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1. How does the industry differentiate between short-term affordability and medium-long-term decarbonization delivery?

Every company has their own view, and that's an exciting piece of the equation. I find that fascinating because it gives the widest breadth of options for all of us to consider, given each of the companies’ expertise. I think it's a healthy, good thing.

There’s one thing that everybody agrees on, we must continue to provide communities the energy they need. That balance of affordability and decarbonization is the challenge. I think it’s a misconception to think this industry is opposed to sustainable innovation because that's the farthest thing from the truth. We have unique expertise in capitalizing on the science and the facts of how one gets from where we are, and to where we want to go.

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I think it’s a misconception to think this industry is opposed to sustainable innovation because that's the farthest thing from the truth.

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We have aggressive climate goals in all our Western states, especially California, Washington and Oregon; but we don't oppose the goals, we try to put together a realistic plan to help the states get where they want to go.

So, when you hear our industry talk about an 'all of the above' energy strategy, this is because we don't think you should pick winners and losers. We don't think you should focus on one single technology. We think the market is the best course to let it drive innovation and find consistency in our energy supply as we plan for the future.

We've provided several options for the Administration, the Air Resources Board, and the Energy Commission to consider because we do believe you can reach these goals. We think there's a better way that's more affordable and doesn't have some of the economic implications that we're seeing in the current plans.

2. In your opinion, what role has the recent Inflation Reduction Act played in changing the conversation and levelling this playing field at both federal and state levels?

I think in concept it has some really good aspects in regard to doing anything we can do to benefit the country. The worry I have is that there are several issues related to affordability, cost and how one goes about this. Costs and taxes, in my opinion, and in the opinion of our industry, is a dangerous policy that's not rooted in what we would call energy reality. More taxes on energy companies, especially in an energy crisis mode, imposing $11.7 billion is going to result in higher prices for consumers, not lower prices.

3. Why is it so important for WSPA to be a part of the conversation and solution(s)?

We've powered the economy for over a century, so we must have a seat at the table. It's imperative we have a seat at the table. It's imperative that there's a recognition of the incredible brain trust that really resides in these companies, in our members, and in our workers. It's just remarkable from my standpoint. I've been in this business now for over 40 years, and so I've seen the innovation. I've been involved in rolling out three cleaner burning gasolines, removing lead from gasoline and going to ultra-low-sulphur diesel. All these innovations and improvements in the fuel that we produce, and the relationship of the automobile and the fuel that moves it, it's incredible. I think we need the recognition that we have to be a partner, we have to have a seat at the table, and we are part of the backbone of the United States economy. There just seems such a reluctance to have us at the table when we're so willing to be there. It would just be nice if we were not on the menu.

4. How has WSPA and your members championed collaboration and built partnerships with a common focus of reducing collective carbon emission?

We know that no one has the corner on wisdom. We think we have a lot to offer, but we also know that everyone has a lot to offer. We work with the environmental community; we work with the environmental justice community; we work in the communities to try to understand how they view energy, how they view quality of life, and what's important to them. It's not a matter of what's important to us, it's really a matter of what's important to the constituents, to the consumers, to the communities that we serve. I think some of the things we've done with the environmental justice community, not to get into too much of the weeds, but AB 617 was a bill that really engaged the environmental justice community throughout the state of California to collaborate on an approach to reduce emissions in their backyard, as we're also looking at greenhouse gas emissions criteria, pollutants are equally as important to the health of these communities, and so we are in big collaboration on that program.

So those are just some of the things that we've been involved in, but our members are involved across the spectrum in all these things. Also collaborating with higher education institutions, we've done a lot of work with Stanford, Berkeley, Davis, and UCLA. We try to engage Lawrence Livermore Labs. We try to engage with all of the resources we have in the academic community because that's a very important stakeholder as we talked prior to everyone having a seat at the table. The whole academic and research side of this equation is absolutely critical, and so we do a lot of work with them to partner on biofuels, alternative fuels, and on battery technology.

5. What lower-hanging fruit efficiencies and incremental benefits are still available to the industry?

Certainly, efficiencies in the CAFE standards on the vehicle side certainly is of interest. The hybrid technology is way overlooked. We have hybrid vehicles that I think in the short term bring such a benefit because they deal with the challenge of just pure electrics which ranges from range anxiety to cost to availability. Hybrids can really serve such a significant role in that gap. So I think they're overlooked, frankly, and I think that's a low-hanging fruit we should continue to focus on.

I think the other one that is frustrating in California is our ability to actually move forward on carbon capture sequestration. We have companies around the world, as you know, that are successful in this technology and want to deploy it in California, but the opposition to this technology is very strong here, not necessarily from the government side, but certainly from the environmental justice community who are trying to work with us on understanding what the concerns of that technology are because it is a known technology. It certainly can help us, and actually in California to meet our 2045 carbon neutrality goals.

6. What do you hope the discussion from a conference like ESF North America will help your members and the wider industry to achieve over the next 12 months?

That's a very good question. I think most importantly, what I hope comes out of the conference is a recognition that we share the same goals, that there's more that unites us than divides us, that we trust in each other's expertise and desire to move towards a sustainable energy future together, not apart, and that everybody does actually have a voice at the table and a seat at the table.

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What I hope comes out of the conference is a recognition that we share the same goals, that there's more that unites us than divides us, that we trust in each other's expertise and desire to move towards a sustainable energy future together ...

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And that we don't demonise any party and welcome them to the table to try to solve these problems together, because again, we don't think we have the corner on wisdom, but we do believe we have a lot to offer, and I hope out of the conference that we can have a renewed interest in really working together on the environment, the economy and our decarbonization because I think they go hand and glove.

Decarbonization in the US has had its biggest boost to date thanks to the recent Inflation Reduction Act (IRA). Authorizing $396 billion in clean energy and decarbonization expenditure over 10 years, the historic law seeks to enhance US energy security, expand clean and renewable energy production, jump-start carbon reduction and sequestration technologies, accelerate decarbonization of the vehicle fleet, and promote a host of other climate policies.

Whilst the hope is that the Inflation Reduction Act will set off a movement to establish a national energy policy, the reality is that climate change policies in California are far from new or revolutionary. In fact, eleven years ago, the Low Carbon Fuels Standard (LCFS) was designed to reduce emissions from transportation fuels, the largest source of greenhouse-gas emissions.

To discuss California, the state leading the US’ energy transition, we recently hosted a panel joined by Tiffany Roberts, State Government Affairs Manager, Western Region, Phillips 66, Melinda Palmer, Vice President – Regulatory & Public Affairs, Kern Energy, Shant Apekian, Vice President, California Policy and Strategic Affairs, Western States Petroleum Association and David Brown, Director, Scenarios and Technologies, Wood Mackenzie to reflect on how California has responded to some of the state and federal level climate goals, to consider how it will balance short term affordability with the need to balance long term decarbonization objectives and discuss policy recommendations for the state to advance its decarbonization agenda.

An evolution of climate policy

Firstly, looking at how California’s energy industry has responded to climate goals. There is a lot of history with the state’s role in climate policy, where the first targets were passed in 2005. Over time there has been an evolution in the conversation around climate policy, to which the industry has responded in an evolutionary way.

Policies and goals continue to be pushed as the state looks to go further, faster. Shifting the conversation from goals to compliance, and from the what? to the how? key questions today include “how do we comply?”, “how do we do it in a cost-effective manner?” and “how do we do it in a technology neutral manner?”

All of the above approach

As California, the US, and the world faces an energy affordability crisis, discussion turned to the options for California to balance short term affordability with medium term decarbonization. Rather than ask what options does California have, instead we have to ask what is California open to? Is the state open to an all of the above approach underpinned by the idea that the common enemy is fossil carbon, not the industry Itself?

Exacerbating this is California’s environmental justice community. The EJ movement came out of California, which the state is very proud of. Despite their value and legitimate issues, they have gone to the extreme on a lot of the climate issues, putting enormous pressure on policymakers and the administration, ultimately stifling progress moving forward. One of the main reasons why CCS policy is not moving forward is in large partly through the opposition of that community.

Digging further into the point around the need for a diverse set of solutions, market demand for liquid fuels will remain for some time, which lacks recognition. Even under CARB’s, the most aggressive electrification scenario that California will ban the internal combustion engine in 2035, analysis continues to shows strong liquid fuel demands well into the future.

As put by one panellist, “the main thing is keeping the main thing, the main thing”. Why are we doing any of this? Why does any of it matter? To improve the lives of our residents, and their public health, and make energy more affordable and resilient. If we lose sight of that as we're moving forward, we're not keeping “the main thing the main thing”.

Walking the walk

The need for pragmatism and clarity, heavily dependent on policy was a clear take-away of the discussion. What needs to be done from a policy perspective to see some of those goals advanced? As put by one of the panellists, "we need to walk the walk”. Taking CCS as an example, the industry needs three P’s. First permitting certainty, which applies not just to CCS projects, but all conversion, and greenhouse gas reduction projects. Today, no company or developer will invest without that level of certainty on the permitting side. Second, the legal framework on pore space rights requires a legislative fix. Despite the issue in itself is not political, it's become such a hot button issue that it has become politicized, stifling progress. Finally, pipeline, and making sure that the infrastructure is there for those who want to invest (in CCS projects). Furthermore, a credit system, to ensure appropriate credit for emission reduction (whether LCFS or cap-and-trade) needs to be in place to pursue the projects.

From the bottom up

Discussing approaches to planning in more detail. Often enough, the state has already set the table, that requires the industry to reverse engineer towards the answer. We need to change the way that we come to the table and instead build from the bottom up, and look across the board to evaluate all of the different opportunities for reducing emission reductions from a technological perspective, a sectoral perspective, and build it through analysis and optimization.

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We need to change the way that we come to the table and instead build from the bottom up, and look across the board to evaluate all of the different opportunities

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Moving forward, the LCFS will continue to drive innovation, not only in new technologies and new feedstocks, but by forcing the industry to look at efficiencies in the different processes along the way.

Drawing the discussion to a close, the clear take-aways and conclusions were the need for a scoping plan of priorities backed by an all of the above approach that recognizes the potential contribution of all technologies.

Better recognition that policy design impacts consumers and impacts the price at the pump is required. A climate policy that is affordable, and equitable will move the ball forward.

We must be open to innovation, and open to all solutions. Science must drive policy as opposed to policy trying to drive the science.

From left to right: David Brown, Wood Mackenzie - Tiffany Roberts, Phillips 66 - Shant Apekian, Western States Petroleum Association - Melinda Palmer, Kern Energy

The transition is a journey with many steps. Cooperation and collaboration are needed between different sources of energy and the many opportunities available today must be embraced in parallel. Increasing the volume of renewable fuels produced and marketed is without doubt a key pathway that we continue to see refiners in North America take to cement place their place in a low carbon future. John Florez, Associate Director, Oil & Gas, Boston Consulting Group was joined by Jennifer Haley, President & CEO, Kern Oil & Refining Co, Eric Zimpfer, VP Cherry Point Refinery, BP, Nick Andrews, CEO, USA BioEnergy, Gene Gebolys, CEO, World Energy and Himal Munsif, Sr. Manager Downstream Strategy, Chevron to discuss the rise of bio and renewable fuel production, the longer-term role for conventional refineries and some of the challenges being faced along the way.

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Kicking off the discussion, our panellists reflected on how we have seen refineries in North America start their transition to a net zero future, and some of the challenges they’re facing on that path. The first point raised was that the term transition is a bit of a misnomer, rather it's an evolution. As put by one of the panellists, “we're on this boat in the ocean, we don't really like our boat, it’s a bit dirty, could be cleaner and more efficient, but we're setting fire to the boat before we have another boat”. We have to recognize that we're going down a dual path and improve what we have whilst building something new. All projections indicate that we will continue to have fossil fuels, and use existing infrastructure for decades to come.

From left to right: L-R John Florez, Associate Director, Oil & Gas, Boston Consulting Group, Gene Gebolys, CEO, World Energy, Eric Zimpfer, VP Cherry Point Refinery, BP, Jennifer Haley, President & CEO, Kern Oil & Refining Co, Himal Munsif, Sr. Manager Downstream Strategy, Chevron, Nick Andrews, CEO, USA BioEnergy during ESF North America, Houston 2022

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Looking specifically at the pathways of our panellists’ companies. First Kern, one of the last small independent refiners in California producing 1% of the state’s gasoline, 2% of the diesel, is a renewable fuel pioneer. Producing renewable diesel since 2009, they co-process tallow through a repurposed hydrotreater. The company exemplifies that dual path, improving existing gasoline and diesel production whilst innovating toward next generation renewables.

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We have to recognize that we're going down a dual path and improve what we have whilst building something new

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It was commented that prematurely cutting investment in hydrocarbons risks crashing the system, and risks people losing the political and social will required to effectuate real change toward renewable fuels. Sometimes the conversation gets too myopic around the carbon and we have to recognize and remember that providing affordable, reliable clean energy should be the overarching goal.

Like BP, where policy supports it and where customers demand it, Chevron and many other traditional refiners are looking at alternatives for low carbon initiatives to incorporate in their portfolios through the build of new, or conversion of existing, hydro processing units to execute the HEFA pathway, or co-process in the FCC.

Perspectives from a different end of the continuum were shared from World Energy who have been active in advanced biofuels for 24 years. The industry is experiencing a moment in time in which traditional refiners and integrated energy providers are finding a middle space, with significant value to be found in the synergies. Despite being very different businesses with very different supply chains, and go to market marketing approaches, there is overlap when it comes to regulation and distribution.

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The transition is a journey, a marathon, and as such, refining will continue to be around for a long time

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Finally, USA Bioenergy, capture and sequester the CO2 from the process streams of their advanced biorefineries that turn wood waste into sustainable aviation fuel. As a result, the company is able to earn a carbon intensity score of a negative 250 or lower, as well as help the airlines who buy their very clean carbon negative fuel to meet some of their carbon neutrality goals.

Concluding the first part of the discussion it was commented that the societal need is so big we have never faced anything like what we're facing right now. The quality of life of human beings has increased in large part because of fossil fuels. Today, we're trying to imagine a world in which we have all the advancements of fossil fuels without the extremely serious implications of fossil fuels. The challenge ahead of us needs an all-hands-on deck approach, that support us collectively to keep taking the steps that we can take, as fast as we can take them. We have some pieces of the puzzle but the puzzle is not complete yet.

Innovation requires failure

The next question for our panellists was how the different players of the industry can work together, sharing talents or technologies to help the industry as a whole, move forward not only towards decarbonization goals, but also to maintain that low cost, reliable energy supply.

In many states, clean energy has become very elitist, leaving communities behind, echoing the need for an all of the above approach and improving what we currently have. Perfect is the enemy of good and sometimes you have to try things and see how it works out. Innovation requires failure and, as such, collaboration is critical. It’s no longer a case of different industries sitting at opposite ends of the table. Whether it's the oil industry or the Agri industry, supported by consistent policy across the board, it’s those collaborative, innovative partnerships that will bring those next generation renewable fuels to market.

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It’s no longer a case of different industries sitting at opposite ends of the table

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Today’s refiners are no longer simply in the business of providing fuel, but in reducing carbon. Customers today need us to deliver carbon reduction, whether it's through carbon capture to create blue hydrogen or, wind and solar to produce green hydrogen, sustainable aviation fuel, renewable diesel and so on.

Jennifer Haley, President and CEO, Kern Oil & Refining Co during ESF North America 2022

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A PR problem

Discussion moved to talent and to what degree the energy transition has helped retain and build the industry’s funnel of talent.

Lipids are over saturated

A lot of focus to date has been on HVO or cooking oil as feedstocks focused on SAF or renewable diesel. Next our panellists considered what other feedstocks, and renewable materials need to be part of the discussion.

Feedstock values have doubled in the last year or so, and despite the higher prices for buyers, it’s positive for the overall aggregated supply of feedstocks. Adding to that, the cure for high prices is high prices which presents an opportunity of innovation for the industry.

Waste to fuels, especially those waste products not being utilized today present a great opportunity for the creation of next generation low or negative carbon intensity fuels. The challenge for woody and Agri waste is the transportation but we are witnessing some exciting innovations around smaller, more nimble facilities co-located at the feedstock source. Fats and waste oils are what got us to the dance and where we have seen the most progress to date.

Nick Andrews, CEO, USA BioEnergy

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Looking forward we need to build a portfolio of feedstocks beyond just the commodity seed oils or waste oils with lower carbon intensity (CI). Whether it's municipal waste, woody biomass, algae etc, we need consistent policy support to enable them and make them viable. We need streamlined pathway approvals and timelines. Furthermore, we need first movers, and it’s not always obvious at the time that you need to move.

Digging deeper into the transportation challenge, in the context of the US, between 2021 and 2026, five times the production of renewable diesel is forecast to come online. Whether it's feedstocks or finished products, the expectation is that it will move from predominantly the Midwest, to policy enabled markets, aka California on the West Coast.

Discussion moved onto policy support. All too often we see policies that don't necessarily make sense to the boots on the ground. We need to build the relationship with the regulators that enable us to shift the conversation to what makes sense policy wise and continue to brand ourselves as the engine that drives the transition, and reinforce that the industry is a big part of the solution.

While the world needs energy, there is a role for refineries

Final conversation of the panel discussed refinery shutdowns, conversions and closures, and to what extend we expect to see the trend continue.

Events of the last three years since the start of the pandemic have been a rollercoaster for supply and demand, and highlighted our vulnerability to energy shocks.

Today’s strong traditional refining margins have naturally raised questions for the transition but taking a step back from short term gyration, and looking 5-10 years from now, the only trend we can be certain of is to increase investment in low carbon, it’s what our customers want, and our planet needs.

Fundamentally, depending on its footprint and its configuration every refinery is going to have their own view of what their portfolio looks like, and what's right for them. The idea that all refineries are going to shut down or convert away, we don't see. Conversely, the idea that refineries will continue doing exactly what they are doing today and not have to evolve, we don't see. The truth is going to be somewhere in the middle. Each company, each refinery, must come up with own their view of how they best make the transition and how they do this whilst continuing to provide, in a responsible way, our communities with the energy that they need. Ultimately while the world needs energy, there is a role for refineries to play.

Gene Gebolys, CEO, World Energy & Eric Zimpfer, VP Cherry Point Refinery, BP