Some California Oil Refineries See a Future in Biofuels. Here’s Why That’s Problematic.

In many ways, California is leading the transition away from fossil fuels in the United States. The state has established a legal requirement to eliminate 85% of its greenhouse gas emissions by 2045 and enacted several policies aimed specifically at reducing transportation emissions, all while incentivizing electrification. Gasoline demand in the state has been dropping - a trend expected to continue.

And while California is also looking into how to move away from petroleum fuels, some demand will persist for gas- and diesel-powered vehicles, aviation and rail and marine transportation. With no official transition roadmap in place, that means the future of the state's many oil refineries - and the workers and the communities they support - holds some uncertainty.

California still has the third-largest oil-refining capacity in the U.S., but low-carbon shifts will send refineries on three potential trajectories: Some will shut down permanently, some will remain in business for as long as possible and others might look to convert their operations produce bio-based diesel.

That third path is riddled with challenges and carries with it serious implications.

Over the last several years, state and federal policies that treat biofuels as beneficial to achieving decarbonization targets have driven a rapid increase in the production and consumption of bio-based diesel. And, to date, at least three petroleum refineries in California have pursued conversions.

But with a limited supply of sustainable feedstocks as well as uncertainties around pollution and impacts on workers and communities, a shift to "biorefineries" by some oil refineries could be misguided and requires careful consideration.

A Closer Look at Bio-Based Diesel

Biofuels account for about 6% of the energy used for transportation in the United States. Yet, between 30% and 40% of the nation's corn supply and 40% to 50% of its soybean oil supply go toward biofuel production, underscoring the vast quantity of crops used to produce only a small fraction of the country's transportation fuel.

In the last two decades, biofuel production in the U.S. has more than tripled, and biodiesel and renewable diesel consumption has grown drastically over the past decade. The consumption spike of bio-based diesel has been particularly prominent in California, which consumes half of the nation's entire supply. Although the state's overall diesel use only accounts for 7% of the country's total, bio-based diesel makes up more than 70% of California's overall diesel consumption. By contrast, bio-based diesel accounts for only 3.8% of diesel consumption in the rest of the United States.

Climate Dangers of Bio-Based Diesel

Some policies, such as the California Low Carbon Fuel Standard (LCFS), treat bio-based diesel as beneficial for achieving decarbonization targets, citing emissions-reduction benefits. But such calculations don't tend to account for the fuel's full greenhouse gas impacts. When bio-based diesel requires the dedicated use of land to grow crops for fuel, it displaces crops for food, which in turn drives emissions from agricultural expansion to meet rising global food demand. When these impacts are fully accounted for, studies show that bio-based diesel is not only more emissions-intensive than fossil fuels, but that it also increases food prices.

Using waste fat, oil and grease feedstocks in the production of bio-based diesel can offer greenhouse gas benefits when they are true wastes that would otherwise be landfilled. In many cases, however, such waste feedstocks are residues or by-products that already go toward the production of other commodities, such as pet food. When the use of these feedstocks for fuels displaces those uses, it can drive up the production of virgin oils to meet demand and negate emissions reduction benefits.

Why Are Some of California's Petroleum Refineries Converting?

Across the U.S., the number of refineries converting their production from petroleum to biofuels is on the rise: Such conversions more than doubled between 2019 and 2022. California is leading this shift. At least three of the state's 11 gasoline refineries - Phillips 66 in Rodeo, Marathon in Martinez and another refinery in Bakersfield - have completed conversions, or have announced plans to convert, to renewable diesel fuel production since 2022.

Others, meanwhile, have shut down operations entirely, citing market dynamics and low profitability as key drivers for their decision.

Several factors are influencing refineries' decisions to convert.

The California Low Carbon Fuel Standard and the federal Renewable Fuel Standard

California's LCFS and the federal Renewable Fuel Standard (RFS) both provide key incentives that are driving the increased production of biofuels in California.

The LCFS is designed to reduce emissions from the transportation sector and transition the state to low- and zero-carbon fuels. Producers can earn financial credits if their fuel lowers emissions compared to the carbon intensity standard, which becomes more stringent over time.

In line with California's primary objective to phase out combustion vehicles, the LCFS program has helped support transportation electrification, generating about $4.3 billion for electric fuel pathways. However, the vast majority of the value generated has gone toward combustion-based fuels, particularly biofuels, subsidizing fuel substitution instead of electrification.

Despite the studies showing that biofuels made from crops do not provide climate benefits - and instead increase emissions relative to fossil fuels - the LCFS still issues emissions reduction credits to biofuels. The standard's calculation methods for determining the carbon intensity of fuels from purpose-grown crops underestimate land-use change due to food-crop displacement. While a majority of California's bio-based diesel has historically been made from waste products like used cooking oils, which can provide greenhouse gas benefits, virgin vegetable oil from purpose grown-crops has entered the market at a dramatic increase since 2021.

This means that many LCFS credits issued for biofuels increasingly do not represent real emissions reductions. This spike in bio-based fuel credits has also led to a stark decline in credit prices, a reality that some have characterized as the crowding out of support for electrification-based credits.

The LCFS's over-incentivization of biofuel production is caused by a trio of factors: the program's lack of a cap on bio-based oil, the artificially low carbon intensity scores it assigns to these fuels and its interaction with the federal Renewable Fuel Standard (RFS). Under the RFS, fuel producers are required to buy and blend biofuels into petroleum-based fuels. California has become an especially attractive place for renewable diesel producers to meet these requirements due, in part, to the additional economic boost that the LCFS provides.

Renewable diesel available at the pump at a California gas station. State and federal policies have incentivized renewable diesel production in California. Credit: Sipa USA/Alamy Stock Photo

In November 2024, the California Resources Board voted to update the LCFS to limit the amount of bio-based diesel fuels from virgin crop oils to 20% of each company's bio-based diesel production. While the move is a step in the right direction, loopholes like the exemption of existing facilities from the limit until 2028 make clear that additional action is needed to discourage the continued growth of such fuels in California.

While experts have repeatedly pointed out that these policies have encouraged the conversion of petroleum refineries to biofuel in California, and refineries themselves have been vocal about the economic incentives and general profitability of converting, it remains unclear whether this growth trend will continue.

Other factors influencing the decision to convert

Petroleum refineries' size may be a deciding factor in whether they choose to convert to biofuel production. Bigger refineries are more likely to survive the decline in petroleum demand and, therefore, more likely to continue with business as usual. Smaller refineries, on the other hand, are more likely to shutter operations entirely if faced with economic difficulty. Refineries at risk of closure, however, will likely not go down without a fight, and may see conversion as a means to keep operating.

Logistically, smaller refineries may be better suited for conversion because the limited supply of true waste feedstocks aligns more closely with their capacity needs. The decision to convert, however, may be limited by the availability of these feedstocks at sufficient scale, since most waste feedstocks already go toward the production of non-fuel commodities.

Smaller refineries may also see conversion as a strategy to delay the expensive and complicated process of decommissioning, and to prevent stranded assets for their shareholders. So far, such extensions of facilities' lifespans have only been possible and profitable because of the LCFS, RFS and other subsidies from tax credits. Without them, the refineries would likely close permanently since biofuel production is not profitable without subsidies.

Several indicators suggest that conversions could begin to slow down. While limited waste feedstock supplies could encourage refiners to tap into the supply of virgin oils, global markets could limit the economic feasibility of greatly expanding soy production for oil. Additionally, the uncertain future of the RFS requirements could lead to fewer incentives to produce bio-based diesel in the future. Time will tell how these factors will influence California refiners' decisions around conversion. In the meantime, the immediate impacts of biorefinery conversions and the role they play in the energy transition more broadly need to be closely scrutinized.

Impacts of Refinery Conversions

The uptick in refinery conversions is problematic due to both the increased production of crop-based biofuels and the negative impacts tied to the operation of the biorefineries themselves.

Greenhouse gas emissions & feedstock availability

Bio-based diesel in California has historically been made from wastes and residues such as used cooking oil and animal fat. If these feedstocks would otherwise have gone to waste, using them to create bio-based diesel can provide fuel that is less emissions-intensive than fossil fuels. But because the LCFS and the federal RFS have created powerful incentives, production of biofuel has increased dramatically and outpaced the available supply of waste fats, oils and greases.

Moreover, many of these feedstocks are not truly wastes because they already help produce non-fuel products. Even when feedstocks are sold as wastes, research has shown that global tracking and documentation are not sufficient to ensure that they are truly wastes, not virgin vegetable oil.

To meet increased bio-based diesel demand, refineries would increasingly need to use virgin vegetable oils such soybean oil, produced from soy crops grown on prime agricultural land, the use of which has risen dramatically over the past few years.

When food crops are diverted to fuel, land elsewhere must be cleared to meet growing global demand for food. When forests or grasslands are cleared to create cropland, large amounts of carbon held in plants and soils are released to the atmosphere. The global market for soybean oil is also tightly connected to markets for other vegetable oils including palm oil, which further drives global deforestation and related emissions abroad. As soybean oil is diverted to fuel production in the United States, the demand for vegetable oil in food products and cosmetics could be substituted for products such as soybean oil in Brazil or palm oil in Indonesia, both directly linked to recent deforestation.

Health and safety concerns

The pollution directly tied to the biofuel refining process is another important concern. Residents near California's Rodeo biorefinery, for instance, have spoken out about the expected increase in pollution from the surge in traffic traveling through the area's densely populated communities. Two lawsuits brought by local environmental groups against the County of Contra Costa alleged that the environmental review processes for the biorefinery had been faulty, and raised concerns about the health impacts of pollutants like volatile organic compounds and particulate matter that the biorefinery would release.

Some California-specific research indicates that flaring by converted biorefineries would also result in nearby communities' acute exposure to episodic air pollution. These communities are predominantly populated by people of color who have been historically and disproportionately burdened by such exposures. Converted biorefineries' potential to continue adding to pollution risks and impacts therefore has significant environmental justice implications.

What's more, the research suggests that refining biomass could increase the risk of explosions and fires, threatening the health and safety of workers and communities. The U.S. Chemical Safety Board opened an investigation in 2023 after a fire broke out at the Martinez biorefinery and seriously injured a worker.

Comprehensive research on the pollution impacts of large-scale renewable diesel processing is still limited, but one recent study found that biofuel refineries across the U.S. release as much, if not more, hazardous air pollutants than petroleum refineries.

Impacts to workers and on revenue

Phillips 66 recently announced that when its Los Angeles refinery closes in the fourth quarter of 2025, it will lay off 600 employees and 300 contractors. Such closures not only lead to the loss of well-paid jobs, but also to the loss of local tax revenues in the communities that hosted the refineries. Retrofitting an oil refinery to produce biofuels may therefore seem like a good strategy to help preserve jobs and tax revenues.

However, the assumption that converting to biofuel production would offer relief to local communities and workers needs to be investigated further, especially given the significant uncertainty about the lifespan of biofuels facilities. California's 2022 Scoping Plan intends for biofuels, and renewable diesel in particular, to be a bridge fuel until electric or hydrogen-powered trucks make it obsolete. These retrofitted facilities may provide short-term opportunities for workers, but their long-term trajectory is unclear.

Similarly unclear is whether biorefineries can absorb all of the displaced oil refinery workers and/or whether they can generate similar levels of tax revenues as an oil refinery.

Oil refineries typically have a much larger capacity than biofuel facilities, which can produce between 5,000 and 15,000 barrels per day (bpd) - a fraction of the hundreds of thousands of crude that oil refineries can process in a day. The biorefineries' smaller size and limited production could impact the workforce numbers, but other factors, including a company's unique workforce strategy, could also play a role.

An oil refinery in Cheyenne, Wyoming, offers a helpful illustration. When it announced in 2020 that it would convert from processing crude oil to producing renewable diesel, its capacity was 52,000 bpd. The refinery also announced it would lay off about 200 workers over 18 months as it made the conversion. Today, that biorefinery has a capacity of 6,000 bpd and employs 80 people, suggesting that capacity reduction is one reason for its post-conversion decreased workforce. Property taxes paid by the company also dropped from about $3.2 million in 2020 to less than $670,000 in 2022.

Similarly, when California's Marathon Martinez refinery shut down in 2020, it laid off more than 700 workers, including 345 unionized refinery workers. A survey of former workers found they faced significant difficulty finding high-quality, union jobs in the aftermath of the refinery closure. In early 2021, the refinery received a permit to convert its units for renewable diesel production and announced that it expected to employ about 110 workers to run the biofuel facility. One representative from a prominent labor organization said in an email to WRI that the converted Martinez refinery is significantly understaffed after the company used the conversion to biofuels as an opportunity to reduce its workforce.

In contrast, the Phillips 66 refinery in Rodeo did not lay off any workers when it converted to biofuel production, showing that the overall impact of conversions on workers requires further investigation.

A Roadmap for California's Energy Transition

Crop-based biofuels cannot be considered a sustainable bridge fuel or a climate-friendly replacement for petroleum-based fuels.

The uptick in petroleum refineries converting to bio-based diesel production in California raises a series of questions and uncertainties. This holds true even as the limited supply of waste feedstocks, the negative climate impacts of utilizing virgin vegetable oil, and the future of the RFS might disincentivize further conversions. Currently, the excessive incentivization for biofuels risks slowing the necessary move away from liquid fuels while also driving global land-use change and greenhouse gas emissions.

As California strives to achieve its decarbonization targets, policymakers must carefully consider these implications. Developing a transition roadmap that holistically considers the various environmental and social impacts of different transition pathways is an important next step.