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Turning Trash to Treasure: The Revolutionary Power of Renewable Diesel

January 11, 2022

In this two-part series, we will explore what renewable diesel is and how it is produced, the raw materials involved and the essentials for successful refineries. We will then look at the potential greenhouse gas savings of renewable diesel versus other fuels, its growth prospects and the current leaders in the market. Finally, we will explain why we believe renewable diesel to be such a compelling story.

This first article looks at how renewable diesel turns common waste into clean fuel, as well as its potential to revolutionize mobility by reducing greenhouse gas emissions by up to approximately 80% over the lifecycle of the fuel compared to fossil diesel.

Introduction to Renewable Diesel

Renewable diesel turns common waste into clean fuel. Put more technically, renewable diesel is a fuel of biological origin that can be made from a wide range of non-food raw materials, such as waste or fat residues. It makes our planet a better place to live, reducing greenhouse gas emissions by up to approximately 80% over the lifecycle of the fuel compared to fossil diesel.

Renewable diesel can deliver matching engine efficiency and performance, and switching requires zero vehicle modifications or additional maintenance. It is no longer restricted just to road transport; it is now helping to reduce emissions in both our airspace and oceans, and it is re-inventing the plastic recycling and chemical industries. And, as a form of energy, it will remain at the center stage of new renewable technologies and will continue to grow for as long as we continue to “throw stuff away” as part of our normal life.

Waste-to-Fuel: What is Renewable Diesel and How is it Produced?

Renewable diesel, or green diesel for the purpose of this paper, refers to Hydrotreated Vegetable Oil (“HVO”). European regulation has maintained this outdated description for more than a decade, since at present most manufacturing processes actually produce HVO predominantly from waste and fatty residues, but also from non-food grade vegetable oils. It is a paraffinic1 biofuel with similar chemical properties to high-quality sulfur-free fossil diesel. But, unlike conventional diesel, it has minimal amounts of impurities like sulfur and nitrogen or aromatics. This allows for cleaner combustion, reduced emissions and better engine performance in modern vehicles. Renewable diesel also allows for better storage and vehicle performance at extremely low temperatures, making it suitable, too, for use in aviation. It is classified as a “drop-in” fuel and not limited by any blending mandates.

Renewable Diesel vs. Petroleum Diesel:

Renewable Diesel vs. Petroleum Diesel

Source: Neste

Renewable diesel refineries use traditional refining processes seen in conventional plants, but they start with a different basket of feedstocks. They purify waste and residues, instead of using conventional hydrocarbons as feedstocks, and produce a colorless and odorless fuel with an identical chemical configuration to fossil fuel-based diesel. This purification process uses temperature and pressure to break molecules apart and, subsequently, a conversion process to put them back together. The transformation of raw materials into the renewable fuel follows three distinct stages:

Renewable Diesel Refining Process: Purification, Conversion & Upgrading

Renewable Diesel Refining Process: Purification, Conversion and Upgrading

Source: VanEck

A refinery’s “diet” consists of a perfectly balanced “cocktail” of raw materials. These feedstocks represent the highest cost in the refiner value chain. Innovation, technology and accessibility are key differentiators to help find the lowest cost materials, while minimizing the impact on the environment.

Raw Materials for Renewable Diesel

Raw Materials for Renewable Diesel

Source: Neste

Innovation—A renewable diesel refiner is centered on a highly-specialized, internal, research and development (R&D) team that constantly works on upgrading the value of the feedstocks used by allowing the purification of the dirtiest and cheapest of raw materials. The goal is to allow the refining plant to process 100% waste or fat residue in order to eliminate completely a dependency on conventional vegetable oils. Governments reward these R&D teams by assigning higher incentives to the lower quality and carbon intensity raw materials to help both offset their costs and support project economics. They are, therefore, continually trying to identify both new and improved processing technologies and the next generation of raw materials—for example, municipal solid waste, waste plastics, microalgae and forest and agricultural residues that can be used as feedstock.

Location, Location, Location!—For renewable diesel refiners, global accessibility to large amounts of the dirtiest feedstock is the second best kept secret in their business model. As a result, developing sophisticated global procurement and trading teams is key, often accompanied by an extensive international presence, with offices in strategic countries. Refiners can often be very imaginative in their sourcing of feedstock. Examples include buying used cooking oil from restaurants in China, or building partnerships with McDonalds or with protein providers in the U.S. and Brazil to buy their animal fats and transporting them to their refineries around the world.

Protecting the Environment—The potential greenhouse gas (“GHG”) savings offered by renewable diesel are highly dependent on the feedstock used, but these savings can range from 30% to approximately 90% for waste cooking oils versus fossil diesel, according to the Joint Research Centre (“JRC”).2 The JRC’s most recent comprehensive analysis combines +250 resource-to-fuel pathways (“Well-to-Tank”) and +60 powertrain combinations (“Tank-to-Wheels”) translated into +1,500 possible Well-to-Wheels (“WTW”) fuel/powertrain combinations relevant to Europe in a 2015-2025+ timeframe.3

This study concluded that from all combinations of fuel/energy carriers and powertrains, renewable diesel fuel (HVO) produced from used cooking oil (“UCO”) for passenger cars (Direct Injection Compression Ignition: DICI) and heavy-duty vehicles (Compression Ignition: CI) offers some of the lowest GHG emissions, comparable only with compressed bio-methane (“CBM”) in a Spark Ignition hybrid (“SI”) cars and Port Injection hybrid (“PI”) heavy duty vehicle. The benefit of HVO seems to be further improved if used in a hybrid engine.

GHG Emissions Example for Heavy Duty Vehicles (Type 5)—2025+ Powertrain Comparison

GHG Emissions Example for Heavy Duty Vehicles (Type 5)-2025+ Powertrain Comparison

HVO (produced from UCO) with the hybrid technology remains one of the more energy efficient (performance) fuel sources, matched only by electrical and hydrogen (combined with natural gas) powered vehicles.

Energy Efficiency Example for Heavy Duty Vehicles (Type 5)—2025+ Powertrain Comparison

Energy Efficiency Example for Heavy Duty Vehicles (Type 5)-2025+ Powertrain Comparison

Source: The Joint Research Centre (European Commission, Refining and Automotive Council) comprehensive evaluation of the Well-To-Wheels energy use and greenhouse gas (GHG) emissions analysis

  • Powertrains – DICI: Direct Injection Compression Ignition; DISI: Direct Injection Spark Ignition; CI: Compression Ignition (Diesel); PI: Port Injection; BEV: Battery Electric Vehicle; FCEV: Fuel Cell Electric Vehicle; CEV: Catenary Electric Vehicle (electric road)
  • Fuel Types – HVO from alternative fuels based on waste cooking oil; ED95 Ethanol based fuel for diesel engines; DME: Di-Methyl-Ether; CBM Compressed Bio-Methane; OME: Oxymethylene dimethyl Ether; CNG Compressed Natural Gas; LBM Liquefied Bio-Methane; LNG Liquefied Natural Gas
  • Heavy Duty vehicle Type 5 – tractor semitrailer combination for long haul

This study also points out some other interesting considerations for the transportation sector that may be relevant for an investor to consider while the world continues to transition towards electrification:

  • Both electrical and hydrogen vehicles remain highly dependent on power taken from the grid. This can lead to either an increase or a reduction in emissions, depending on the electricity source used. If the system reacts to this increased demand by increasing production from fossil sources (e.g. coal), the overall net effect might be an increase in GHG emissions. On the other hand, a substantial uptake of electrical energy for the road sector may act as a driver for increasing the share of renewable energies in the EU mix.
  • These issues are both country specific and time specific (as production is a non-steady process by definition).

In the second article in the series, we will look not only at how renewable diesel stacks up against Ultra Low Sulfur Diesel (“ULSD”), but also at the prospects for future growth. We will also take a quick look at what’s needed for success in the space, some of today’s main players and, finally, why it is such a compelling story.

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Important Disclosure

1 Having the character of paraffin, a colorless or waxy white or solid hydrocarbon mixture. Paraffins, saturated hydrocarbons, are composed by carbon and hydrogen atoms connected and represented by the general chemical formula of CnH2n+2. When the number of carbon atoms (n) is less than five, the paraffins are in gaseous form at normal temperatures and pressures (methane or natural gas, ethane, propane, and butane). Liquid paraffins are formed when n ranges between five and 15, constituting large percentages in liquid fuels (gasoline, diesel and jet fuels, etc.). For values of n above 15, they grade from viscous liquids to solid waxes.

2 Joint Research Centre: JEC Well-To-Wheels report v5, 2020, https://www.concawe.eu/wp-content/uploads/jec_wtw_v5_121213_final.pdf.

3 Ibid.

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The information herein represents the opinion of the author, but not necessarily those of VanEck. It does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed.

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