China accelerates biodiesel demo projects, carbon credit methodologies

China is to accelerate development of biodiesel demonstration projects and carbon crediting methodologies to stimulate domestic demand, the National Energy Administration said Nov. 21.

Biodiesel, produced from vegetable oils, animal fats or recycled restaurant cooking oils, is recognized globally as a low-carbon, sustainable fuel. In China, however, much less attention has been paid to biodiesel in its domestic decarbonization program than to electrification and renewable deployment.

NEA said it aimed to stimulate a variety of demonstration projects testing different pathways for biodiesel applications, identifying replicable models for broader implementation and commercialization.

The administration has asked provincial governments to send proposals for projects by Nov. 30, noting that was just a first round of requests. Eligible application scenarios included but were not confined to road transportation and shipping, it said.

For road transportation, the NEA recommended starting from administrative or industrial clusters like industrial parks, logistics parks, mining areas, and duty-free zones. Biodiesel supply chains could be built up within these clusters to match suppliers, retailers and buyers.

Instead of private vehicles, NEA suggested biodiesel pilots focus on commercial vehicles, such as logistic, sanitation, postal and courier vehicles, as well as public buses.

For shipping, the agency recommended test deployments of B5, B24 and other qualified biodiesels in both inland waterways and sea routes. B5 and B24 refer to the percentages of biodiesel in blended fuels, with B5 referring to blended fuels that contain up to 5% biodiesel.

Qualified pilot projects would be prioritized for medium- and long-term loans.

At the same time, the NEA is to promote the development of respective carbon crediting methodologies under the country's domestic voluntary carbon market, known as the China Certified Emission Reduction (CCER) market, to leverage private sector capital to finance the demonstrations.

Exports

While China's domestic biodiesel market remains comparatively feeble, the country has developed a biodiesel export industry fed by used cooking oil (UCO). China is one of the largest global buyers and consumers of vegetable oil, leading to sizeable UCO-based biodiesel production.

In 2010 the State Council ordered better management of used cooking oil with a view to commercialization. In 2017 the General Office of the State Council identified the management of UCO as a key part of food safety for the 13th Five Year Plan period (2016-20).

Companies making use of the resource were encouraged to expand operations, with tax breaks to support research into technology and the roll-out of systems for utilization.

In 2002 China's first 200,000 mt biodiesel plant was included in national innovation plans. In the 20 years since, however, domestic demand for biodiesel has been minimal and there has never been a nationwide blend mandate for the product.

The only exception is Shanghai. Since 2013 the city has been experimenting with biodiesel in public buses and street-cleaning vehicles. By the end of 2020, B5 biodiesel was available in all of the city's 243 filling stations.

China's UCO-based biodiesel and hydrogenation-derived renewable diesel (HDRD) continued increasing momentum in the first half of 2023, as robust demand from the EU spurred biodiesel producers to increase production, according to a recent report by the US Department of Agriculture, Foreign Agricultural Service.

Support needed

Financial incentives will have to be significant to reshape China's export-oriented industry and create domestic demand, industry experts said.

The NEA's policy document lacks detail on whether and how financial support would be provided to biodiesel producers and consumers, a Shanghai-based biofuel trader with an international oil company said.

"Compared with conventional fuels, biodiesel is much more expensive. Who is expected to pay for the price premium? Government's subsidies? State-owned oil majors? Or the general public?" the trader said.

EU member states leveraged subsidies to create demand for biodiesel, but it was questionable as to whether the Chinese government would do the same.

Meanwhile, several biodiesel and carbon market experts said the policy document's proposed support mix of loans and profits from carbon trading was far from sufficient.

Platts, part of S&P Global, assessed Biodiesel FOB Southeast Asia at $961.20/mt on Nov. 20. The average price of CCERs was Yuan 65.01/mtCO2e ($9.2/mtCO2e) on Nov. 10, based on data from Beijing Green Exchange, which hosts the national trading platform for CCERs.