The SAF Podcast
The SAF Podcast: The three certainties of SAF - feedstocks, offtakes and tax incentives
This week, we sit down with Dani Charles, Veriflux, who talks through his fascinating journey from government tech to co-founding a pioneering company in the renewable feedstock industry. Dani reveals how Veriflux, since its inception in 2020, has grown to support over 350 companies worldwide by revolutionizing the tracking of used cooking oil and other feedstocks. His insights underscore the critical importance of accurate record-keeping for regulatory compliance and market differentiation, especially in distinguishing renewable fuels like Hydrotreated Vegetable Oil (HVO) and Sustainable Aviation Fuel (SAF).
Ever wondered how US environmental policies and incentives come to life? Join us as we unpack the intricate legislative process including the Department of Energy, Environmental Protection Agency, Department of Transport, Treasury and Securities and Exchange Comission. Through detailed examples like the renewable fuel standard and the Inflation Reduction Act, we shed light on the complex and often collaborative efforts required to enforce these regulations. We also examine the challenges stakeholders face with incentives such as Renewable Identification Numbers (RINs) and Low Carbon Fuel Standard (LCFS) credits, emphasizing the complications that arise from varying guidelines.
As eco-fuel production gains momentum, what hurdles do new entrants face? We delve into the implications of the Inflation Reduction Act credits expiring in 2027 and how this impacts the renewable energy industry. We discuss the benefits that incumbents hold over newcomers and the role state-level tax credits play in promoting local production. We also explore the updates to the IRA to include Argonne National Laboratory's GREET model and the transition from 40B to 45Z at the end of the year and what this means in practice.
Additionally, we explore the transformative power of digitizing supply chains for sustainability, highlighting the necessity of robust data management to support ESG and net zero goals. Tune in to understand how comprehensive data collection not only substantiates environmental claims but also drives the future of renewable energy and sustainable aviation fuel.
If you enjoyed this episode, check out our recent episode with Vianney Vales, Wastefront here: https://www.buzzsprout.com/2202964/15196527
Host & Producer: Oscar Henderson, SAF Investor
This week, we sit down with Dani Charles, Veriflux, who talks through his fascinating journey from government tech to co-founding a pioneering company in the renewable feedstock industry. Dani reveals how Veriflux, since its inception in 2020, has grown to support over 350 companies worldwide by revolutionizing the tracking of used cooking oil and other feedstocks. His insights underscore the critical importance of accurate record-keeping for regulatory compliance and market differentiation, especially in distinguishing renewable fuels like Hydrotreated Vegetable Oil (HVO) and Sustainable Aviation Fuel (SAF).
Ever wondered how US environmental policies and incentives come to life? Join us as we unpack the intricate legislative process including the Department of Energy, Environmental Protection Agency, Department of Transport, Treasury and Securities and Exchange Comission. Through detailed examples like the renewable fuel standard and the Inflation Reduction Act, we shed light on the complex and often collaborative efforts required to enforce these regulations. We also examine the challenges stakeholders face with incentives such as Renewable Identification Numbers (RINs) and Low Carbon Fuel Standard (LCFS) credits, emphasizing the complications that arise from varying guidelines.
As eco-fuel production gains momentum, what hurdles do new entrants face? We delve into the implications of the Inflation Reduction Act credits expiring in 2027 and how this impacts the renewable energy industry. We discuss the benefits that incumbents hold over newcomers and the role state-level tax credits play in promoting local production. We also explore the updates to the IRA to include Argonne National Laboratory's GREET model and the transition from 40B to 45Z at the end of the year and what this means in practice.
Additionally, we explore the transformative power of digitizing supply chains for sustainability, highlighting the necessity of robust data management to support ESG and net zero goals. Tune in to understand how comprehensive data collection not only substantiates environmental claims but also drives the future of renewable energy and sustainable aviation fuel.
If you enjoyed this episode, check out our recent episode with Vianney Vales, Wastefront here: https://www.buzzsprout.com/2202964/15196527
Host & Producer: Oscar Henderson, SAF Investor
Hello and welcome to the latest episode of the SAF podcast. This week, we're delighted to be joined by Donnie Charles from Veriflux, and rather than me introduce you, Donnie, do you just want to take us through your background and what Veriflux does?
Speaker 2:Sure happy to, and thanks, Oscar, for having me on the podcast. So yeah, my background I started in my career in government technology, so a bit outside of the renewable space, and after roughly a decade in government technology technology, I had a college buddy who had been working with processing used cooking oil from restaurants and he asked if I wanted to join him in that business venture, which I did, and in the course of doing that, one of the things we noticed as we set up used cooking oil processing facilities across the United States was that there wasn't really good technology to leverage for being able to manage, inventory and handle, you know, different types of products and quality control, etc. Let alone being able to trace the origin of the product. And so as the EPA started to clarify some of their rules around traceability in 2020, we realized that there was a deficit of any suitable technology for that, and so he and I co-founded Veriflux. That was in 2020.
Speaker 2:We were fortunate to be funded by the EPA, the U Environmental Protection Agency, in 2021. We launched commercially at the end of 21, and 2022 was a major expansion year for us and, by you know, fast forward to 2024,. We're now in use by over 350 companies in over 20 countries. Last year we traced over 1.3 million unique transactions, mostly focused on used cooking oil, but other feedstocks as well, and so where Veriflux really ties into the sustainable aviation fuel, the SAF ecosystem is being able to trace those upstream transactions that ultimately result in fuel downstream that's going to consumers. And so that's a little bit about our background, about Veriflux, and my background as well.
Speaker 1:Perfect, and what sort of clients do Veriflux deal?
Speaker 2:with?
Speaker 2:Yeah, so we work with folks across the value chain.
Speaker 2:Traditionally, we started with collectors of a lot of these waste feedstocks upstream.
Speaker 2:So the first thing that, when we started Veriflux, we tried to address was what we call the first mile challenge, and that is when you're talking about the collection of these feedstocks, especially the small size values that exist for these feedstocks. We're talking about, you know, a couple of liters, couple of gallons that are being collected here and there, and so we needed to really come up with a mechanism to be able to track all that, and so, first and foremost, we worked with those collectors to come up with a mobile application, web platform, et cetera, that allowed them to be able to capture those values, and then, ultimately, as the product continues to move throughout the supply chain, we're able to work with other stakeholders in that value chain to make sure that they're capturing the sustainability attributes and flowing those sustainability attributes through the supply chain. So, to answer your question, we work with everyone, from upstream to midstream to downstream, and then, in the context of SAF, that's where we start to talk about booking claim and the type of data that's going into those programs to substantiate those claims.
Speaker 1:And why is it important that you need these accurate records being kept for all these feedstocks?
Speaker 2:So there's a regulatory component to it as well as a voluntary component. So on the regulatory side there's, you know, across the different programs that exist for these renewable fuels, there are record keeping requirements. The EPA, as part of its renewable fuel standard, codified that record-keeping requirement in a part of law that's called Title 40, part 80, 1454j1, where it actually talks about being able to substantiate the amounts of renewable feedstock, where they came from and the type of documentation that you need to support that. Canada, as part of its most recent updated CFR, also has record-keeping criteria and eligibility criteria for feedstocks. And then, in the European context, you obviously have the Union Database for Biofuels that the European Commission has been working on.
Speaker 2:All of these efforts are really part of, you know, regulators trying to ascertain whether or not the feedstocks that are ultimately creating these renewable fuels are in fact renewable feedstocks. And it's driven by, you know and we can get into this a bit more but it's driven by incentive structures. And you know, in the US we're talking about taxpayer dollars that are subsidizing these programs and so needing to be able to make sure that there isn't fraud, waste and abuse within these programs. In the context of that, additionally, within the US, we have state programs that add an additional layer of regulated traceability requirements, and then, in addition to all of that, we've got the voluntary markets, and that's where you've got corporates that want to be able to that are making net zero goals. They're establishing their net zero targets and, as they make claims around how far they've come relative to those goals, they want to be able to substantiate those claims, and so the data becomes important there too.
Speaker 1:You mentioned at the beginning that you started with used cooking oil and then have moved into SAF more recently. Is there a difference? Do you see a difference in the market, in how the regulatory stuff's playing out between HVO and SAF, or is it largely the same?
Speaker 2:Yeah, so there are differences, and I'll touch upon that in a second. There's differences between different applications, finished product applications, whether it's plastics, fuels, and then within fuels, whether it's HVO or SAF or other types of fuels. Even more than that, there's distinctions between the feed sacks and then the finished products, and not just how you have to track them, but what some of the challenges are. We started with used cooking oil for two reasons. One is that was our background and so that's what we were familiar with. But the other reason we started with it is because it has a bit of a unique scale challenge that a lot of other feedstocks don't have, and so I'll give an example there.
Speaker 2:When you're talking about restaurant pickups, let's say you've got a vessel. Let's say it's 30,000 metric tons worth of used cooking oil. Let's say it's 30,000 metric tons worth of used cooking oil, that vessel might represent 100,000 unique collections from restaurants. It's quite a bit of data that you need to be able to keep track of, and that could be data that exists across multiple countries, multiple companies within the supply chain, different nodes that occur between collection and, ultimately, the loading of that vessel, let alone the actual production of fuel further downstream. So there's just a scale challenge that exists there that you don't have when you're dealing with other types of feedstocks per se, like animal fats or corn oil or those kinds of things. Yes, those also have their own unique challenges, but it's not at the same type of scale, and so we were fortunate that we started with used cooking oil, because it allowed us to address that scale.
Speaker 2:But as we move downstream and we become feedstock and fuel or finished product agnostic, there then becomes unique challenges for each of those applications, and so one of the big things that's happening in SAF right now is the conversation around book and claim.
Speaker 2:It's not unique to SAF.
Speaker 2:There's obviously conversations around book and claim for biomarine and applications there, but being able to understand the nuances there and, from a data perspective, being able to handle some of those concepts, like the idea of splitting tickets from physical molecules it becomes really complex if you're trying to be a system that can handle all of it, which is what we're trying to do and which is what we're successfully doing.
Speaker 2:And so the more adoption there is of SAF, the more of a need there is to get these things right, and it really, at that level, speaks to broader macro issues that exist within the ecosystem around call it SAF and some of these finished products, which is that there's only starting now to be conversations around interoperability between different types of systems, how data systems communicate with one another. We'll get there as an industry, but it could take some time and in the meantime, us, as a service provider, we have to be able to fill in those gaps to the best we can to help service our customers so they can make sure that their full value chain is covered when it comes to this type of traceability.
Speaker 1:So the volume of data points and being able to synergize data from different platforms are the real sort of crux of what you're sort of trying to achieve, and the issue that you think needs to is the big one that needs to be addressed from your point of view.
Speaker 2:For sure, and and and you know, we're not the ones that are. While it's certainly in our interest for that demand to be there for that data, we're not the ones that are actually pushing that. It's being pushed both from a regulatory perspective, but also it's being pushed from the downstream consumers of the finished product who want to be able to have that substantiation of the product that they're buying. And so it becomes really complex when you're talking about a finished product. Let's say you're putting you know SAF onto an aircraft. You know the vessel example of 100,000 restaurants. Well, now you amplify that times 10 or times 20 or whatever, based off of the amount of fuel that's ultimately going into that jetliner and being able to say, okay, I can account for all of that, I can account not just for the sources of it, but I can account for the greenhouse gas emissions, I can account for the overall carbon intensity. That becomes quite complicated, and certainly there's mechanisms within the market to try to simplify that.
Speaker 2:Corsia and some of the standards that are evolving around that are starting to codify what some of those standards are. But even as they codify those standards, they add additional reporting requirements that make it all the more complex, especially as you're trying to navigate different markets, and that's one of the ultimate challenges here is when these feedstocks are collected upstream, at the restaurant, for example, that collector doesn't know where that feedstock is going to end up. Is it going to end up in an aircraft? Is it going to end up in a ship liner? Is it going to end up in road transport? Is it going to be in the United States? Is it going to be in Europe? Is it going to be in Canada? Is it going to be in a different market?
Speaker 2:They don't know that, and so, and each of those come with different data requirements, and so they need to, to the best of their ability, and everyone throughout this the value chain, to the best of their ability, needs to be able to manage those data elements and those data criteria to ensure that the product has maximum optionality within the market. And and that's a you know, that's a foundational challenge that, regardless of how the downstream rules are written, is always going to exist. For as long as there's a lack of complete uniformity and, by nature, given that these are regulated markets, and regulated at a national and in the US at a state level, or in Europe at a member state level. There's never going to be complete uniformity across these markets going to be complete uniformity across these markets.
Speaker 1:You mentioned earlier that one of the reasons this is important is, for you know, verifying the feedstock is actually the fuel that comes out. The end is actually renewable. But another aspect of it is being eligible for the tax incentives, particularly in the US. So lots of listeners will be familiar that there is the. So lots of listeners will be familiar that there is the Inflation Reduction Act. There are tax based credits available for producers in the US. Do you just want to take us through how the federal tax incentive work in the US?
Speaker 2:Sure, yeah, happy to. And at the risk of of overcomplicating things, I think it's useful to start with just an understanding of how a lot of these tax credits came into being, because it explains a lot of the equities that exist within the market. So in the US, our legislative process is in order for bills to be passed, it goes through our bicameral legislature, which has the House of Representatives and the Senate. Ultimately, it's signed by the president. That's when a law is actually enacted. So when I mentioned earlier that abstract title, Title 40, Part 80, 1454, J1, that's what's called.
Speaker 1:US Code. I was impressed you could read that off the top of your head.
Speaker 2:I appreciate it. Unfortunately, I'm all too familiar with it, but that's an example of what would be called US code, and so US code is written as a result of legislation that's passed, then that US code needs to be enforced, and the enforcement mechanism for it is the executive branch which the president is the head of, and there we have agencies that go into enforcing it. And the reason why I gave that whole explanation is to really get to this point, which is among those agencies are the Environmental Protection Agency, which oversees the renewable fuel standard, and the IRS, which is responsible, which is part of the Treasury Department, which is responsible for all tax, part of the Treasury Department, which is responsible for all tax credits. And so it's important to understand that distinction, because when you talk about the tax credits, when you talk about, you know, 45z as an example, as part of the Inflation Reduction Act, what you're really talking about is you're talking about a program that is under the jurisdiction, as it relates to the credit itself, of the Treasury Department and, more specifically, of the IRS, to define how you submit for that. But when it comes to how do you calculate the emission reduction and what qualifies and what doesn't qualify, it's actually a joint effort between the EPA, the Department of Energy, the Department of Agriculture to some degree because this does include crops and Treasury, and so all those groups have to get together to produce guidances on what does or doesn't qualify for the tax credit, and then the companies that are ultimately going to submit for that credit submit it through the IRS. And so when you talk about actual enforcement, it gets extra complicated, because who enforces what portion of that rule depends on what you're doing. Are you submitting the tax credit? Are you calculating the GHG to determine whether or not it's eligible? It might fall under different jurisdictions within the US government.
Speaker 2:The credit itself, as recent as a few weeks ago, got a little more guidance as to how it's going to be calculated from a carbon intensity perspective, and there the US government issued guidances around a modified greed model, and that modified greet model basically codified what uh pathways are permitted for different technologies, like hefa to saf or atj alcohol to jet, and then, in addition, what feedstocks are approved for those particular particular technology applications, and within that also assigned scores for each of those feedstocks.
Speaker 2:And so part of what came out of that ruling is that a lot of feedstocks which are very widely used within the US and other markets, classic example being soy as a standalone feedstock, might not qualify for those credits unless there are other things that the crushers, growers, et cetera are doing what we call in the US CSA or climate smart agriculture that allows them to reduce their overall carbon score, whether that's some carbon sequestration, whether or not that's different types of fertilizer, etc. So it all gets really complicated. But at the end of the day, that was the initial guidance that was issued, and that initial guidance applies to 40B, which is in effect currently. 45z comes into effect next year and an important distinction there is the distinction between blending and production, and so, starting next year, the US credits are focused on production and so they go to the producer and that is designed to help incentivize production inside the United States, and those are in effect through the end of 27.
Speaker 1:I mean, you just explained it and it sounds very complicated. It sounds extremely complicated.
Speaker 2:Yeah, yeah, we you know we as Americans like to further emphasize how complicated it is is when you actually get into the practice around submitting for these credits. Or let's take 45Z and 40B out of it altogether and let's just talk about some of the existing incentives that exist within the market, things like RINs, lcfs, credits for California and so forth. When different companies reach out to regulators, depending on what division within the regulator they're reaching out to, there might be distinct guidances that get issued. That wasn't the case for the guidance that I just referred to for the SAF credit. That was done collaboratively between EPA, department of Energy, treasury, etc.
Speaker 2:But oftentimes, when you start to get into the nuance of these rules, you start to hear different guidances and those guidances then trickle down to the market via whoever sought those initial guidances or via auditors whoever sought those initial guidances or via auditors we have a program called QAP in the US, which are designated auditors for RINs under the Renewable Fuel Standard and so all these different stakeholders hear slightly different guidances from the government in some cases and, as a result, you end up with, instead of one rule, one guidance, one application and, as a result, you end up with, instead of one rule one guidance, one application, one rule, n number of guidances, n number of potential applications. And so your point about how it's complicated. It's actually even more complex than what I initially described and it makes it really hard for stakeholders within this value chain to be able to navigate it, because it's not as linear as as one might assume just based off of what's written into law do you think the complexity puts anyone off?
Speaker 1:do you think? Do you think anyone goes? I don't even know where to start with all this stuff, so I'm not even gonna look whether it's a you know claiming, or whether it's to do with the book and claims, or whether it's on the incentive side. The whole system has so many working parts to it that are not necessarily totally integrated.
Speaker 2:Yeah, yeah for sure, and I think where you see that is not at a macro level, I don't think you see companies. I mean, maybe there's investment decisions. I'm sure there are investment decisions that are being made taking this into account, especially as it relates to the expiration of some of these credits and whether or not production is gonna be online in time to be able to take advantage of them. But when you actually dive into it, I think a lot of what you referred to as turning people off, a lot of where that happens is commercially, on a day-to-day basis, with the type of feedstocks that are traded, because of the scale challenge I mentioned around used cooking oil. If folks don't have access to a system like ours to be able to navigate that, they might decide that even though there's a good carbon intensity benefit and economic benefit for running that as a feedstock within their plant, it's just not worth the effort because of, ultimately, what they're going to have to do in terms of manpower, in terms of just being able to report everything to auditors succinctly, and so forth that they don't want to handle it. Now that shift is changing because of the way that the models have been updated and so there's clearly an incentive for those low CI feedstocks, and so I think the mentality has changed from we can avoid some of these low CI feedstocks to we can't avoid them. We have to figure out how to make this work.
Speaker 2:We've definitely seen that on the demand side from our end for use of our platform. But that's where I think this starts to play out is on a commercial level, day in, day out, some folks saying you know what, it's just not worth it. It's too complex, there's too much risk involved. I'm going to, instead of using, use cooking oil. I'm going to use tallow because there's four rendering facilities instead of 400 restaurants. Or I'm going to use you know a different feedstock because it's single source versus multi-source. So I think that's where this has been playing out on the ground. But as the credits shift towards CI-based, especially next year with the production credit, I think we'll see that shift back to what's most economically valuable and that is the lower CI feedstocks, albeit how complex handling them and the subsequent fuel may be.
Speaker 1:You mentioned the change at the end of this year from 40B and then 45Z, as you guys on your side of the pond say it. Why the change? Why does it need to go from a blenders-based to a production-based? Why not just keep 40B all the way through to 2027, when the inflation reduction act goes out?
Speaker 2:Yeah, you know this gets into. You know more political and protectionist types of considerations. But I think this you know this would be my reading into to why the government went this route is they want to incentivize production inside of America, as we would say, made in America, right? And so you know, I think it's an attempt for for us to try to change some of those trade flows where, historically, you could have foreign supply of some of these renewable flows, where historically, you could have a foreign supply of some of these renewable fuels into the US that qualified for those blender credits and at a higher level, if you're the US government and the Biden administration is the one that specifically signed the inflation reduction into law. So if you're the Biden administration and you're looking at the next decade or two decades worth of sustainability and you see that SAF is going to be a big part of that, as has been announced, the administration has their SAF Grand Challenge, which is 3 billion gallons by the end of the decade. So if you think SAF is really going to be that important to the future of the global economy, as the United States does, as I'm sure you and I both do, then you would want that production as much as possible to be happening inside the United States. And if taxpayers are going to subsidize those types of renewable fuels, you would want them to be subsidizing the production of them as opposed to just the blending of them.
Speaker 2:So, fundamentally, I think that's really what's driving it, and the reason why you saw, and historically have seen, bipartisan support for a lot of these programs is because they're not just climate programs, they're jobs programs.
Speaker 2:The fact that we have soy and other crops that are grown in America that have been eligible under these programs obviously there are some changes that are occurring as part of the updated modeling speaks to the incentive structure.
Speaker 2:For you know middle America, where a lot of the farmland is to be able to participate in these programs, a lot of the plants that you're seeing being built are built either in California or the Northwest, and that has to do with with the state incentives that exist there or in the Gulf, alongside a lot of the historical oil and gas production that's been in the United States, and so that's, you know, both blue Democratic states and red Republican states, and so if you look at it from an American political lens, you see again, historically this may change, but historically broad bipartisan support for these types of programs because fundamentally, they are jobs programs, and the reason why it shifts to a production credit is because you want more jobs and more production to occur inside the United States, and when I go to conferences outside the United States, it's actually one of the first things that a lot of non-US based companies complain to me about is the fact that there is this significant incentive that exists within the US market that makes it harder for them to compete against American companies, and so I think that is the intended consequence of what the US government wanted to try to achieve.
Speaker 1:I mean, I think it's definitely working. I think everyone that's not in the US is certainly interested in producing in the US purely because of these tax incentives. So from a point of view of encouraging production, I think it's, I mean, it's absolutely working. So you mentioned the 40B revision and GREET being used the GREET model being used as a way of counting the carbon intensity of feedstocks, and that isn't without controversy. I think that some people are more happy than others about that being included. Is that right For?
Speaker 2:sure, yeah, and part of it goes back to some of the way that crop-based feedstocks were scored, or under the modified GREET model. You know it's worth explaining. So there's a handful of different models that could be used, depending on you know ultimately what the guidance of the government is. We've got GREET, which was produced out of one of the national labs here in the United States. We've got California GREET, which is a modification of GREET for the low carbon fuel standard in California and widely adopted internationally in the context of SAF. So a handful of different ways that you could start to calibrate and score the carbon intensity of feedstocks and then ultimately the finished product.
Speaker 2:What really caused, I would say, the controversy around the modified greed proposal for 40B, which many assume will carry forward to 45Z, though the government did say that it's not applicable yet to 45Z and that they'll see how 40B is implemented and then use that for their guidance for 45Z.
Speaker 2:Part of the just general controversy was the fact that if these crop-based feedstocks don't do these other CSA or carbon sequestration type activities, that they may not qualify for the threshold reduction in order to meet the SAF credit.
Speaker 2:The way the SAF credit works is it's a baseline credit and then each incremental carbon intensity reduction leads to another cent per gallon of credit, and so you have to meet that minimum threshold, and this most recent model does put at risk some crop-based feedstocks of not being able to meet that threshold if they don't have these other activities that are contributing to a lower carbon intensity score.
Speaker 2:Part of what further exacerbates that controversy is, you know, the guidance is coming into effect, but the blending credit ostensibly there's some question about extension, but ostensibly ends at the end of the year, so there's not a lot of time for folks to start to implement that. The government would argue that as part of the Inflation Reduction Act, they've given out, through the Department of Agriculture, billions upon billions of dollars for some of these climate smart agricultural initiatives, and so folks should be in a position to be able to do this. But industry would argue that they're not ready and so they're kind of being penalized from the get-go rather than having this be applied incrementally over time. And so that's kind of part of the debate that's occurring right now.
Speaker 1:One of the Inflation Reduction Act credits expire in 2027. And that's three years away, which doesn't seem that much time to you know, if you want to construct a facility in the us, you've got to go through all the processes pick what you're going to do, pick your feedstock, get your feed studies, get all your investment together, actually build the plant and get that. So that's a lot of work to do and not much time. So do you think they're long term enough? Is there enough of an incentive for new people to come into the us and go, or people in the us to go? I want to build a refinery when they've only got three years to take advantage?
Speaker 2:Yeah. So you know part of that is it definitely helps, you know, incumbents or those that had, you know, reached FID a long time before the Inflation Reduction Act came into effect, which there's two ways you could look at that. It's rewarding folks that had the foresight to make investment decisions, and the other way is it's trying to help incumbents to continue to grab market share. It's an interesting exercise in different perspectives, because when the Inflation Reduction Act initially passed, I'd say industry as a whole was shocked for how long the credits were going to be in effect, for the US market is not used to, at a federal level, credits or any kind of renewable subsidies existing for multiple years.
Speaker 2:In fact, before the Inflation Reduction Act, when you looked at some of the renewable volume obligations and some of the things under the renewable fuel standard that were tied to annual obligations and so forth, oftentimes that was done retroactively, and so there was a business environment where folks had to make assumptions about whether or not they were going to get some of those subsidies from the government, and those assumptions could have always been wrong.
Speaker 2:Typically they weren't. Typically they came to pass just delayed. But they could have always been wrong. Now we've got this forward-looking credit in place that gives a lot more certainty. And now we get to the next perspective, which is, while it gives a lot more certainty, we're also talking about much more complicated production, and production at a scale that far exceeds some of the historical biodiesel that we talked about and that existed in the early 2000s in the United States. And so if you're a company that's looking at making that investment with the expiration of the credit, you are likely wondering to yourself am I really going to be able to capture part of that value Now?
Speaker 2:ultimately, what would probably put you on the side of the ledger of. I can still capture value in spite of that are the voluntary programs and the state level programs. For example, washington State has a supplemental staff credit, illinois has a supplemental staff credit, nebraska just passed one. So it's a little weird in terms of when it goes into effect and what it subsidizes. But as the states add the supplemental SAF credits then it kind of fills in the gap for some of that cost that exists. The other part of this is through book and claim and through other systems.
Speaker 2:Part of the costs associated with SAF will fundamentally be passed down either to the corporate or to the consumer, and so over time, in theory you should see the econs around this start to get to a place where it's a more efficient market, and so even in the absence potential absence of a federal credit, there still is enough of an incentive for production to occur within the united states. I, if I were a betting person, I would say that if, um, if biden gets reelected, you'll see a push for that credit to be extended. Um, if he doesn't get reelected, it doesn't mean that the credit doesn't get extended, but what you might see is a modified greet that is more favorable for a crop-based, a remodified greet. I should say that's more favorable for crop-based feedstocks, which would provide the impetus for an extension of the credit because more farmers and folks within an extension of the credit, because more farmers and folks within that part of the supply chain, get to benefit from the value in that credit.
Speaker 1:You touched on it there with another added layer of complexity being state tax credits that you've got on top of the federal ones. So everyone basically in the US is entitled to the federal one. And then then the individual states. You mentioned some there, with illinois and washington state having their own state level credits that you're you can be entitled to for if you go and do projects in those states is how how much do you think that's an attraction, sort of how much is that attracting producers to various states? Or do you think it's an added benefit when you've when they've dealt with things like looking where they can get off takers and when they can get feedstock and where, and things like that?
Speaker 2:Yeah, and the other interesting part about the state ones and it gets to your answer is, um, they're all structured slightly differently. So some some are more oriented towards production, some are more oriented towards use of the feed, of the, of the finished product, um, kind of like, uh, the California LCFS model, which is more geared towards the use of the finished product. Now, obviously, the closer you are to that state, the less transportation carbon intensity you're going to accrue in getting the fuel to that state With book and claim. Maybe there's ways that you don't have to move the physical molecule. All that remains to be determined. But certainly those staff credits are designed to try to incentivize additional usage and potentially additional production in proximity to those states.
Speaker 2:If you look at it my hunch is so you look at Illinois and based within Illinois is, for example, united Airlines. So that's a really good way to help one of your major employers in your state to move towards, you know, further decarbonization without having to bear all of the cost burden on that. Obviously, some can be handed to the consumer, but this, plus the fact that producers are getting a subsidy on the federal side, makes it more economical for them to start that transition. Washington's interesting mostly because Washington and the Pacific Northwest West Coast continue to be this hub for renewable fuels. But there are producers in Washington state which you know will be maybe primary beneficiaries of it, depending on the economics and what the trade flows look like.
Speaker 1:Absolutely so. I mean, we said it earlier it's fair to say that the tax credits are incentivizing production. I think we both agree they do work and I think a lot of people would agree with that. The cynic in me would say it's going to be a push to reach production at that level by the time we get to 2030. So could there be the argument that actually the tax incentives don't go far enough, don't encourage enough or could do more, or is it there's just the industry as a whole is just slower at getting these projects going than we necessarily would have thought?
Speaker 2:Yeah, well, and one added layer of complexity to all that is also where the projects are being built. You know, the permitting in California is more complicated than the permitting in the Gulf, and so, as you look to existing plants that exist that might want to convert, some of those decisions about who converts when, et cetera, it's not just about the economics of the flow relative to the credit, it's also about what the level of effort is to actually achieve that conversion and what the timescale looks like. All of that, I think, speaks to your bigger question, which is are we going to hit the grand challenge number? And the grand challenge doesn't stop at 2030. It kind of starts at 2030 and goes a few decades beyond that, and I think it's going to be a challenge. I mean, it's a worthy challenge, it's. You know, the government calls it a grand challenge for a reason, and so I think it's good that we set that as kind of a benchmark.
Speaker 2:But if we have production, if we have the credit expire at the end of 27, and we continue to see some of the challenges we see in the market today, with just the coming online of some of these production facilities, it will be absent some technological breakthrough of new potential pathways that could exist that are not envisioned today. It'll be tough to hit that grand challenge and I think in some ways the US government is banking on some technological achievements that we're not forecasting today. It's why they pumped billions of dollars through these different climate, smart and other type programs to try to identify new technologies that can be leveraged from SAF. But but even then, when we look at those new technologies, a lot of them are only being used at a pretty small scale and the and the scale of what the grand challenge is is so great that, um, that it's going to be. It's going to be tough to get there. That doesn't mean we shouldn't try, and it doesn't mean, if we fall short, that we shouldn't try harder.
Speaker 2:Those are all good things, but part of what you know, I think is underlying your question, is the US approach relative to incentives as a comparison against other countries that try to leverage mandates, and fundamentally I think it's just a different perspective that the US has on how these things work.
Speaker 2:That doesn't mean we don't have mandates. I mean there certainly are mandates that exist, let's say, on a state level inside the United States, but at our core, part of the general American ethos at the risk of overgeneralizing is one of the government incentivizes, the front end of the risk curve to try to bring new technology and production into the market, and then market-based economics are what facilitate it further, as opposed to, you know, let's say, the European or other models that are more geared towards mandates 1%, 5%, 10%, etc. To kind of force that behavior, and it remains to be seen which one of those models will be more successful over time. The answer, as with everything, is probably it's somewhere in the middle. It's probably a mix of incentives and mandates if you really want to achieve it. But we've taken we being the United States has taken more of an incentive-based approach, and so if you start to wean off those incentives too early, you run the risk that you're not actually going to hit your targets.
Speaker 1:And that's one of the things investors are they look at very closely is the longevity of you know, if they're going to have to finance a project, they're going to have to do a 10, 15-year model in order for them to get their returns. And one of the benefits of and they always look at risk and mitigating risk as absolutely they should be and as is their um modus operandi, and if you look them looking in the short term, when you look at credits to run out in 27, a bit of uncertainty potentially about what happens afterwards. Yes, you've got the backdrop of state credits which could go on for longer behind that, versus a mandate that goes through to 2050. There becomes interesting conversations from their perspective about actually where's the long term security and incentive for production and where is the best bet looking in the long term.
Speaker 2:Yeah for sure, and I'm obviously biased in this perspective, but I think the US is the best market to make renewable investments today because of the incentives, because of the demand that exists.
Speaker 2:And that's the second part of this is we talk about market based incentives that ultimately may allow for a free market approach to work post the government incentives running out.
Speaker 2:The US has the most robust corporates, in my view, that are trying to hit some of these net zero goals scope one, scope two, scope three reductions and, as a result, I think a lot of that free market incentive structure is going to pass from the government down to these corporates and they're going to be the ones that are for lack of a better term subsidizing the future production and the future investment decisions that are going to be made on whether or not to set up production.
Speaker 2:And you know these are the big tech companies. As an example, microsoft, google, amazon, I mean they've not only talked about their commitments but, specific to SAF, they've talked about their plans to purchase. A lot of them have started to purchase credits through booking claims. Some are setting up their own booking claims, so there's no question that that robustness is going to exist on a voluntary level within the US market and I think that drives the next wave of this incentive structure of this incentive structure and you've seen a lot more corporates and commercial customers showing interest in your platform, purely from the scope one, scope two, claiming those getting their carbon emissions and their carbon stuff down.
Speaker 1:That's been the big driver recently.
Speaker 2:Yeah, and as we bring it back to the value that we see from a data perspective, when you go downstream and you start to look at those corporates and what it is that they need in order to substantiate a lot of those claims, these are really sophisticated companies with global operations that are well-versed in data and their expectations around what kind of data should be available, and you contrast that with the market on the South side where, especially upstream, a lot of this, when you're talking about cash commodities, you're talking about raw materials that are being collected on pump trucks or you're talking about rendering facilities.
Speaker 2:It's not that these are unsophisticated markets, but the amount of data historically that's been available there is almost non-existent because business was done with paper, and so part of our goal all along has been to try to digitize those transactions and digitize all the data associated with it so that, as the demand downstream continues to grow and as the sophistication of those consumers increases, that we're in a position, together with partners throughout the value chain, to be able to provide them with the data that they need to substantiate the claims, and not only substantiate the claims but also maybe identify areas where they can further reduce their carbon intensity or where they can actually claim and utilize finished products that are a derivative of their own waste streams.
Speaker 2:And that's where you start to get into the circularity side of all of this. Take take amazon as an example the idea that amazon can power its uh, its logistics fleet, including its aircraft, off of fuels generated from waste from, let's say, whole foods, um and other uh folks within the within the amazon conglomerate. That's a really compelling story for them and it's one that adds value to, ultimately, their ESG and their net zero goals. But it's one that can't be told without data, and data that exists outside of their enterprise, because they don't control those supply chains, and so our ability to gather that data not only allows everyone in that stream to meet the regulatory requirements, but also to ultimately present to those customers downstream a value added product that's differentiated from everything else that's in the market.
Speaker 1:So I think it's fair to say it all comes down to data. Donny, thank you so much for that, for shedding light on a lot of complex issues. That was really interesting, and thank you for giving us your time.
Speaker 2:Yeah, I appreciate it, Oscar. Thanks so much.