Speaker 1: Hi, this is Dana Perkins and you're listening to Switched
Speaker 1: on the Banna Of podcast. Now today we're going to
Speaker 1: talk about biofuels and electric vehicles in the same breath,
Speaker 1: because really we're thinking about road transport. The first part
Speaker 1: of the show, we're really going to focus on some
Speaker 1: of the main dynamics of biofuels, what they are, where
Speaker 1: they come from, what some of the policy and incentives are.
Speaker 1: We have two analysts on our team from different teams actually,
Speaker 1: that are going to be able to really develop this
Speaker 1: for you because one of them is Ryan Fisher, he
Speaker 1: is our lead Charging infrastructure analyst, and the other is
Speaker 1: Jade Patterson and he is a senior associate focused on
Speaker 1: renewable fuels, and they both come at this from a
Speaker 1: very different side, but have been able to collaborate on
Speaker 1: a number of different research notes and tools on our
Speaker 1: side that it gives them a new understanding on what
Speaker 1: that future of road transport really looks like in the
Speaker 1: longer term. Now, they're going to throw out some really
Speaker 1: interesting things around various policy incentives and credits release to
Speaker 1: be at the center of this. Now they get into
Speaker 1: some detail on different types of credit schemes, and it
Speaker 1: may be worth just quickly simplifying this for you. So
Speaker 1: there really are two main mechanisms that they get into.
Speaker 1: One has to do with volume targets and another one
Speaker 1: has to do with carbon reductions regardless of fuel source.
Speaker 1: So let's think now about what the future of biofuels
Speaker 1: and how it interplaces with the electric vehicle industry, what
Speaker 1: that all really looks like. As a quick reminder, BNP
Speaker 1: does not provide investment or strategy advice, and we have
Speaker 1: a full disclaimer that can be found at the end
Speaker 1: of the show and now on When Energy Too to
Speaker 1: Jade and Run. So today we're going to talk about biofuels,
Speaker 1: but it's going to be mixed in with a conversation
Speaker 1: around transportation, one of the things that biofuels is so
Speaker 1: very good for, or maybe inferior, depending upon who you're asking.
Speaker 1: In any case, we've got two of our analysts on
Speaker 1: today to really talk about how this is playing out,
Speaker 1: how biofuels is playing into the competitively potentially ev market.
Speaker 1: And I'm joined today by Jade Hey Danna. It's good
Speaker 1: to be here with you, Thanks for having me, and
Speaker 1: also with Ryan Hey Dana will we spe here, so
Speaker 1: one of the things we actually do at our summits.
Speaker 1: And just back a little bit earlier. In February of
Speaker 1: this year, we had our Transportation Focus Summit in San Francisco,
Speaker 1: and we did end up having one of our BNF
Speaker 1: debates where we get two of our analysts on stage
Speaker 1: to kind of argue differing points. Now we'll see how
Speaker 1: many things Jade and Ryan actually disagree with each other
Speaker 1: on today when we get into this. But Jade is
Speaker 1: more focused on the biofuel side of things and Ryan
Speaker 1: is focused on the electric vehicle side of things, So
Speaker 1: there will be some places where I'm sure you guys
Speaker 1: are looking at things through slightly different prism as we
Speaker 1: think about the transportation transition how this all plays out.
Speaker 1: So while we get started on this topic, I'd like
Speaker 1: to first ask why are we talking about biofuels, Jade,
Speaker 1: I mean some respect, I'm asking you to explain what
Speaker 1: your role is in the business and what you research.
Speaker 1: Because when I think back to when I first got
Speaker 1: involved with bin ef to begin with, this could be
Speaker 1: either a long time or not very long ago, depending
Speaker 1: upon who you're asking. But let's say ten plus years ago,
Speaker 1: there was a lot of conversation around wind, solar and
Speaker 1: biofuels and less on some of the other complexity around
Speaker 1: the industry, and now biofuels is very much back in
Speaker 1: the conversation. So maybe you could also explain why this
Speaker 1: is the right time for us to be having a
Speaker 1: conversation about biofuels. Yeah, thanks, Dana, that's a really great question,
Speaker 1: and it's kind of worth noting that. Yeah, you're right,
Speaker 1: biofuels were really popular and kind of the the early two
Speaker 1: thousands up to the kind of twenty tens when they
Speaker 1: sort of started to plateau. And part of the reason
Speaker 1: that biofuels sort of dropped off the radar was a
Speaker 1: lot of the conventional biofuels that we talk about, so
Speaker 1: sanol and biodiesel, they actually need to be blended within
Speaker 1: gasoline for ethanols case, and diesel for biodesels case. And
Speaker 1: most of those blend rates are typically for ethanol up
Speaker 1: to around ten percent due to engine performance issues of
Speaker 1: going any higher, and for biody so it's typically around
Speaker 1: five percent. So that's really sort of capped the growth
Speaker 1: of those biofuels that across the world in recent years. However,
Speaker 1: with the new growth of different types of biofuels. So
Speaker 1: one of the main ones that we've been talking about
Speaker 1: lately is renewable diesel. In what's different about renewable diesel
Speaker 1: compared to say, biodesel, is it's chemically similar with existing
Speaker 1: diesel from crude oil. And so what that means is
Speaker 1: you don't have to blend renewable diesel like you do
Speaker 1: bio diesel. And so this allows for the market to
Speaker 1: grow beyond those blending limits of say five percent, and
Speaker 1: go up as high as one hundred percent theoretically now,
Speaker 1: as we can kind of get into later. Probably a
Speaker 1: lot of the limitations now are around the feedstocks used
Speaker 1: to make biofuels, which rely on energy, crops and other
Speaker 1: sources to be produced. So that's what it's been really
Speaker 1: driving that growth lately, is this kind of renaissance, this
Speaker 1: growth of new types of biofuels like renewable diesel, and
Speaker 1: we expect the capacity to really grow drastically from around
Speaker 1: four or five billion gallons per year globally for renewable
Speaker 1: diesel up to around sixteen billion gallons, So a pretty
Speaker 1: big jump in capacity expected in the next few years.
Speaker 1: And let's start at the beginning, or at least for
Speaker 1: the biofuel itself, in terms of the feedstock, what feedstocks
Speaker 1: are really popular right now and which ones maybe are
Speaker 1: more contentious. When you talk about ethanol and biodesel, what
Speaker 1: we call the conventional fuel is those typically come from crops.
Speaker 1: So for ethanol in the US, and it's kind of
Speaker 1: worth noting that the US is the largest biofuel producer
Speaker 1: in the world. Second is Brazil, and that EU is
Speaker 1: in third, and so most of ethanol in the US
Speaker 1: is produced from corn, around almost one hundred percent. In Brazil,
Speaker 1: a lot of that comes from sugarcane, and in the
Speaker 1: EU it's kind of an even mixed really of wheat, sugarcane,
Speaker 1: and ethanol. And when you look over to the biodies aside,
Speaker 1: the majority of those feedstocks are composed of what we
Speaker 1: call vegetable oils, so that's things like rape seed oil
Speaker 1: or canola, as well as soybean oil and palm oil,
Speaker 1: which was historically another kind of major source. So those
Speaker 1: are the main kind of historical feedstocks. And today one
Speaker 1: of the big shifts that we're seeing with renewable diesel
Speaker 1: is it's still relying on the same feedstocks that we're
Speaker 1: used for biodiesel, so again you're vegetable oils, but it's
Speaker 1: also trying to rebrand itself as using more waste oils.
Speaker 1: So that's things like use cooking oil, animal fats from
Speaker 1: meat processing facilities, as well as things like corn oil,
Speaker 1: which comes from making us at all. Actually, and so
Speaker 1: you see the shift of kind of renewable fuels starting
Speaker 1: to use more kind of waste oils. And that's really
Speaker 1: what I think the goal is for a lot of
Speaker 1: these projects is to leverage more waste instead of creating
Speaker 1: more energy crops, which creates land use change and that
Speaker 1: sort of thing. And so let's say, in theory where
Speaker 1: we are using more waste products to create the bio fuels,
Speaker 1: are they considered still quite sustainable, because if we are
Speaker 1: thinking back to two thousand or even to twenty ten,
Speaker 1: the view was that they burn cleaner. I could draw
Speaker 1: a parallel here with natural gas. But because it burns cleaner,
Speaker 1: it is more sustainable. Is that still very much the
Speaker 1: view of them or are they seen as sort of
Speaker 1: a bit inferior to perhaps electrifying certain parts of the grid.
Speaker 1: And I think this will end up taking us into
Speaker 1: the electric vehicle conversation in some respects because when you
Speaker 1: think about batteries and then the upfront emissions, but then
Speaker 1: tailpipe emissions reduce dramatically. Yeah, you make a good point there.
Speaker 1: So you know, when you burn biofuels, as you do
Speaker 1: with hydrocarbons from fossil fuels, you still have tailpipe emissions.
Speaker 1: You can't really get away from that with biofuels. But
Speaker 1: biofuels do typically have a lower life cycle carbon emissions
Speaker 1: profile then say conventional fuel, And it really does range
Speaker 1: depending on the feedstock and depending on the process that's
Speaker 1: utilized to make that fuel. And so let's take the extremes.
Speaker 1: If you look at ethanol right made from corn, it
Speaker 1: typically has a higher carbon emissions profile than say, using
Speaker 1: US cooking oil. And the main driver behind that is
Speaker 1: because when you look at the life cycle analysis of
Speaker 1: making corn ethanol, you have to also factor in the
Speaker 1: process of making the corn need fertilizer, you need gasoline
Speaker 1: or diesel to power your tractor to actually harvest that product,
Speaker 1: and then to make the biofuel itself converting it from
Speaker 1: corn and start into an alcohol. And so you have
Speaker 1: all these kind of process emissions that go along with that.
Speaker 1: Was with a waste oil like say use cooking oil.
Speaker 1: Because it's a waste you don't have to account for
Speaker 1: all the upstream emissions for producing that molecule. You kind
Speaker 1: of start at the point of processing it and converting
Speaker 1: it in. So all that to say is you can
Speaker 1: see for biofuels it's typically around either like a forty
Speaker 1: percent reduction for ethanol's case, and then all the way
Speaker 1: up to an eighty percent reduction and carbon emissions for
Speaker 1: say like a used cooking oil. And while we're still
Speaker 1: getting our feet under us, I think of biofuels and
Speaker 1: I think of Brazil, what other regions in the world
Speaker 1: are also biofuels producers in a big way? And then additionally,
Speaker 1: let's take it a step further, and what is the
Speaker 1: policy environment right now? Yeah, I mean I think that
Speaker 1: the policy environment is all over the map if we
Speaker 1: take a step back and I think about why these
Speaker 1: biofield policies were enacted originally. Take the US for example,
Speaker 1: the reason for this biofield policy was more driven and
Speaker 1: today still is by energy security. So when you look
Speaker 1: back before the shale boom, and you know early two thousands,
Speaker 1: the US was only around the third largest producer of
Speaker 1: oil in the world and relied heavily on foreign oil
Speaker 1: from Russia and Saudi Arabia and other Middle Eastern countries.
Speaker 1: And that was a big problem, right, you know, did
Speaker 1: a lot of tententious oil trade issues and that sort
Speaker 1: of thing which sent oil prices really made them really volatile, really,
Speaker 1: and so these biolefields policies were meant to kind of
Speaker 1: combat that concern around energy security and not really focused
Speaker 1: on reducing carbon emissions. And so I think that's one
Speaker 1: of the big problems with the existing policy. Like say,
Speaker 1: there were new fuel standard in the US, which is
Speaker 1: the federal policy, and you have other policies now that
Speaker 1: are kind of being enacted that are helping to incentivize
Speaker 1: more carbon emissions reductions, like the California Low Carbon Fuel Standard,
Speaker 1: for example, which basically credits biofuels or any even electric
Speaker 1: vehicles to reduce carbon emissions and be rewarded for that
Speaker 1: emissions reduction rather than say just a blanket kind of
Speaker 1: quota or mandate for a certain biofuel. Now, for a
Speaker 1: very short break, stay with us, and then just coming
Speaker 1: back to the question around other parts of the world.
Speaker 1: Is Brazil really the center of the biofuels industry? Brazil
Speaker 1: in terms of supply is second behind the US in
Speaker 1: terms of total output. All amazing good, I had it wrong.
Speaker 1: I need to associate it with my home country exactly. Yeah.
Speaker 1: So if you put the US, Brazil and EU together
Speaker 1: that there accounts for around eighty percent of biofuel supply
Speaker 1: in the world. So those are the top three regions
Speaker 1: really that when we talk about biofuels competing with evs
Speaker 1: and being used to decarbonize, those are the markets that
Speaker 1: we're looking at. And the US and the EU particularly
Speaker 1: are with the Inflation Reduction Act and the EU with
Speaker 1: the Red three the Directive and other EU Fit for
Speaker 1: fifty five discussions. That's really what's bringing biofuels back to
Speaker 1: the forefront to figure out how are we going to
Speaker 1: actually decarbonize our transportation sector, which I think accounts for
Speaker 1: around a quarter of global emissions, So it's a big problem.
Speaker 1: And trying to figure out where these where biofuels and
Speaker 1: where evs fit in and how they kind of work
Speaker 1: together is the big question that I think Ryan trying
Speaker 1: to help understand our biofuels posed to win in a
Speaker 1: big way with the US Inflation Reduction Act. There's a
Speaker 1: few changes that have been made. It's mostly kind of
Speaker 1: been an extension of existing policies. The biggest change really
Speaker 1: in terms of biofuels has actually been the addition of
Speaker 1: a sustainable aviation fuel tax credit, which basically has a
Speaker 1: higher value in terms of its dollars per gallon incentive
Speaker 1: than say a road fuel and so I think that's
Speaker 1: actually the US's way of trying to pivot biofuels away
Speaker 1: from just simply a road seal and using it more
Speaker 1: for other industries like aviation, where electrification is less of
Speaker 1: a viable solution. So you would mention sustainable aviation fuels.
Speaker 1: And I'm thinking just generally of fuels, and we will
Speaker 1: very much come to the electric vehicle part of things
Speaker 1: in just a moment. But when we're thinking about fuels,
Speaker 1: then I think oil and gas companies. Is the biofuel
Speaker 1: space something that the oil and gas community is really
Speaker 1: gravitating toward or are these really disconnected but cooperating industries.
Speaker 1: That's a very great question, and I'd say it's sort
Speaker 1: of a moving target. Historically, the biofuels industry and the
Speaker 1: oil and gas industry have really been at odds with
Speaker 1: one another. You know, you have the bioflowes industry that's
Speaker 1: asking the government to ramp up the quota for more biofuels,
Speaker 1: which obviously hurts the demand for oil and gas, and
Speaker 1: so the oil companies are kind of against that. Additionally,
Speaker 1: the way the policies work, at least in the US
Speaker 1: is the refiners are the obligated parties that have to
Speaker 1: either blend biofuels or they have to buy these credits
Speaker 1: to offset not using as much biofuels to meet their obligation.
Speaker 1: And so what that means it hurts the margins, It
Speaker 1: hurts the profits for these oil and gas companies, and
Speaker 1: so historically a lot of oil and gas companies were
Speaker 1: against the use of biofuels. However, I think that narrative
Speaker 1: has started to shift over the last let's say five
Speaker 1: years or so, and I think what's happening is actually
Speaker 1: a lot of the oil and gas companies, instead of say,
Speaker 1: buying these credits from another energy producer, have decided to
Speaker 1: just own those biofuel production facilities themselves. Valero is a
Speaker 1: great example of that. They and I think around ten
Speaker 1: percent of ethanol production in the US. Now there are
Speaker 1: major US refiner of companies like Chevron and VP also
Speaker 1: kind of making entrances into this space. Chevron just bought
Speaker 1: Renewable Energy Group last year, which is a major diesel producer,
Speaker 1: And so you're starting to kind of see these oil
Speaker 1: companies start to invest in the biofuel space to have
Speaker 1: to buy those credits and be beholden to those swings
Speaker 1: in credit prices and actually generate the credits themselves. So
Speaker 1: I think that's actually been the shift, the oil companies
Speaker 1: really starting to take part in the biofuel space. So,
Speaker 1: as promised, let's switch into EVS and let's give Ryan
Speaker 1: a chance to be a participant to our lovely conversation here.
Speaker 1: When we're thinking about road transport, vehicles are very much
Speaker 1: omnipresent in this debate about how we decarbonize cities and
Speaker 1: entire countries when they're looking at transport related emissions. But
Speaker 1: biofuels certainly play an important role. As you've outlined, there
Speaker 1: are important policy incentives which do give them an edge.
Speaker 1: Where are we finding cooperation and perhaps conflict between the
Speaker 1: electric vehicle space and perhaps how these policies interplay with
Speaker 1: electric vehicles and biofuels together. Yeah, it's a really interesting
Speaker 1: one and it's great to hear kind of all Jade's
Speaker 1: answers as well. So I'll come at this very much
Speaker 1: from the EV side, maybe not knowing much about both
Speaker 1: fuel at all, and people really want to know how
Speaker 1: do you make money out of EV charging and these
Speaker 1: carbon credits that you can create by delivering electricity to evs.
Speaker 1: And I'm like, Okay, this is a cool topic. Let's
Speaker 1: explore this a little bit further. And these credits can
Speaker 1: account for the ten percent of the revenues for some
Speaker 1: of these public charging companies. So we started doing some
Speaker 1: research on that, and as I get further, I start
Speaker 1: to realize there's this kind of friction between biofuels and
Speaker 1: evs when you get to the subsidies and what's going
Speaker 1: on in these systems. Then Labe Jade described a little
Speaker 1: bit the funds going out there, and really what was
Speaker 1: the political aim of those funds. The one in the US,
Speaker 1: there's kind of forty billion scheme the Realable Fuel Standards
Speaker 1: a year aiming to produce biofuels. But then on a
Speaker 1: country or even global scale. Now everything's about evs and
Speaker 1: the OEM's having evs, so setting kind of volumes of
Speaker 1: biofuels largely, to be honest, when you look at some
Speaker 1: of these schemes, seems a bit strange when really the
Speaker 1: aim should be carbon reduction, and arguably that the biggest
Speaker 1: carbon reduction can be attrieved by moving to electrics. You
Speaker 1: sort of see different regions and different ways, but the
Speaker 1: low carbon Fuel Standard is one that's now rolling out everywhere.
Speaker 1: So what they do is they set a target for
Speaker 1: the emissions of fuels and if you're above that target,
Speaker 1: which largely gasoline and diesel are, you generate deficits, and
Speaker 1: if you're below then you generate credits. The credits so
Speaker 1: far have been heavily dominated really for maybe in the
Speaker 1: past ten years by biofuels and fuels like that. But
Speaker 1: slowly evs are obviously coming on to the market and
Speaker 1: becoming a bigger part of the fleet, and they're now
Speaker 1: like edging up to fifteen twenty percent of those credits,
Speaker 1: so you see this issue. What that's actually done is
Speaker 1: tank the credit price in a way, because you've now
Speaker 1: got this big supply of removable diesel that Jake kind
Speaker 1: of talks about and then you've got this bigg supply
Speaker 1: of electricity credits and with that tanking the credit price,
Speaker 1: then nobody kind of wins because you might not meet
Speaker 1: your aims. So from a perspective one outside you look,
Speaker 1: what do you actually want to do? From a political perspective,
Speaker 1: and a lot of the biofuels being Jade pointed on
Speaker 1: it that they're produced by food crops Jade called energy crops,
Speaker 1: which I don't really like the phrase, and it's the
Speaker 1: same as like renewable diesel. It gives people an aspect
Speaker 1: that this is really a good thing. But I do
Speaker 1: come to the question of how good is it. The
Speaker 1: biofuels in Europe thing it was seventy five percent of
Speaker 1: those currently made from food. The biofuels in America, you've
Speaker 1: got corn monocropped across huge waves of the US. I
Speaker 1: think it worked out and it was nearly the whole
Speaker 1: size of the UK would be taken up just by
Speaker 1: corn that is going into this fuel. From a policy
Speaker 1: making standpoint, it does bring the question as to what
Speaker 1: really is sustainable and what isn't. But there's clearly some
Speaker 1: hard to abate sectors that might need biofuels, aviation, shipping.
Speaker 1: How do you then have this market that's available without
Speaker 1: giving it the kind of stepping stone to get there.
Speaker 1: So I think there is some arguments so use road transport,
Speaker 1: scale some of these systems up and move. But I'm
Speaker 1: a bit pessimistic that you can actually make these fuels
Speaker 1: with waste on the scales that are really needed. Having
Speaker 1: looked at this in any kind of detail, you brought
Speaker 1: up a couple of things. But firstly, Jade, you've been challenged.
Speaker 1: So I think you sort of at this point need
Speaker 1: to defend biofuels and their sustainability credentials. Yeah, you know,
Speaker 1: I think this is a tricky one to tackle, right.
Speaker 1: There is certainly a lot of questions around sinability of biofuels.
Speaker 1: You know, you can ask ten people what's sustinability of
Speaker 1: corn ethanol and you're gonna get ten different answers. And
Speaker 1: I think Ryan's right, like a lot of these energy
Speaker 1: crops that I call them do compete with food that actually,
Speaker 1: you know, when you get down to the nuances of it,
Speaker 1: For example, corn, a lot of it that's grown to
Speaker 1: make us and all actually isn't used for food consumption
Speaker 1: for humans. It can produce byproducts such as different grains
Speaker 1: that can go into like animal feed, but a lot
Speaker 1: of it actually isn't specifically for human consumption. But isn't
Speaker 1: it not for human consumption because they're planting the crawl
Speaker 1: that is more valuable because of these systems to put
Speaker 1: it in a car like it could be anything that
Speaker 1: they's planted exactly. I think that's the argument comes in
Speaker 1: that by planting this field corn or corn that is
Speaker 1: strictly just made for making fuel, you're you're disposing line
Speaker 1: that could be used for the growing corn human consumption
Speaker 1: or other crops for food. So it's really I think
Speaker 1: on the land use competition that you really have to
Speaker 1: think about what's best for society. Is it to make
Speaker 1: it for fuel or is it to grow for food?
Speaker 1: And that's I think where the debate it's interesting. Well. Additionally,
Speaker 1: when you're bringing up the credits, I mean, one of
Speaker 1: my questions is are the I guess life cycle emissions
Speaker 1: actually brought into consideration in this sort of debate. I'm
Speaker 1: going to guess that the answer is no, and that
Speaker 1: I'm going to take us down a rabbit hole to
Speaker 1: which we have no answer. But what I mean by
Speaker 1: this is when we think about electric vehicles taken a look,
Speaker 1: depending upon where your battery is actually made, and if
Speaker 1: it's made on a dirty grid, in theory, you have
Speaker 1: quite a bit of carbon that you essentially need to
Speaker 1: pay off overtime by driving. You know, if you drive
Speaker 1: it a certain number of miles but you have zero
Speaker 1: tailpipe emissions, there comes a break even point, and that
Speaker 1: break even point always pays off within the lifetime of
Speaker 1: that car, so they are better from an emission standpoint.
Speaker 1: This is research we've done. We know that. And then
Speaker 1: on the other side, you think about agricultural emissions, things
Speaker 1: coming from fertilizer and agricultural practices in many different ways,
Speaker 1: and something that we at B and F are actually
Speaker 1: looking into even more with our newest research team, which
Speaker 1: is focused on agriculture and land use. Within these kind
Speaker 1: of two other parts of the biofuels and electric vehicle
Speaker 1: space and these other emissions. Are those being discussed more
Speaker 1: or is the focus really much further down the line
Speaker 1: when people like you and I are interacting with taking
Speaker 1: a flight or hopping in a car, I think the
Speaker 1: emissions and jade will be the expert on how they
Speaker 1: do biofuels, but they take into acout life cycle emissions
Speaker 1: and land uice and things like that to come out
Speaker 1: with a school which is basically like how many grounds
Speaker 1: of COO to equivalent. They call it a produced per
Speaker 1: mega dule of fuel burned and they can kind of
Speaker 1: say either fuel burned or electricity that's delivered. So they
Speaker 1: have a methodology and you can argue that this will
Speaker 1: be improved over time. When you think about evs, you're
Speaker 1: right about the battery bit. They include the grid, so
Speaker 1: they're saying what you're charging with coal or are you're
Speaker 1: charging with for example, solar, and the grids that are
Speaker 1: cleaner basically will generate more credits. Well that's done. Is
Speaker 1: good because that's pushed EV charging firms to basically sign
Speaker 1: power purchase agreements with developers because then they can prove
Speaker 1: that they're using green energy and they can get a
Speaker 1: bigger carbon saving and that means they get more credits
Speaker 1: and then get more money and the money can be big.
Speaker 1: So in Germany we're kind of estimating you can get
Speaker 1: somewhere around forty euro cents fifty euro cents per killer
Speaker 1: what hours more than the price of electricity if you've
Speaker 1: got these ppa kind of deals and getting green credits,
Speaker 1: so that's a good incentive. I don't think they're fully
Speaker 1: baking in the battery emissions. However, if you do run
Speaker 1: them into the model, it doesn't actually make a great
Speaker 1: deal of difference. Evs are still significantly more clean on
Speaker 1: the carbon basis than biofuels in most conceivable grid emissions,
Speaker 1: and this is not understood everywhere. Like one of the
Speaker 1: things it comes down to is that evs are about
Speaker 1: three to four times more efficient than an internal combustion
Speaker 1: engine vehicle. For every mega jewel of energy, you'll go
Speaker 1: in like three to full times further basically, And that
Speaker 1: becomes a bit confused, I think when you start to
Speaker 1: see the calculations and people go through, and I think
Speaker 1: the policymakers have got confused at times, particularly in Europe.
Speaker 1: But I don't know whether jade obviously boo fuels. I
Speaker 1: don't quite know how they calculate there. Yeah, I'll chime
Speaker 1: in on the biofuels side, and yeah, to your point, Danta,
Speaker 1: they do actually factor in kind of the full life
Speaker 1: cycle emissions from from producing a feedstock and making it
Speaker 1: into a fuel all the way to the tailpipe. The
Speaker 1: way it works is they measure the emissions associated with farming,
Speaker 1: like you said, the fertilizers, transportation of the feedstock to
Speaker 1: the production facility and then again to the fielding stations.
Speaker 1: So I'll think it's accounted into it as well as
Speaker 1: the land use change that causes. So thanks to policies
Speaker 1: like California is Low Carbon Fuel Standard and basically policies
Speaker 1: that reward fuels for having a lower carbon emissions profile.
Speaker 1: What that does It tells the producer like, hey, I
Speaker 1: need to buy power purchase agreements to buy crean power
Speaker 1: to offset my emissions from the electricity use to produce
Speaker 1: this fuel. I need to buy coin that source from
Speaker 1: a farmer who uses sustainable farming practices. So it's another
Speaker 1: big big thing is, for example, using practices like no till,
Speaker 1: which basically reduces less carbon C or two from the
Speaker 1: soil when the crops are planted. So all these different
Speaker 1: practices can actually stack up to make a pretty big
Speaker 1: difference in terms of the fuels life cycle emissions. For example,
Speaker 1: with ethanol in California, the emissions profiles actually dropped around
Speaker 1: thirty percent over the last ten years thanks to a
Speaker 1: lot of those practices of starting to reduce the emissions
Speaker 1: from electricity and better more sustainable farming practices, and also
Speaker 1: carbon capture on a lot of these ethanol plants. So
Speaker 1: that's really driving down and sentivizing these producers to reduce
Speaker 1: the emissions from biofuels. Now for a very short break,
Speaker 1: stay with us, So switching tracks a little bit, Let's
Speaker 1: ask the question what does the future look like for
Speaker 1: both biofuels, and then I think to set the stage
Speaker 1: for that electric vehicles, some of the real world numbers
Speaker 1: put it into perspective better than than you can kind
Speaker 1: of say based on some of our analysis in some way.
Speaker 1: So today we were debating the numbers coming out of
Speaker 1: Europe and China, and it looks like about thirty percent
Speaker 1: of vehicle sales that are kind of bevel phead. So
Speaker 1: that gives you just like a strong sense of where
Speaker 1: this is heading. And other regions in the US maybe behind,
Speaker 1: but some of this new policy certainly going to tick
Speaker 1: them over as well. No doubt government funding is playing
Speaker 1: some level in this, but it does give you a
Speaker 1: sign of the trajectory, saying somewhere around seventy percent of
Speaker 1: sales going out to twenty thirty will probably be electric.
Speaker 1: So then the follow up question is do we think
Speaker 1: that electric vehicles will in some way really be competitive
Speaker 1: with biofuels and eat into their market share in the future. Yes,
Speaker 1: and I think this is the biggest worry for those
Speaker 1: at the moment who are basically making lots of money
Speaker 1: off incentives to produce biofuels. Now, these carbon credit schemes
Speaker 1: are the one that I described, the LCFS olaphoria that's
Speaker 1: moving out to many states in the US. Canada is
Speaker 1: adopting a scheme across the whole country. British Columbia already
Speaker 1: has one. In Europe, you've got two big schemes in
Speaker 1: basically Germany and the Netherlands that will give money to
Speaker 1: EV chargers. Already you can get money for biofuels as well.
Speaker 1: But those types of credit mechanisms in the red three
Speaker 1: that Jade was briefly discussing earlier, we'll have to roll
Speaker 1: out across the whole of Europe by twenty twenty five.
Speaker 1: In theory, it's in the trialogus at the moment, sort
Speaker 1: of the negotiations between European bodies, But it looks like
Speaker 1: it's heading that way, and what that means is, obviously,
Speaker 1: if you can get more credits for evs, then it
Speaker 1: eats into the share for biofuels and the money heading
Speaker 1: that way. And what I hear when I speak to
Speaker 1: some of those Barfield people as I'm trying to like
Speaker 1: sense check what I'm looking at. If they want targets,
Speaker 1: they want to set a target because this becomes economically challenging.
Speaker 1: When we talk about bifles, there's lots of different grades,
Speaker 1: and Jay can probably describe this. You've got renewable diesels,
Speaker 1: the biodiesels E fuels are slightly different. This is like
Speaker 1: fuels created with hydrogen and things like that. Well, some
Speaker 1: of those don't seem that anomically viable I think, without
Speaker 1: either target or some kind of money being pushed that way.
Speaker 1: So I sense that they're a little bit fearful and
Speaker 1: it becomes harder to sign off your investments if the
Speaker 1: credit mechanisms become overtaken basically by evs. So they're definitely
Speaker 1: cautious about it. The one thing you look at these mechanisms,
Speaker 1: and has happened in other credit mechanisms before, is if
Speaker 1: you have too much supply then the price tanks and
Speaker 1: then the kind of overriding system doesn't work. So I
Speaker 1: think policy makers are also trying to figure out if
Speaker 1: we let evse fully work in these systems, does then
Speaker 1: the policy become pointless because supply exceed the man. But
Speaker 1: there's a few things they can do. They can basically
Speaker 1: increase the target. So in California, the credit price is
Speaker 1: tanked and jays always reporting on this. So it used
Speaker 1: to be like two hundred dollars a ton. I think
Speaker 1: it's eighty dollars a ton now and there's a massive
Speaker 1: access in supply of credits and I think that's getting bigger,
Speaker 1: and some of that renewable diesel. It's what they can
Speaker 1: do is say, well, actually we don't want, say, for example,
Speaker 1: and our renewable diesel anymore, and we want the target
Speaker 1: of emission reductions to be higher, and that then kind
Speaker 1: of set this balance. It means the credit price can stabilize.
Speaker 1: So yeah, I think there's a big story on bo
Speaker 1: fuels versus EV chalging, and this friction is kind of
Speaker 1: only just stalling to occur. So I think as we
Speaker 1: look out into the future for biofuels, As Ryan mentioned, right,
Speaker 1: EV adoption is definitely going to be a huge part
Speaker 1: of the road transportation sector, not so much forraviation where
Speaker 1: you can't really put batteries and airplanes and hydrogen is
Speaker 1: still long ways out. But within the road field sector,
Speaker 1: I think long term out to twenty fifty, the story
Speaker 1: is pretty grim for biofields. I think it's there, especially
Speaker 1: for the ones that are need to be blended, like
Speaker 1: ethanol and biodesel. Those are going to fall with the
Speaker 1: adoption of electric vehicles and a subsequent decline of gasoline
Speaker 1: and diesel. But we might see some places in the
Speaker 1: short term, some countries where electric vehicles are maybe too
Speaker 1: expensive or not being adopted as quickly as in the
Speaker 1: US or wealthy European countries, and so what we could
Speaker 1: see happen is actually biofields potentially grow in the short
Speaker 1: term in some of those markets to meet those targets
Speaker 1: that have been set by the EU. So the growth
Speaker 1: of biofuels and the electro biofuels and the short term
Speaker 1: medium term is kind of going to vary from region
Speaker 1: to region. But I think the long term story is
Speaker 1: that really biofuels are not really the long term solution
Speaker 1: within the road transportation sector and have a much larger
Speaker 1: role to play in places like aviation and potentially shifting.
Speaker 1: But I mean, there's so much vested interest in these sectors.
Speaker 1: He starts to realize that when you get involved like
Speaker 1: that steam the ruble fuel standard is not the same
Speaker 1: as like the low carbon fuel standard that we were describing.
Speaker 1: That one just literally is setting volumes of biofuels to
Speaker 1: go in and the ring thing is a benefit, right
Speaker 1: that they're adding it in. It's like it's some money
Speaker 1: going to the electric vehicle industry. But the reality is
Speaker 1: the fundamental policy is in my opinion, flawed. So you've
Speaker 1: got like this forty billion scheme that's just plowing in biofuels,
Speaker 1: but the carbon reduction element is not there. And you
Speaker 1: see this lobby effect also happening in the EU legislation.
Speaker 1: So I described how like the low carbon fuel standard
Speaker 1: you have in California is moving over to Europe, and
Speaker 1: in the methodology of that, they basically just totally discount
Speaker 1: the carbon savings of electric vehicles to the extent that
Speaker 1: they're sort of like thirty percent of or forty percent
Speaker 1: of the value of what we actually think is the
Speaker 1: value that they should be achieving, and that obviously favors biofuels,
Speaker 1: and you get back to this conversation you started with,
Speaker 1: which is like where do oil and gas really sit
Speaker 1: on this? And a lot of those obviously now spending
Speaker 1: more and more money buying ev charging firms. But then
Speaker 1: at the same time that they're getting refineries, they're getting
Speaker 1: more heavily involved within what maybe was the enemy before
Speaker 1: in biofuels by getting renewable diesel refineries and things like that.
Speaker 1: And then some of the policy targets and what they're
Speaker 1: talking don't add up. So you've got policy makers, the
Speaker 1: German Environment minister saying, we don't want to have any
Speaker 1: food crops in our biofuels. We don't want to destroy
Speaker 1: for us. This is not what we're aiming for. But
Speaker 1: then at the same time, it appears that these wastes
Speaker 1: that they want to put in biofuels are just not
Speaker 1: coming in the kind of volumes that are needed to
Speaker 1: suffice the industries. So, yeah, you've got progress, but I
Speaker 1: think that this challenges that remain. Yeah. So yeah, I
Speaker 1: was just going to say, I mean, I think you're
Speaker 1: right Ryan in terms of how the policies differ. I
Speaker 1: think we can all agree that the low carbon fuel
Speaker 1: standard type program that basically rewards fuels or electricity for
Speaker 1: achieving a lower carbon emissions profile is much better. It's
Speaker 1: more of a technology agnostic program than the renewable fuel
Speaker 1: standard that basically mandates certain volumes and picks winners based
Speaker 1: on who lobbies the most their fuel. So I think
Speaker 1: it is good to see more of these policies be
Speaker 1: rewarded based on the carbon intensity. So what I want
Speaker 1: to know is where is the opportunity for the biofuels industry,
Speaker 1: because surely these companies who have been established for several
Speaker 1: decades now are looking for what that next thing could be.
Speaker 1: If maybe it's not going to be road transport growing
Speaker 1: and that brings us to sustainable aviation fuels, I think,
Speaker 1: but maybe there are even more things, So Jade, where
Speaker 1: are we seeing the growth come from in this space?
Speaker 1: That's a really good question. I think what's really exciting
Speaker 1: about what we mentioned earlier renewable diesel is the way
Speaker 1: these refineries are set up. Basically, they operate the same
Speaker 1: way as say a crude oil refiner does. It's almost
Speaker 1: the same exact equipment, same exact process really using what's
Speaker 1: called hydro processing. So they take these fats or oils
Speaker 1: and they hydrotreat it. So they add hydrogen atoms onto
Speaker 1: these long carbon chains to make what's actually a renewable hydrocarbon.
Speaker 1: And so what's really cool about this process is you
Speaker 1: can make renewable diesel, but at the same time it
Speaker 1: actually produces a yield of jet fuel as well. You
Speaker 1: get this mixture typically by default it's around eighty five
Speaker 1: percent diesel and fifteen percent jet fuel. But what these
Speaker 1: producers can do is they can actually optimize their system
Speaker 1: to produce even more jet fuel, so anywhere from like
Speaker 1: fifty percent or even more. We've heard if they set
Speaker 1: their system up properly to kind of refine the distal
Speaker 1: it further to make it into a jet fuel type
Speaker 1: quality fuel. And so what's really cool is these facilities
Speaker 1: that are being built is today they might be making
Speaker 1: renewable diesel in the US, partially because it's a higher
Speaker 1: value in terms of its incentives and the actual commodity.
Speaker 1: But longer term, as Ryan mentioned, as the incentives really
Speaker 1: drop in like the LCFS program, and we start to
Speaker 1: shift our attention from road fuels more to aviation sector.
Speaker 1: It can start to see some of these producers make
Speaker 1: less diesel and more jet fuel, which I think is
Speaker 1: probably where the fuel needs to be utilized more heavily.
Speaker 1: So in the show notes, I acknowledged a few articles
Speaker 1: and research notes that we've written about ev chargers and biofuels.
Speaker 1: So I guess my question is, do you guys see
Speaker 1: yourself collaborating on more research pieces in the future. I mean,
Speaker 1: I'm not going to claim that I created this tool,
Speaker 1: but there's a tool that calculates the deficits and credits
Speaker 1: across these different schemes. So we've got that for California
Speaker 1: at the moment with them popping up out, So we
Speaker 1: just want to do that in every region so you
Speaker 1: can see how many credits, how many deficits, how much
Speaker 1: money can you make on which fuels are really going
Speaker 1: to win those I think that's really noige piece that
Speaker 1: we can keep collaborating. I definitely agree with Ryan despite
Speaker 1: his technology really starting to squash mine. I think there's
Speaker 1: definitely a lot of opportunities for us to collaborate in
Speaker 1: the medium term, particularly like you mentioned with the credits
Speaker 1: balances and trying to understand where those markets are moving.
Speaker 1: I think is really really valuable for our clients as
Speaker 1: I think about making these investments. They want to know
Speaker 1: which technologies are disrupting these markets, and so a lot
Speaker 1: of opportunity for us to work together and see how
Speaker 1: these two technologies are going to help decombonize the transportation sector.
Speaker 1: In the future, we'll see how this evolves. So, Jade Ryan,
Speaker 1: thank you very much for joining us today on Switched On.
Speaker 1: Thanks to Lusha, Thanks Sana. Today's episode of Switched On
Speaker 1: was edited by gray Stoke Media. Bloomberg any F is
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