New Zealand forestry waste is the bright hope of biofuels, as the heat goes on overseas use of corn and palm oil crops
Sami Jauhiainen flew 9,270km from Helsinki to Singapore this weekend. The renewable aviation vice president for Neste, the world’s biggest renewable fuels company, is relocating to the tropics next month to expand the company’s plant there to meet surging global demand for sustainable aviation fuel.
He’s also responsible for growing the company’s market in countries including New Zealand, which will this week announce a requirement that a growing proportion of biofuel be blended into the country’s road fuels, but not its jet fuel. Neste is one of Finland’s biggest businesses but, ironically, its home country is lagging in setting in place a biofuel mandate for planes fuelling up at its airports. Jauhiainen says it was probably 100 percent traditional jet fuel in the tanks of the Finnair jet that carried him to Singapore.
So Neste has begun providing hundreds of tonnes of its sustainable aviation fuel (SAF) to big airlines, to cover the emissions from its employees’ business travel. “Because it is very important to do as you preach,” he says, “we are calculating our carbon footprint and then every year, we are making deliveries to certain airlines.”
But for all the climate problems addressed by biofuels, they also create many new sustainability and emissions problems. Last year Neste shipped 3.7 million tonnes of used cooking oil and animal tallow and other raw materials from all over the world (83 percent of all the wastes and residues used worldwide in biofuel production) into its refineries in Porvoo, Rotterdam and Singapore, then shipped it out again as SAF or renewable diesel. That is carbon intensive.
And that renewable diesel for land transport also contains palm oil from Indonesia and Malaysia, an industry that is implicated in widespread destruction of critical rainforest habitat, expropriating land from indigenous peoples, and human rights abuses. It also uses residues from the corn crops that are causing erosion across the US, and heightening pesticide and nutrient use.
Neste vows to stop using palm oil by 2023, and is trying to reduce its reliance on all purpose-planted crops – and that is why the race is on to find new waste products technologies to sate the world’s growing appetite for biofuels. The sawdust from New Zealand’s pine plantations could be part of the answer.
The Finnish company has been in talks to supply Air New Zealand, Z Energy and Wellington Council. In a submission to the Productivity Commission, it said it was formally talking with Air New Zealand about the use of its renewable jet fuel at key hub airports in New Zealand and other International airport locations. It made a submission to Greater Wellington Regional Council this year proposing to supply 320 buses with the diesel.
And two months ago, Neste and Z Energy partnered up to bring a supply of renewable diesel to the New Zealand market over the next six months to seek a supplier
Furthermore, Air New Zealand has signed a memorandum of understanding with the Ministry of Business and Innovation to seek an operator for a New Zealand biofuels plant; already, Z Energy has said it will be putting up its hand. Refining NZ, too, has said it would like to produce biofuels at its repurposed refinery at Marsden Point, near Whangārei, though it needs government support.
What they all have in common is an expectation that, eventually, New Zealand will produce its own biofuels from forestry waste – but that’s not a position the Government has yet reached.
Biofuels mandate to be announced on Wednesday
It was back in January that the Prime Minister announced the Government would consult on a biofuels mandate for transport. Slightly ironically, she made the announcement at Z Energy’s biodiesel plant in Wiri, south Auckland – a plant that has been mothballed because the company couldn’t make their product cost-effective, to compete against cheaper fuels.
The big players all hope the Government will subsidise biofuels production – but there’s been little from ministers to encourage optimism. Rather, the consultation document signals the Government would pull the market lever a different way, by imposing a Sustainable Biofuels Mandate requiring fuel suppliers to reduce the emissions of the fuels they sell by 1.2 percent in 2023, 2.3 percent in 2024 and 3.5 percent in 2025.
That’s a mandate on the actual carbon emissions (similar to the mechanism used by California, Sweden and the European Union in their mandates) rather than a mandate on the blend of biofuel to fossil fuel (as in Denmark and elsewhere).
And that would be a good start, said Z Energy transition general manager Julian Hughes. “That would be plenty to get us going. I think what we’d like to see is the aspiration.”
Certainly, it is about time New Zealand did make a start. The Ministry of Transport says there are biofuel mandates in 60-plus countries, including most of the rest of the OECD. Hughes said it was time for New Zealanders, too, to make a start. He himself still drives a diesel Hyundai van and a Holden Commodore V6. "I've given up on the V8s," he laughed. "And my next car will be an EV!"
Does he have diesel guilt? "Not yet," Hughes replied. "It still plays a role in the economy. It'll change. It'll change and macro economics will make that happen, and government regulation."
That regulation starts imminently. Energy Minister Megan Woods is to announce details of a biofuels mandate on Wednesday this week, for land transport. It's expected she'll hold off on any mandate for aviation fuels, which are a more complex challenge, both technically and around imposing them on international airlines.
"Our Government is well down the track of thinking about the future of biofuels in New Zealand," she said. "In regards to any role the Marsden Point refinery could play in the development of future fuels, a case has yet to be made for retaining infrastructure at the refinery for this, as it’s unclear whether or how existing refinery assets could be used or repurposed for sustainable fuels production, at what cost, and in what timeframe.
"As part of the MBIE and Air New Zealand collaboration, a feasibility study on SAF production in New Zealand will find out whether it is possible to produce sustainable aviation fuels at scale. It’s likely the potential of the Marsden Point refinery will be considered as part of this. It is possible that the technical experts appointed to undertake the study may find other sites in New Zealand have more potential."
"Domestic production ... is completely something that New Zealand and the aviation industry in New Zealand have to make choices on. I would suggest that imports definitely can have an important role, to enable New Zealand to get started fast on its decarbonisation targets."
– Sami Jauhiainen, Neste
That was one of the big questions, Jauhiainen said. Neste and others were already exploring other raw materials from which they could make biofuels, and especially SAF. The 40 million tonnes of various waste and residue oils and fats, such as used cooking oils and animal fat residues from food production, that Neste estimated would be available globally by 2030, wouldn't be enough to meet the needs of the world's transport fleets.
Producers would need to commercialise the technologies to enable them to use forestry residues and other lignocellulosic (plant) raw materials, municipal solid waste and eventually power-to-liquids technologies. "Exploring raw material such as forestry residues is very important and and also something that Neste is studying to enable us to move to new raw materials," he said.
Of course, Neste was encouraging New Zealand to import its biofuels, but he acknowledged that producing the fuels locally would eventually become more cost-effective. "I think when it comes to domestic production, this is completely something that New Zealand and the aviation industry in New Zealand have to make choices on," he said. "I would suggest that imports definitely can have an important role, to enable New Zealand to get started fast on its decarbonisation targets if domestic production is at the moment not available."
Jauhiainen wouldn't comment on the potential of Marsden Point, except in general terms. "Some other companies have been retrofitting old fossil refinery assets for renewable fuel production," he said. "And there are co-processing companies as well, who are running fossil refineries and replacing part of the feed with renewable raw materials."
He warned, though "more difficult raw materials" like certain waste and residues required very specialised technologies. "Facilities that have not been built for that purpose might not always work with those most challenging raw materials."
Public investment in biofuels production?
Refining NZ has confirmed its decision to begin shutting down its refining operation at Marsden Point, from April next year. It will change its name to Channel Infrastructure, reflecting its new downsized role as an import terminal for refined fuels.
But it also has put a case to Government for public investment to use some of the redundant refinery technical expertise and assets, like the hydrocracker, to produce second generation renewable diesel or SAF.
Chief executive Naomi James told Newsroom the transition from refining provided "exciting opportunities for us to diversify".
"Unlike crude-oil based refined fuel markets, the global market for new fuels such as biofuels, is not as well developed. There is limited global production which is often supported by government subsidies, and the market overall is not well traded, or transported."
– Naomi James, Refining NZ
"Biofuels is one area that we have been looking at, and have discussed with the Government, and we welcome the release of the biofuels mandate this week."
She highlighted the available tank storage capacity at Marsden Point, close to the Auckland market, and the availability of the company's pipeline to Wiri near Auckland Airport – "the lowest carbon emission option for delivering fuel to New Zealand’s largest market".
But she acknowledged the lack of any apparent ministerial enthusiasm on invest public money in biofuels production at Marsden Point. (Megan Woods has told Cabinet any production facility might be better co-located near the source of raw material, at a timber plant).
James said the first focus would be setting up the infrastructure to bring in renewable diesel from overseas, to meet New Zealand's needs when the mandate is imposed. "With Government advice to date in mind, our immediate focus will be on supporting the importation of biofuels, and we will continue to monitor how we can play a role in the growth of this industry as government policy develops," she said.
She warned the Government against relying solely on biofuel imports, though. "Unlike crude oil-based refined fuel markets, the global market for new fuels such as biofuels, is not as well developed. There is limited global production which is often supported by government subsidies, and the market overall is not well traded, or transported," she said.
"The Government’s draft biofuels mandate contained no incentives for local biofuels production, and as we noted in our submission, we believe the mandate would therefore have to be met with imports. There is a complex link between biofuels feedstock supply, conversion technologies and supply chain logistics, and further work must be done to ensure we can establish a new industry that is feasible, economic, and competitive."
Fuel companies Z Energy and Gull, which have been pioneers in biofuels in New Zealand, both highlighted the potential for New Zealand's mandate to be measured in carbon emissions reduction, rather than by the volumetric proportion of biofuel blended into the mix.
"I disagree that domestic aviation is harder to achieve as the structure of the mandate is that you can meet the emissions from jet fuel by exceeding the abatement required in another fuel."
– Dave Bodger, Gull
Julian Hughes said biofuels would play a part in transport sector's transition. "But they're not the answer, right? I think they may play a part particularly in the harder areas of the transport task to electrify, so large trucks, marine. I think marine can be really, really hard. And SAF at this stage is really the only way to have a real crack at long-haul aviation. There's probably 15 to 20 years, at least, where biofuels will play a role before we start to see large-scale electrification in those areas.
"By that point, we will understand hydrogen better. That will be playing a role. We certainly would have seen a reduction through electrification."
Gull general manager Dave Bodger said carbon intensity was prominent in the MBIE and Ministry of Transport discussion document. "This actually makes the mandate more intensive," he said, "as you probably, depending on many assumptions, double the percentage mandated under carbon intensity to get the percentage litre blend you need to achieve".
Bodger disputed the government view that imposing an aviation biofuel mandate was more difficult. "I disagree that domestic aviation is harder to achieve as the structure of the mandate is that you can meet the emissions from jet fuel by exceeding the abatement required in another fuel."
Ahead of its memorandum of understanding with MBIE to find a commercial SAF plant operator in New Zealand, Air New Zealand has published a white paper: "A SAF mandate is required to incentivise investment by providing certainty to producers and investors," the paper concludes.
Meagan Schloeffel, the airline's head of sustainability, said that with the right policy settings and investment in place, domestic production of SAF could be available as soon as 2025; by 2050 New Zealand could produce half of its SAF requirements.
This is critical, in the airline's view. Schloeffel told Newsroom that at present only a tiny fraction of global aviation was fuelled by SAF, but that could be scaled up quickly if the price came down.
"Currently there is no SAF available in New Zealand. Due to the high initial cost of establishing supply and the ongoing cost of production, SAF commands a price premium compared to traditional diesel jet fuel."
– Meagan Schloeffel
Presently, biofuels are three to five times more expensive than fossil fuels. "There are only six SAF producing facilities operational around the globe so there is a significant shortage," Schloeffel said. "Approximately 0.1 percent of jet fuel sold in the world to date is SAF."
That needs to increase rapidly because biofuel is the only viable technology to decarbonise long-haul flights, at this time. Electric planes are only good for short commuter hops, and hydrogen-fuelled planes are still 10 or 20 years away.
"Currently there is no SAF available in New Zealand," Schloeffel wrote, in a social media post. "Due to the high initial cost of establishing supply and the ongoing cost of production, SAF commands a price premium compared to traditional diesel jet fuel.
"However, with the right policy and investment settings, SAF production could be made viable, and the commercial gap with fossil fuels will be narrowed, as we have seen with SAF technologies that are scaling."
Scaling up internationally
At Neste, Sami Jauhiainen says they are quickly scaling up their SAF production. At present the company produces 100,000 tonnes a year from its Porvoo refinery in Finland, but in 2023 it will open new plants in Singapore and Rotterdam. That will enable it to increase production to 1.5 million tonnes that year.
It had also reduced its reliance on crops like palm oil, he said. Waste and residues made up 92 percent of the company's total renewable raw material in the first half of 2021, and made up 100 percent of the raw material used in SAF.
Overall, Neste is thee world's biggest producer of renewable diesel and sustainable aviation fuel. "At the moment the combined capacity for both is 3.2 million tonnes in our refineries in Finland, Rotterdam and Singapore, and growing to 4.5 million tonnes at the beginning of 2023 when the expansion of our Singapore refinery is completed," Jauhiainen said.
The company would like to see New Zealand impose an aviation biofuel mandate, as well as one for land transport.
"If you look at how much biofuels are used, for example in road transportation today, the market has grown much slower on the aviation side," he noted. "It's not technically more difficult to produce sustainable aviation fuel than renewable diesel for the road transportation side – but fundamentally, the challenge has been that the market has not been there.
"The issue is about the cost, and similar kinds of policies and regulations that are creating the market for biofuels and sustainable fuels in road transportation have not been in place on the aviation side and and hence the investments for a long time have not been made by the industry."
"New Zealand is well positioned, I think, to be the regional leader in Asia-Pacific. And by creating such policy frameworks that enable increased biofuel and sustainable aviation fuel use, to hopefully show an example for other countries in the Asia-Pacific region to follow."
– Sami Jauhiainen, Neste
For instance, the European Union already required 10 percent biofuel blend for road transport, increasing to 14 percent by 2030. The Scandinavian countries and the Netherlands have gone much higher still – and those mandates, and the resulting demand, have forced producers to scale up volumes and scale down prices for renewable diesels. That hasn't yet happened in aviation.
Woods is expected to announce the biofuels mandate this week. "We are looking forward to the announcement," Jauhiainen said.
It's not yet expected to feature a separate aviation mandate, though, and Jauhiainen urged ministers to take that next step.
"What we do see as very valuable is that countries implement separate mandates for aviation and road transport and maybe even marine, because otherwise, if you have broader sectoral mandates, what happens is that the mandate fulfilment just economically happens where it is the cheapest. Which could just mean that it would happen only in marine where the engines can just burn any kind of lower quality biofuel, which wouldn't really help the aviation sector in moving forward on its decarbonisation pathway."
He added: "New Zealand is well positioned, I think, to be the regional leader in Asia-Pacific. And by creating such policy frameworks that enable increased biofuel and sustainable aviation fuel use, to hopefully show an example for other countries in the Asia-Pacific region to follow. There are no countries that have an aviation mandate at the moment in Asia-Pacific region."