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A Biofuel Company That Can Hardly Make A Buck In Washington

HOQUIAM, Washington — Before he launched a biofuel company, John Plaza was a pilot for Northwest Airlines, where his job was balancing the fuel mix on long flights across the Pacific.

“I was bored and trying to stay awake in the middle of the night so I started thinking of how much fuel we were using on six and a half hours of airtime,” Plaza says.

“It was the equivalent of 42 years of fuel in my personal car on the average basis that I drove. So I decided that I wanted to try to do something about that.”

Seven years and $135 million in investment later, Plaza stands proudly in front of a row of 2-million gallon tanks at the Imperium Grays Harbor biodiesel plant. It’s overseen by Imperium Renewables, the company he founded.

It’s the second-largest biodiesel facility in the country, but Plaza can hardly make a buck selling biodiesel in his home state. Forty percent of the output in 2014 went to Alberta and British Columbia. The remainder went to Oregon and California.

What do these other provinces and states have in common? A low carbon fuel standard. (The specifics vary, but Oregon and California require a reduction of carbon intensity in transportation fuels by 10 percent over the next 10 years.)

Plaza’s facility, which could produce 100 million gallons of low-carbon biodiesel each year, has been the poster child for a push by Washington Gov. Jay Inslee to enact a low carbon fuel standard. That would mandate that cars and trucks use more biofuels. It would also prompt the development of other clean transportation options.

One way energy companies can meet the standard is to add a certain amount of biodiesel to conventional diesel in order to lower the overall carbon intensity. Another option would be to buy credits to offset the carbon intensity of your fuels, sort of like a mini cap-and-trade system.

Oil companies that are doing business in California, Oregon, British Columbia and Alberta (and are therefore subject to low-carbon fuel standards) are some of Imperium Renewables’ biggest customers. Plaza says that if Washington joins the group, the next few years could look brighter for the biofuel industry.

“By 2020 that creates potentially a very significant West Coast demand and we think we can be very competitive in that,” he said.

Push Back

Imperium Renewables and other companies operating in the clean fuels space have a tricky relationship with the oil industry. Imperium relies on oil companies to buy its lower-carbon fuel, but oil companies only buy it because they are mandated to do so, while at the same time fighting those mandates up and down the West Coast.

The Western States Petroleum Association has funded front groups to attack low carbon fuel standards in California, Oregon and Washington, according to a presentation by the association in November. In Washington, the front group is known as “Washington Consumers for a Sound Fuel Policy.” In Oregon, it’s “Oregonians for Sound Fuel Policy.”

The association declined to reveal how much the industry is spending on these groups.

The trade group’s spokesman Frank Holmes called the low carbon fuel standard “bad policy” and said the oil companies in his trade association see it as a direct attack on their business.

“It’s an obligation to reduce your carbon intensity and our members provide carbon-based fuels,” he said, “and so this is asking one industry to subsidize other industries and there’s a lot of risk associated with that.”

Others view the low-carbon fuel standard as big government trying to control the free market. Sen. Doug Ericksen, a Republican from Ferndale, Washington, has opposed Democrat Inslee’s attempts to institute a carbon-pricing system in Washington. He said he will do the same with a low carbon fuel standard.

“Until these technologies emerge to the point where they’re cost competitive economically, they do need mandates and subsidies to be able to succeed,” Ericksen said. “There are other ways to get there without the heavy hand of the mandate.”

What’s It Going To Cost?

There’s a lot of debate over how much a government mandate to buy low carbon fuels will cost consumers at the pump. Oil companies are not transparent about how much of the cost they will pass on to customers.

At this point, most research on the economic impacts of low carbon fuel standards are based on projections rather than measured data (“crystal ball gazing” as Holmes from the petroleum association calls it) because the standards have not been in place for long enough to quantify conclusively. Proponents of low carbon fuel standards say that prices at the pump have not increased in British Columbia or California since the policies went into effect.

Holmes and proponents of the oil industry frequently point to a study by the Boston Consulting Group that was paid for by the Western States Petroleum Association. The study projects increases at the pump of between 33 cents and $1.06 per gallon over the next ten years if a low carbon fuel standard is implemented in California. The study was later reviewed by a diverse panel of experts from the University of California Davis, Stanford and other institutions. The review panel said that it was “concerned about some of its [the study’s] assumptions, methodologies and results.”

Reports from state agencies in California, Oregon and Washington suggest much smaller fuel cost increases should a low carbon fuel standard be implemented. According to a report from the Washington state Office of Financial Management, the policy would lead to a maximum increase of 10 cents per gallon of gasoline in Washington over the next ten years. A report from the California Air Resources Board suggests that the price increase would be no more than 12 cents per gallon of gasoline over the next five years.

Proponents of the low carbon fuel standard in Washington say that failing to adopt the policy will cost the state money because Washington will be left behind in the clean energy economy as more companies, like Imperium, take their business - and their cleaner-burning product - elsewhere.

“We don’t want to be the only state that doesn’t get the cleaner fuels. We want the benefits here in Washington, too,” said Jessica Finn Coven, Washington director at Climate Solutions, a nonprofit in Seattle. She added that if the policy is implemented she thinks we’ll see two things: “One, the sky doesn’t fall, just like it hasn’t in British Columbia and California and two, more clean energy companies will want to set up shop here in Washington.”

John Plaza’s Difficult Choice

The fickle winds of clean fuel policy - both federal and state - have taken their toll on John Plaza. Imperium Renewables is not consistently or overwhelmingly profitable, Plaza says, and his shareholders have yet to see a return on their investment. That has forced the company “to look for where the value proposition is” elsewhere, Plaza said.

Imperium Renewables has turned to oil.

In 2012 the company made the decision to apply for permits to expand its facility to receive crude oil by rail. The expansion would enable the company to move 30 million barrels of crude from trains onto ships bound for refineries on the West coast and, perhaps, abroad, if federal policies barring crude exports change. The facility will draw one full train and one ship per day. A similar thing happened to a one-time ethanol facility in Clatskanie, Oregon. That facility now handles 1.8 billion gallons of oil from North Dakota annually.

Plaza, like his home state of Washington, is straddling two energy worlds: one where clean energy is believed to be the future, and the other where fossil fuels will always provide the power for our cars and trucks. He’s clearly torn about the decision to move crude through his facility.

“I’m not particularly happy about that. It’s not why I started the business,” Plaza said, looking down into his hands. “But how do you respond, as a business, to changing market conditions? You either adapt or you don’t survive.”

A low carbon fuel standard won’t necessarily make Plaza wildly rich, but it might make his company’s need to turn to the fossil fuel industry a bit less desperate.

“Would I like the citizens of society to wake up tomorrow and say, ‘Climate change is real, we have to incentivize cleaner fuels?’ Sure. I’d love that,” he said. “But until society steps up and says, as a whole, ‘This is what we’re going to do,’ we have to thrive based on what they are saying and they’re saying ‘give me all the hydrocarbons you can make.’”

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