the news recently.

California’s LCFS adds on an additional $0.83-$0.86/gallon. With the application of some 4^th grade algebra, the total tax credit for renewable diesel in California is calculated to be $1.86/gallon. One can begin to see the business opportunity alternative diesels and why some are pursuing them.

Raining On the Parade

While the prevailing thought is that both diesels – Renewable and Bio – are less carbon emitting and scarce by being renewable, there is some evidence to the contrary. While claiming to release less CO₂, when the entire process is considered, that may not be the case. Both diesels have reduced CO₂ emissions at the tailpipe, but the additional forest destruction, farming, and transportation emissions that result may not have a net carbon reduction. Various studies argue both sides.

Additionally, depending upon one’s definition of “renewable”, crops and the farmland itself have limits. Soybeans and corn are major global food sources in addition to being potential feedstocks for transportation fuels. The farmland itself must be farmed such a way to as to preserve its nutrients.

Regardless of future feasibility, Renewable Diesel has a market and policy to back it. Oil majors, agricultural conglomerates, and even major airlines (seeking Sustainable Aviation Fuel) are moving in that direction.