November 21, 2024 • 18 mins
In this episode of The Energy Forum, we tackle the future of fuel in two essential sectors of the global economy: trucking and air transport. These industries are vital for moving goods and people worldwide but also have high fuel demands and significant emissions. As climate goals and regulatory pressures intensify, how are these sectors evolving to meet the demand for greener, more sustainable energy?
Join host Ed Emmett, fellow in energy and transportation policy at Rice University's Baker Institute, as he dives into this timely discussion with Peter Zonneveld, president of Neste US, a leader in renewable fuels. Tune in to learn how the trucking and air travel industries are preparing to power their engines sustainably and the pivotal role renewable fuels could play in the transition to a lower-carbon world.
This episode was recorded on Nov. 14, 2024.
Discussants
Ed Emmett Fellow in Energy and Transportation Policy, Baker Institute
Peter Zonneveld President, Neste US
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:04):
Welcome to the Energy Forum,
the podcast that explores critical issues shaping
the future of energy.
I'm Ken Medlock,
Senior Director at the Baker Institute's Center for
Energy Studies.
In each episode,
we bring together top experts,
thought leaders,
and decision makers to tackle the major challenges
and opportunities transforming the energy landscape.
Today,
we're focusing on the future of fuels,
(00:24):
specifically for two transportation giants,
the trucking and air transport industries.
Your host,
Ed Emmett,
Fellow in Energy and Transportation Policy,
will be joined by Peter Zonneveld,
President of NesteUS.
Together,
they'll explore the latest advancements in fuels
that keep our goods and people moving around the
globe and how these industries are gearing up to
power their engines sustainably in the years to
(00:46):
come.
With that,
Ed,
I hand it over to you.
Well,
good morning,
Peter.
Let's zoom in on your company a little bit,
NesteUS.
The company's been a leader in renewable fuels for
quite some time,
but I don't think many Americans are familiar with
Neste.
Can you give us a little bit of a lowdown on
what Neste does and how you're helping drive the
(01:08):
shift toward cleaner fuels in both trucking and air
travel?
Good morning,
Ed,
and thanks for having me here at the Baker
Institute.
So,
Neste started as a Finnish oil company in the 40s
to really kind of provide energy security for a
strong neighbor to the east.
And about 15 to 20 years ago,
they started to look for alternatives to carbonizing
fossil fuel.
(01:28):
And today we're the world's largest producer of
renewable diesel and sustainable aviation fuel.
Our purpose is to create a healthier planet for
our children.
It might sound a little bit corny,
but it really is something that drives everything
that we do within NesteUS.
We still have a little bit of fossil production,
a little bit of oil in Finland,
(01:49):
which we're going to phase out over the next 10
to 15 years.
But really the main focus,
the strategic focus is really on renewable road
transport,
renewable aviation,
and renewable polymers and chemicals.
Well,
we've heard about renewable diesel and sustainable
aviation fuel a fair amount recently.
What are those?
What exactly are those fuels and how are they
(02:11):
produced?
It's a good question.
It creates a lot of confusion.
So renewable diesel and sustainable aviation fuel
are basically so-called drop-in fuels.
So they can be used in any diesel or any jet
engine without any modification.
They can also be used in the infrastructure,
tanks,
pipelines,
pumps,
and all that kind of stuff that are basically the
(02:33):
same for fossil fuel.
Actually,
in a way,
they're even better than regular diesel,
for example.
They don't have any aromatics.
So aromatics are the bit that actually potentially
creates cancer,
creates the smoke when it burns,
doesn't have any aromatics,
it doesn't attract water,
and actually it has a higher cetane than diesel,
(02:55):
so more power.
So it's a better product than diesel or jet even,
but it's made fully of renewable raw materials,
feedstock,
like used cooking oil or animal fat.
So basically creates up to 80% greenhouse gas
reduction versus their fossil counterparts.
So sustainable aviation fuel and renewable diesel,
(03:18):
they come from the same feedstock,
as you said,
used cooking oils,
things like that.
How much of that feedstock is realistically
available?
So there's been some studies done externally.
The McKinsey World Economic Forum have established
that there will be about 40 million tons of waste
(03:39):
and residue feedstock available by 2030.
Today,
there's about 15 million tons of production of
renewable diesel and SAF.
It's mainly renewable diesel.
And we believe that this is going to grow
significantly.
So we believe that by 2030,
there's going to be about 40 to 50 million tons
of waste and residue feedstock available by 2030.
So we believe that by 2030,
there's going to be about 40 to 50 million tons
of demand,
as well as production of renewable diesel and SAF.
(04:01):
SAF,
sustainable aviation fuel,
being about 10 to 15 million tons,
the rest renewable diesel.
So we think there's plenty at the moment.
And really,
we don't think that it's going to compete with
each other.
We think there's going to be enough.
There's actually a lot of potential upside in
feedstock,
but we're also looking for new feedstocks,
like algae,
(04:22):
lignocellulosic,
novel vegetable oils,
and all sorts of new technologies,
like power-to-X or e-fuels.
So we believe that for the short to midterm,
there's plenty,
and we'll be looking for new technologies in the
future.
And do those two products,
renewable diesel and SAF,
do they come out of the same refinery,
(04:42):
or do you just sort of flip a switch to make one
or the other?
So typically,
it's the same refinery.
You can also have it processed further.
You need basically renewable diesel to start with,
and then you further process product,
distill it to create sustainable aviation fuel.
You can do that at the same refinery,
or you can do it elsewhere.
We typically do it at our own refineries,
(05:04):
because that creates economies of scale.
So how much of an impact are these renewable fuels
having right now in aviation and trucking?
I've read,
I think the UK has put out a mandate that by a
certain year,
so much of the aviation fuel has to be SAF.
But what are you seeing around the globe already?
(05:24):
We're seeing,
actually,
a lot of the same things.
We're seeing,
actually,
that the momentum is building.
For example,
just to give an example,
in California today,
more than 70% of the diesel is already renewable.
That's exceptional.
In a lot of the other states in the US,
that's certainly not the case.
But we're seeing that in certain areas,
also in Europe,
typically between 10% and 20% of the diesel fuel
(05:44):
is already renewable.
Aviation is a little bit more difficult to
decarbonize,
so sustainable aviation fuel is a really good
solution.
And we actually have low-carbon fuel,
which is a really good solution.
And we actually have low-carbon fuel,
which is a really good solution.
And we actually have low-carbon fuel,
which is a customers already in that area.
We sell to 25 different airports worldwide.
In the US,
we've got San Francisco,
LAX,
and O'Hare,
and Chicago as a few examples,
(06:05):
United Airlines,
Delta,
Signature,
private jets.
So we've got already quite a few customers in this
area,
but the SAF still gets blended away into the
bigger jet pool.
And on the whole,
globally,
I'd say that there's about 1% only of the fossil
jet,
which today is renewable.
I don't think anybody would argue with the premise
(06:27):
that lower emissions,
greener product,
those are good.
But we have to think about cost.
Again,
realistically,
how are our expectations to move away from fossil
fuels into these other sources?
When it comes to trucks and airplanes,
what's the cost factor?
Cost is important,
indeed.
So if you want the cheapest solution,
the fossil fuel is probably the best.
(06:49):
But if you want to decarbonize,
renewable diesel and SAF are by far the cheapest
solution.
And I think that's a really good question.
For example,
if you buy an electric bus,
it costs you $500,
000.
Diesel bus is $250,
000.
From a total cost of ownership perspective,
and from a cost of displacement of CO2,
we've done a lot of calculations looking at
maintenance,
(07:09):
the cost of not having to actually invest in new
infrastructure,
et cetera,
et cetera.
It's actually the cheapest solution at this point.
And of course,
for SAF,
it's two to two and a half times as expensive as
jet,
but it's still a lot cheaper than buying an
electric plane,
which is only a little bit more expensive.
So I think that's a good question.
It's almost impossible.
So it's the cheapest solution,
but also actually,
so for example,
(07:29):
in California,
there's a lot of; we'll maybe talk about regulation
a little bit further on,
but with the right incentives,
the price can actually brought down to a level
that it's much more acceptable to the end customer
to buy that fuel.
And maybe finally,
I'd say also that if you look at the fossil fuel,
of course,
we haven't included the price of pollution,
if you will,
(07:50):
and the impact of those greenhouse gas emissions in
that fuel.
If you would include that in that price,
it would be a lot cheaper.
So I think that's a good question.
It probably would look quite a bit higher.
Since you opened that door to the regulatory
regime,
what are the incentives that are needed to make
renewables work?
Yeah.
And looking at Europe and the US,
they're slightly different.
Europe is a little bit more the stick.
In the US,
it's more the carrot.
We think that the carrot actually is pretty good.
(08:11):
So Europe is more focused on mandates,
the US more on incentives.
In the US,
there are three different types of incentives
available.
The first one is federal,
where there's the renewable fuel standard,
which sets renewable volume obligations.
That creates tickets,
and those tickets are traded in the market.
Those create a value,
which actually brings down the price of selling
(08:33):
your diesel ultimately to the customer.
The second one is a blend tax credit,
which is also federal,
which again,
if you blend a little bit of fossil into your
renewable diesel,
you get a credit,
which again brings down the end price to the
customer.
And then finally,
there's different clean fuel standards across the
different states.
For example,
the Low Carbon Fuel Standard (LCFS) in California.
Again,
(08:53):
there are certain carbon intensity levels that need
to be achieved in the industry as a whole.
Yeah,
LCSF being low carbon fuel standard,
right?
Exactly,
low carbon fuel standard.
Sorry about the acronym.
And basically,
they set certain standards or objectives around
carbon intensity that go down over time.
People that are below that level,
they can generate tickets in the bank.
(09:14):
People that are over that level need to buy those
tickets.
And those tickets also create a value,
commercial value,
which again,
brings down the ultimate price to the customer.
We're seeing a lot of things going on in the
market at this point,
right?
So for example,
the blend tax credit might be replaced by a
different system.
It's not really clear what that would look like,
(09:35):
and the value would be quite a bit less.
So we're kind of concerned about that.
And as Nesta,
and I think there's a lot of other players in the
market that think the same,
would like to see that credit extended for a year
or two,
so that at least we can understand what the next
credit would look like.
Also,
the other credits,
the renewable volume obligations,
the LCFSs,
(09:55):
it's really important that those remain ambitious,
so that we can keep the momentum going that we're
looking at today.
Well,
of course,
we're going to have a change in administration.
So we may have to have you back for a later
conversation as to what happens.
But in the world we live in,
decarbonization is a goal that I think the vast
majority are in favor of.
(10:17):
But there are other technologies.
And to be blunt,
there seems to be a bit of a food fight going on
between,
you know,
do we do it?
Do we go renewable?
Do we go electric?
What about some of the other technologies?
Electric trucks,
hydrogen power,
other types of fuels?
Do you think these are the future?
Or why is renewable fuel still going to be the
(10:37):
main alternative to traditional fossil fuels?
We as Nesta believe that the challenge to
decarbonize transportation is huge.
And actually,
we don't think it's an either-or thing.
It's an and-and thing.
So for example,
if you look at electric,
indeed,
it's a great solution,
in particular,
of course,
if the electricity is renewable.
But if you bring 800 million electric vehicles
(10:58):
online by 2040,
which is very ambitious,
800 million vehicles,
you will only have decarbonized transport by 20%,
by 2040,
which cannot be the solution.
If you look at renewable fuels,
we believe we can displace a billion tons of the
2.
7 billion total transport of fossil fuel,
(11:19):
which is about 40%.
So together with EV,
that's still only 60%.
Again,
that's not enough,
right?
So we need hydrogen,
e-fuels,
and so on.
So we believe we need all those solutions.
They need to be treated on a level playing field.
Let the customer decide.
Ultimately,
the right technologies will shake out.
(11:41):
Well,
here at the Baker Institute Center for Energy
Studies,
we're engaged in a long-term research project about
fuels of the future.
And it's interesting.
We won't get into it today,
but the general public-for example,
if you say biodiesel and renewable diesel,
they think those are the same.
They're really quite different.
(12:02):
Biodiesel is not a drop-in fuel.
Renewable diesel is.
And so sorting all that out is going to be
fascinating.
But as you said,
it's an and-and.
All of these are needed.
So how do you scale up the production of renewable
fuels to meet these massive needs that are going
to be out there?
So I think,
first of all,
the good thing here about renewable fuels is that
(12:24):
you don't have to buy a lot of fuel.
You don't have to buy a lot of fuel.
You don't really need to change the entire fuel
infrastructure.
So everything that works for fossil works for
renewable fuels.
But then to invest,
of course,
in those renewable fuels takes quite a lot of
funds.
What is important for people that invest in
production capacity is that they really have line
of sight of what regulation there's going to be in
the future,
what kind of incentives will exist in the future,
(12:46):
and not just over two years,
but ideally over the next 10 years,
15 years,
and so on.
So this will be very important.
We spoke a little bit about incentives that exist
at federal level at the moment.
So having ambitious targets there is going to be
very important.
What we're also seeing is that a lot of companies
and brand owners are really starting to set their
own targets around decarbonization for ESG purposes,
(13:11):
scope three,
and so on and so on.
So this will also create demand.
Both of these factors,
we believe,
will give an indication of what that demand will
look like in the future.
And if there's a demand at a reasonable price,
people will produce and they'll invest in
production.
Production capacity,
and there will be supply.
You mentioned several of the airports and airlines
(13:31):
that are using sustainable aviation fuel.
Let's dive into the trucking side a little bit
more because so many of the truckers are
independent owner operators where their whole life
savings is tied up in that rig.
They're not going to want to switch to electric or
any other hydrogen fuel cell or any of that until
(13:51):
those trucks wear out.
And those are refueled across the nation at truck
stops.
Has Nesta created relationships with the trucking
industry through those truck stops at all?
Absolutely.
And I think you hit the nail on the head.
First of all,
there's a great opportunity to decarbonize the
transport through renewable fuels.
They don't need to buy expensive electric trucks.
(14:12):
And actually at the moment,
and so we're not the only one in the market,
right?
So there's a lot of other renewable diesel
producers as well.
We're the first.
We're the largest.
But a lot of people are starting to follow us
because they're seeing that it's a good solution.
In particular,
around the world,
we see a lot of people who are starting to follow
us.
And I think that's a good thing.
And I think that's a good thing.
And I think that's a good thing.
That blend tax credit that I just mentioned,
truck stops of Americas is rallying around
introducing a number of bills in Congress to try
(14:34):
to extend that blend tax credit.
Because at the moment for truckers,
actually the cost of buying renewable diesel is
pretty close to just buying fossil diesel.
If that blend tax credit goes away or if something
else comes into its place,
which is lower in value,
it's going to be more expensive for them.
So they're going to have to make a decision.
(14:55):
Do we stick to renewable diesel or do we go back
to fossil fuels?
So yes,
we are selling to truck stop companies.
This is one of our major outlets,
if you will.
But yeah,
we're also working to make sure that the incentives
for them remain instead of coming down.
(15:15):
This could be a long conversation and we could
talk about it,
I think,
the rest of the day.
But wrapping up,
what's your outlook?
How soon do you,
I think,
we'll start seeing,
and I keep going back to truck stops because I'm
one of those people that stops at truck stops.
I love the whole industry.
When are we going to see renewable diesel have an
even bigger impact in the trucking industry?
(15:37):
I think we're seeing it in aviation.
At least I'm reading more about that.
But what about the grand scheme?
What do you see in the future?
I think the first step,
so it depends on the one hand on what are the
incentives out there?
And on the second,
what are people's,
needs and wants?
So the first thing is if you have any kind of
(15:58):
diesel engine,
heavy duty,
it's kind of hard to decarbonize.
So how important is it for certain people to
decarbonize?
So you have some,
quite a few parties,
for example,
people that have big data centers,
backup generators,
runs on diesel.
They want to decarbonize,
really important.
And they're actually often willing to pay the extra
(16:18):
price.
Diesel trains,
ferries,
harbor craft,
cranes in the harbor,
and so on and so on.
So they're willing to pay the extra price.
And they're willing to pay the extra price.
So anything basically that mines,
anything that runs on a diesel engine,
and in particular heavy duty,
we can also do passenger cars,
but it's really the heavy duty applications that we
believe are really relevant here.
So we're seeing a lot of these people also convert
(16:39):
already to renewable diesel.
Now,
of course,
the big one is heavy duty transport on the roads.
And as you mentioned,
these folk are very,
very price sensitive.
Now there,
it really depends on what are the incentives that
exist for them?
So if we have the right stacking of credits,
if you will,
federal,
blend tax credit,
(17:00):
and state credits,
it actually can be made almost available at diesel
parity,
so that for them there's almost no difference in
cost to switch to renewable diesel.
If that is the case,
we can see a very,
very quick acceleration of renewable diesel.
But if it remains still for them pretty costly,
it's going to be harder for them indeed to switch.
(17:22):
Well,
Peter,
this has been a fascinating conversation.
You know,
having you here today,
Peter Zonnefeld,
President of Nesta U.
S.,
those of us who grew up in the fossil fuel
petroleum realm are going to have to get used to
all new language and renewable diesel,
sustainable aviation fuel,
getting to know companies like Nesta.
That's our future,
(17:43):
and we appreciate your taking the time to be with
us today.
Thank you very much.
It was really great to be here and looking forward
to continuing the conversation.
The Energy Forum is brought to you by the Center
for Energy Studies at the Baker Institute for
Public Policy,
Oregon.
This episode was produced by Maram Hajazi.
AV production was led by Kevin Young.
Be sure to visit us at bakerinstitute.
org/ backslash center-energy-studies to learn more.
(18:06):
Thanks for listening.
Welcome to the Energy Forum,
the podcast that explores critical issues shaping
the future of energy.
I'm Ken Medlock,
Senior Director at the Baker Institute's Center for
Energy Studies.
In each episode,
we bring together top experts,
thought leaders,
and decision makers to tackle the major challenges
and opportunities transforming the energy landscape.
Today,
we're focusing on the future of fuels,
(00:24):
specifically for two transportation giants,
the trucking and air transport industries.
Your host,
Ed Emmett,
Fellow in Energy and Transportation Policy,
will be joined by Peter Zonneveld,
President of NesteUS.
Together,
they'll explore the latest advancements in fuels
that keep our goods and people moving around the
globe and how these industries are gearing up to
power their engines sustainably in the years to
(00:46):
come.
With that,
Ed,
I hand it over to you.
Well,
good morning,
Peter.
Let's zoom in on your company a little bit,
NesteUS.
The company's been a leader in renewable fuels for
quite some time,
but I don't think many Americans are familiar with
Neste.
Can you give us a little bit of a lowdown on
what Neste does and how you're helping drive the
(01:08):
shift toward cleaner fuels in both trucking and air
travel?
Good morning,
Ed,
and thanks for having me here at the Baker
Institute.
So,
Neste started as a Finnish oil company in the 40s
to really kind of provide energy security for a
strong neighbor to the east.
And about 15 to 20 years ago,
they started to look for alternatives to carbonizing
fossil fuel.
(01:28):
And today we're the world's largest producer of
renewable diesel and sustainable aviation fuel.
Our purpose is to create a healthier planet for
our children.
It might sound a little bit corny,
but it really is something that drives everything
that we do within NesteUS.
We still have a little bit of fossil production,
a little bit of oil in Finland,
(01:49):
which we're going to phase out over the next 10
to 15 years.
But really the main focus,
the strategic focus is really on renewable road
transport,
renewable aviation,
and renewable polymers and chemicals.
Well,
we've heard about renewable diesel and sustainable
aviation fuel a fair amount recently.
What are those?
What exactly are those fuels and how are they
(02:11):
produced?
It's a good question.
It creates a lot of confusion.
So renewable diesel and sustainable aviation fuel
are basically so-called drop-in fuels.
So they can be used in any diesel or any jet
engine without any modification.
They can also be used in the infrastructure,
tanks,
pipelines,
pumps,
and all that kind of stuff that are basically the
(02:33):
same for fossil fuel.
Actually,
in a way,
they're even better than regular diesel,
for example.
They don't have any aromatics.
So aromatics are the bit that actually potentially
creates cancer,
creates the smoke when it burns,
doesn't have any aromatics,
it doesn't attract water,
and actually it has a higher cetane than diesel,
(02:55):
so more power.
So it's a better product than diesel or jet even,
but it's made fully of renewable raw materials,
feedstock,
like used cooking oil or animal fat.
So basically creates up to 80% greenhouse gas
reduction versus their fossil counterparts.
So sustainable aviation fuel and renewable diesel,
(03:18):
they come from the same feedstock,
as you said,
used cooking oils,
things like that.
How much of that feedstock is realistically
available?
So there's been some studies done externally.
The McKinsey World Economic Forum have established
that there will be about 40 million tons of waste
(03:39):
and residue feedstock available by 2030.
Today,
there's about 15 million tons of production of
renewable diesel and SAF.
It's mainly renewable diesel.
And we believe that this is going to grow
significantly.
So we believe that by 2030,
there's going to be about 40 to 50 million tons
of waste and residue feedstock available by 2030.
So we believe that by 2030,
there's going to be about 40 to 50 million tons
of demand,
as well as production of renewable diesel and SAF.
(04:01):
SAF,
sustainable aviation fuel,
being about 10 to 15 million tons,
the rest renewable diesel.
So we think there's plenty at the moment.
And really,
we don't think that it's going to compete with
each other.
We think there's going to be enough.
There's actually a lot of potential upside in
feedstock,
but we're also looking for new feedstocks,
like algae,
(04:22):
lignocellulosic,
novel vegetable oils,
and all sorts of new technologies,
like power-to-X or e-fuels.
So we believe that for the short to midterm,
there's plenty,
and we'll be looking for new technologies in the
future.
And do those two products,
renewable diesel and SAF,
do they come out of the same refinery,
(04:42):
or do you just sort of flip a switch to make one
or the other?
So typically,
it's the same refinery.
You can also have it processed further.
You need basically renewable diesel to start with,
and then you further process product,
distill it to create sustainable aviation fuel.
You can do that at the same refinery,
or you can do it elsewhere.
We typically do it at our own refineries,
(05:04):
because that creates economies of scale.
So how much of an impact are these renewable fuels
having right now in aviation and trucking?
I've read,
I think the UK has put out a mandate that by a
certain year,
so much of the aviation fuel has to be SAF.
But what are you seeing around the globe already?
(05:24):
We're seeing,
actually,
a lot of the same things.
We're seeing,
actually,
that the momentum is building.
For example,
just to give an example,
in California today,
more than 70% of the diesel is already renewable.
That's exceptional.
In a lot of the other states in the US,
that's certainly not the case.
But we're seeing that in certain areas,
also in Europe,
typically between 10% and 20% of the diesel fuel
(05:44):
is already renewable.
Aviation is a little bit more difficult to
decarbonize,
so sustainable aviation fuel is a really good
solution.
And we actually have low-carbon fuel,
which is a really good solution.
And we actually have low-carbon fuel,
which is a really good solution.
And we actually have low-carbon fuel,
which is a customers already in that area.
We sell to 25 different airports worldwide.
In the US,
we've got San Francisco,
LAX,
and O'Hare,
and Chicago as a few examples,
(06:05):
United Airlines,
Delta,
Signature,
private jets.
So we've got already quite a few customers in this
area,
but the SAF still gets blended away into the
bigger jet pool.
And on the whole,
globally,
I'd say that there's about 1% only of the fossil
jet,
which today is renewable.
I don't think anybody would argue with the premise
(06:27):
that lower emissions,
greener product,
those are good.
But we have to think about cost.
Again,
realistically,
how are our expectations to move away from fossil
fuels into these other sources?
When it comes to trucks and airplanes,
what's the cost factor?
Cost is important,
indeed.
So if you want the cheapest solution,
the fossil fuel is probably the best.
(06:49):
But if you want to decarbonize,
renewable diesel and SAF are by far the cheapest
solution.
And I think that's a really good question.
For example,
if you buy an electric bus,
it costs you $500,
000.
Diesel bus is $250,
000.
From a total cost of ownership perspective,
and from a cost of displacement of CO2,
we've done a lot of calculations looking at
maintenance,
(07:09):
the cost of not having to actually invest in new
infrastructure,
et cetera,
et cetera.
It's actually the cheapest solution at this point.
And of course,
for SAF,
it's two to two and a half times as expensive as
jet,
but it's still a lot cheaper than buying an
electric plane,
which is only a little bit more expensive.
So I think that's a good question.
It's almost impossible.
So it's the cheapest solution,
but also actually,
so for example,
(07:29):
in California,
there's a lot of; we'll maybe talk about regulation
a little bit further on,
but with the right incentives,
the price can actually brought down to a level
that it's much more acceptable to the end customer
to buy that fuel.
And maybe finally,
I'd say also that if you look at the fossil fuel,
of course,
we haven't included the price of pollution,
if you will,
(07:50):
and the impact of those greenhouse gas emissions in
that fuel.
If you would include that in that price,
it would be a lot cheaper.
So I think that's a good question.
It probably would look quite a bit higher.
Since you opened that door to the regulatory
regime,
what are the incentives that are needed to make
renewables work?
Yeah.
And looking at Europe and the US,
they're slightly different.
Europe is a little bit more the stick.
In the US,
it's more the carrot.
We think that the carrot actually is pretty good.
(08:11):
So Europe is more focused on mandates,
the US more on incentives.
In the US,
there are three different types of incentives
available.
The first one is federal,
where there's the renewable fuel standard,
which sets renewable volume obligations.
That creates tickets,
and those tickets are traded in the market.
Those create a value,
which actually brings down the price of selling
(08:33):
your diesel ultimately to the customer.
The second one is a blend tax credit,
which is also federal,
which again,
if you blend a little bit of fossil into your
renewable diesel,
you get a credit,
which again brings down the end price to the
customer.
And then finally,
there's different clean fuel standards across the
different states.
For example,
the Low Carbon Fuel Standard (LCFS) in California.
Again,
(08:53):
there are certain carbon intensity levels that need
to be achieved in the industry as a whole.
Yeah,
LCSF being low carbon fuel standard,
right?
Exactly,
low carbon fuel standard.
Sorry about the acronym.
And basically,
they set certain standards or objectives around
carbon intensity that go down over time.
People that are below that level,
they can generate tickets in the bank.
(09:14):
People that are over that level need to buy those
tickets.
And those tickets also create a value,
commercial value,
which again,
brings down the ultimate price to the customer.
We're seeing a lot of things going on in the
market at this point,
right?
So for example,
the blend tax credit might be replaced by a
different system.
It's not really clear what that would look like,
(09:35):
and the value would be quite a bit less.
So we're kind of concerned about that.
And as Nesta,
and I think there's a lot of other players in the
market that think the same,
would like to see that credit extended for a year
or two,
so that at least we can understand what the next
credit would look like.
Also,
the other credits,
the renewable volume obligations,
the LCFSs,
(09:55):
it's really important that those remain ambitious,
so that we can keep the momentum going that we're
looking at today.
Well,
of course,
we're going to have a change in administration.
So we may have to have you back for a later
conversation as to what happens.
But in the world we live in,
decarbonization is a goal that I think the vast
majority are in favor of.
(10:17):
But there are other technologies.
And to be blunt,
there seems to be a bit of a food fight going on
between,
you know,
do we do it?
Do we go renewable?
Do we go electric?
What about some of the other technologies?
Electric trucks,
hydrogen power,
other types of fuels?
Do you think these are the future?
Or why is renewable fuel still going to be the
(10:37):
main alternative to traditional fossil fuels?
We as Nesta believe that the challenge to
decarbonize transportation is huge.
And actually,
we don't think it's an either-or thing.
It's an and-and thing.
So for example,
if you look at electric,
indeed,
it's a great solution,
in particular,
of course,
if the electricity is renewable.
But if you bring 800 million electric vehicles
(10:58):
online by 2040,
which is very ambitious,
800 million vehicles,
you will only have decarbonized transport by 20%,
by 2040,
which cannot be the solution.
If you look at renewable fuels,
we believe we can displace a billion tons of the
2.
7 billion total transport of fossil fuel,
(11:19):
which is about 40%.
So together with EV,
that's still only 60%.
Again,
that's not enough,
right?
So we need hydrogen,
e-fuels,
and so on.
So we believe we need all those solutions.
They need to be treated on a level playing field.
Let the customer decide.
Ultimately,
the right technologies will shake out.
(11:41):
Well,
here at the Baker Institute Center for Energy
Studies,
we're engaged in a long-term research project about
fuels of the future.
And it's interesting.
We won't get into it today,
but the general public-for example,
if you say biodiesel and renewable diesel,
they think those are the same.
They're really quite different.
(12:02):
Biodiesel is not a drop-in fuel.
Renewable diesel is.
And so sorting all that out is going to be
fascinating.
But as you said,
it's an and-and.
All of these are needed.
So how do you scale up the production of renewable
fuels to meet these massive needs that are going
to be out there?
So I think,
first of all,
the good thing here about renewable fuels is that
(12:24):
you don't have to buy a lot of fuel.
You don't have to buy a lot of fuel.
You don't really need to change the entire fuel
infrastructure.
So everything that works for fossil works for
renewable fuels.
But then to invest,
of course,
in those renewable fuels takes quite a lot of
funds.
What is important for people that invest in
production capacity is that they really have line
of sight of what regulation there's going to be in
the future,
what kind of incentives will exist in the future,
(12:46):
and not just over two years,
but ideally over the next 10 years,
15 years,
and so on.
So this will be very important.
We spoke a little bit about incentives that exist
at federal level at the moment.
So having ambitious targets there is going to be
very important.
What we're also seeing is that a lot of companies
and brand owners are really starting to set their
own targets around decarbonization for ESG purposes,
(13:11):
scope three,
and so on and so on.
So this will also create demand.
Both of these factors,
we believe,
will give an indication of what that demand will
look like in the future.
And if there's a demand at a reasonable price,
people will produce and they'll invest in
production.
Production capacity,
and there will be supply.
You mentioned several of the airports and airlines
(13:31):
that are using sustainable aviation fuel.
Let's dive into the trucking side a little bit
more because so many of the truckers are
independent owner operators where their whole life
savings is tied up in that rig.
They're not going to want to switch to electric or
any other hydrogen fuel cell or any of that until
(13:51):
those trucks wear out.
And those are refueled across the nation at truck
stops.
Has Nesta created relationships with the trucking
industry through those truck stops at all?
Absolutely.
And I think you hit the nail on the head.
First of all,
there's a great opportunity to decarbonize the
transport through renewable fuels.
They don't need to buy expensive electric trucks.
(14:12):
And actually at the moment,
and so we're not the only one in the market,
right?
So there's a lot of other renewable diesel
producers as well.
We're the first.
We're the largest.
But a lot of people are starting to follow us
because they're seeing that it's a good solution.
In particular,
around the world,
we see a lot of people who are starting to follow
us.
And I think that's a good thing.
And I think that's a good thing.
And I think that's a good thing.
That blend tax credit that I just mentioned,
truck stops of Americas is rallying around
introducing a number of bills in Congress to try
(14:34):
to extend that blend tax credit.
Because at the moment for truckers,
actually the cost of buying renewable diesel is
pretty close to just buying fossil diesel.
If that blend tax credit goes away or if something
else comes into its place,
which is lower in value,
it's going to be more expensive for them.
So they're going to have to make a decision.
(14:55):
Do we stick to renewable diesel or do we go back
to fossil fuels?
So yes,
we are selling to truck stop companies.
This is one of our major outlets,
if you will.
But yeah,
we're also working to make sure that the incentives
for them remain instead of coming down.
(15:15):
This could be a long conversation and we could
talk about it,
I think,
the rest of the day.
But wrapping up,
what's your outlook?
How soon do you,
I think,
we'll start seeing,
and I keep going back to truck stops because I'm
one of those people that stops at truck stops.
I love the whole industry.
When are we going to see renewable diesel have an
even bigger impact in the trucking industry?
(15:37):
I think we're seeing it in aviation.
At least I'm reading more about that.
But what about the grand scheme?
What do you see in the future?
I think the first step,
so it depends on the one hand on what are the
incentives out there?
And on the second,
what are people's,
needs and wants?
So the first thing is if you have any kind of
(15:58):
diesel engine,
heavy duty,
it's kind of hard to decarbonize.
So how important is it for certain people to
decarbonize?
So you have some,
quite a few parties,
for example,
people that have big data centers,
backup generators,
runs on diesel.
They want to decarbonize,
really important.
And they're actually often willing to pay the extra
(16:18):
price.
Diesel trains,
ferries,
harbor craft,
cranes in the harbor,
and so on and so on.
So they're willing to pay the extra price.
And they're willing to pay the extra price.
So anything basically that mines,
anything that runs on a diesel engine,
and in particular heavy duty,
we can also do passenger cars,
but it's really the heavy duty applications that we
believe are really relevant here.
So we're seeing a lot of these people also convert
(16:39):
already to renewable diesel.
Now,
of course,
the big one is heavy duty transport on the roads.
And as you mentioned,
these folk are very,
very price sensitive.
Now there,
it really depends on what are the incentives that
exist for them?
So if we have the right stacking of credits,
if you will,
federal,
blend tax credit,
(17:00):
and state credits,
it actually can be made almost available at diesel
parity,
so that for them there's almost no difference in
cost to switch to renewable diesel.
If that is the case,
we can see a very,
very quick acceleration of renewable diesel.
But if it remains still for them pretty costly,
it's going to be harder for them indeed to switch.
(17:22):
Well,
Peter,
this has been a fascinating conversation.
You know,
having you here today,
Peter Zonnefeld,
President of Nesta U.
S.,
those of us who grew up in the fossil fuel
petroleum realm are going to have to get used to
all new language and renewable diesel,
sustainable aviation fuel,
getting to know companies like Nesta.
That's our future,
(17:43):
and we appreciate your taking the time to be with
us today.
Thank you very much.
It was really great to be here and looking forward
to continuing the conversation.
The Energy Forum is brought to you by the Center
for Energy Studies at the Baker Institute for
Public Policy,
Oregon.
This episode was produced by Maram Hajazi.
AV production was led by Kevin Young.
Be sure to visit us at bakerinstitute.
org/ backslash center-energy-studies to learn more.
(18:06):
Thanks for listening.
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