From Fossil To Renewable: California’s Diesel Transition & The Future …

Support CleanTechnica’s work through a Substack subscription or on Stripe.

In a recent article, California Refineries Close as Gasoline Demand Slips into Permanent Decline, I wrote that diesel consumption in California had not declined even as gasoline demand slipped. Jeremy Martin from the Union of Concerned Scientists reached out to me to point to some data I’d missed. I reviewed it and saw that renewable diesel plus biodiesel now supply more than 70% of diesel consumed in California. Fossil diesel consumption has declined faster than I thought. That changes how we should think about the state of refining, the role of refineries, and what their future might be.

Renewable diesel and biodiesel are often lumped together, but they differ in how they are made, how they perform, and how much emissions they avoid. Biodiesel, also called FAME biodiesel, is made by chemically reacting fats or oils with an alcohol, usually methanol, in a process called transesterification. It has oxygen in the molecule and typically needs to be blended with petroleum diesel in many engines.

Renewable diesel is made by hydroprocessing or hydrotreating fats, oils, or waste lipids in a way that produces molecules much closer to petroleum diesel. It is a drop-in fuel, meaning engines and infrastructure built for regular diesel can use it without modification. According to CARB’s lifecycle studies, renewable diesel can reduce greenhouse gas emissions by about 65% compared with petroleum diesel depending on feedstock such as waste oils or tallow, while biodiesel’s emissions reductions vary more depending on feedstock and blending ratio.

Refineries cannot easily change the basic yields they get from crude oil, and heavy crudes in particular deliver a relatively fixed gasoline-to-diesel ratio. With California’s demand for fossil diesel shrinking while renewable diesel fills the market, refiners are left with a surplus of petroleum diesel they cannot sell in state. The response has been to export that diesel into other markets, often in Latin America or Asia, where demand for middle distillates is stronger. This keeps refineries operating but reduces margins, since exports are usually at lower prices than domestic sales and add shipping costs. The structural imbalance between what California needs and what refineries are designed to produce is one of the forces eroding their long term viability.

Among the two refineries discussed, the Phillips 66 refinery in Los Angeles is definitely closing. It has been confirmed that the 139,000 barrels-per-day LA area facility will begin winding down operations in early September 2025, and permanent closure is expected by October 2025. The Valero refinery in Benicia is a bigger concern for policymakers because it accounts for a large share of Northern California’s refining capacity. Valero has announced its intent to close or restructure the Benicia refinery by April 2026, citing high regulatory costs and declining demand. But there are active discussions in Sacramento about state funding or regulatory relief to keep it operating.

Keeping Valero open is more politically and practically important because the Los Angeles region has more refining capacity overall than the Bay Area, so loss of Benicia would produce greater supply disruptions, especially in Northern California. Analysts estimate that the combined closures of Phillips 66 LA and Valero Benicia could remove roughly 17% of the state’s gasoline refining capacity.

The fuel policy framework known as the Low Carbon Fuel Standard is central to all of this. Under LCFS, fuel producers are required to reduce the lifecycle carbon intensity of fuels sold in California. Renewable diesel and biodiesel earn credits when their CI is below the benchmark. These credits can be traded. The more demand there is for low CI fuels the greater the price on fossil fuels or fuel pathways that do not meet CI targets. California’s LCFS pathways show that renewable diesel from used cooking oil, tallow, or waste lipids often performs better, with lower CI, than feedstocks like soybean oil. Biodiesel’s CI depends strongly on feedstock, energy used in processing, land use, and transportation.

There are risk points in this transition. Renewable diesel supply depends on feedstock that may be limited, or become more expensive, especially waste oils or fats. Scaling up renewables risks feedstock scarcity or competition with other uses such as food or international markets. Biodiesel may face limits on blend levels or performance in cold weather. Regulatory and permitting burdens remain high. Also refinery closure or conversion faces large capital costs, labor impacts, and local community consequences.

The economic implications are clear. Refineries built for gasoline and fossil diesel have product slates optimized for those markets. As diesel is displaced, their ability to adjust output matters. Refiners may shift to processing more renewable diesel themselves, or importing it, or converting existing refining units. For Phillips 66, shutting LA means lost jobs, lost local refining throughput, and increased imports. For Valero Benicia, the stakes are higher for Northern California given its role in supply and because keeping it open is under active negotiation.

The remarkable rise of renewable diesel in California is best understood as a bridge rather than a permanent solution. The credits and incentives under the Low Carbon Fuel Standard created a strong market for drop-in replacements that could be used immediately in heavy duty engines, but that displacement is temporary. Over the next decade, battery-electric trucks will begin to scale in exactly the same way that passenger cars already have. The economics of charging infrastructure, battery pack size, and total cost of ownership are improving year by year, and when fleets begin adopting electric trucks in volume, the effect on diesel demand will be unmistakable. Diesel has lagged gasoline in its decline because there was a ready substitute in renewable diesel, but once electric freight and delivery vehicles hit the road at scale, fossil and renewable diesel alike will fall. The best estimate is that this will trail gasoline’s decline by about ten years, giving California a temporary period of high renewable diesel penetration before a longer term contraction in overall diesel consumption.

Another factor shaping refinery futures is that the same waste oils, fats, and plant-derived lipids that now flow into renewable diesel will be diverted to other sectors under policy pressure. Aviation is pushing hard on bio-sustainable aviation fuel because there are no near-term alternatives for long-haul flights. Maritime shipping is also beginning to blend bio-fuels to meet international decarbonization targets. As more of California’s low-carbon feedstock supply is redirected toward these uses refiners will be forced to reconfigure units once again. That shift would add another layer of adjustment for the state’s remaining refineries, which would have to balance smaller gasoline markets, declining fossil diesel, and growing external competition for renewable feedstocks.

Going forward, diesel displacement looks likely to increase under current policy pressure. Electric trucks will play a role. Renewable diesel capacity may increase. But fossil diesel is likely to shrink more rapidly than most forecasts assume. Getting the technical details right matters. I got the diesel wrong before. It matters for policy, for markets, for refining jobs, for fuel security.