Decarbonizing Paradise: Hawai‘i’s Unique Energy Journey  

The state of Hawai‘i has been evaluating implementation of a Clean Fuel Standard (CFS) for several years. Most recently, SB1120 passed the Hawai‘i Senate on March 4th and was referred to the House where an amended version of the bill passed on April 3rd. The House amendments have yet to be negotiated with the Senate. This article explores Hawai‘i’s unique challenges in implementing a CFS and highlights the state’s innovative strategies to decarbonize its energy sector and transition toward sustainability.  

Hawai‘i CFS: A California LCFS Clone? 

As with the existing low carbon fuel (LCF) programs, SB1120 sets phased targets – in the case of Hawai‘i, reducing carbon intensity by 10% below 2019 levels by 2035 and 50% by 2045 – using a credit and deficit system based on lifecycle emissions measured via the GREET model. The Hawai‘i bill also allows for adoption of fuel carbon intensity (CI) pathways from existing LCF programs (California’s LCFS, Oregon’s CFP, Washington’s CFS, etc.) to streamline certification and incorporates the credit trading and banking mechanisms seen in market-based LCF programs along the U.S. West Coast. 

Not so fast… Hawai‘i is Different 

Hawai‘i, however, faces a unique set of challenges due to its geographic isolation[1] and lack of traditional energy resources. For example, according to the U.S. Energy Information Administration’s State Energy Profile for Hawai‘i and Stillwater’s market insights:  

1. Hawai‘i has no indigenous coal, natural gas, or petroleum production, so it must import crude oil and petroleum products from great distances to supply most of its energy. Coal and natural gas use is not significant on the islands. 
2. Less than 10% of the state’s total energy use (including both transport fuel and power) is produced locally. Most local production is from solar, hydro, and geothermal sources. 
3. About 80% of the state’s total energy use is petroleum based. 
4. Roughly two-thirds of the state’s electricity is produced from petroleum (mostly diesel), resulting in the highest electricity prices in the U.S. 
5. Hawai‘i’s transportation sector makes up 53% of the state’s total energy use – mostly jet fuel and gasoline – followed by industrial (18%), commercial (15%), and residential (14%) sectors. Its mild climate keeps residential energy use low, but tourism and military activities drive high fuel demand. 
6. Jet fuel, critical for tourism and military aviation, accounts for over 40% of Hawai‘i’s petroleum use (~1.4 million barrels per month) making it a larger share than in any state except Alaska. Motor gasoline constitutes roughly 30% (around 825,000 barrels per month), while diesel usage for transportation, though significant for industrial and power generation purposes, is smaller at about 420,000 barrels per month. 

Carbon-Reduction Progress To-Date 

These challenges have led the state to pursue a broad range of initiatives to decarbonize. The progress in the power sector has been significant. In 2023, 31% of power generation came from a portfolio of renewable sources including customer-sited and utility-scale solar, wind, and geothermal. Hawai‘i also has the world’s largest commercial power generator fueled with biodiesel. This progress was made possible by passage of the state’s renewable portfolio standard (RPS) in 2015 which established the goal of reaching 100% renewable electricity by 2045. Several projects are underway and/or planned to progress towards this goal.  

Decarbonizing the transportation sector in Hawai‘i has been discussed for several years, culminating with SB1120. At its core, the CFS outlined in SB1120 is an LCFS clone with differences in reduction, baseline year, and other specifics. Given the uniqueness of Hawai‘i, however, there are several challenges and distinctive provisions worth consideration: 

1. Jet fuel makes up a much larger share of transportation fuel demand in Hawai‘i than in the other LCF jurisdictions, and aviation is much more difficult to decarbonize than power or on-road transport. The only practical technology currently available to decarbonize aviation is sustainable aviation fuel (SAF) which is more expensive than other fuels and in short supply. Like the other states with LCF programs, the bill under consideration in Hawai‘i does not include fossil jet fuel as a deficit generator but will allow opt-in credit generation for SAF.  
2. Hawai‘i currently uses primarily a blend of E10 gasoline and receives its ethanol from the U.S. West Coast. We expect these trends to continue. 
3. Hawai‘i’s single petroleum refinery, Par Hawaii, produces much of the gasoline and diesel used for transport and electricity generation on the islands. Assuming passage and implementation of the CFS, demand for these products will dissipate over time, and that refinery will face challenges like those faced by West Coast refineries which have significant issues remaining in operation with declining demand. The Par Hawaii refinery has begun to address the future with the scheduled project completion this year to produce four thousand barrels a day of renewable diesel (RD) and SAF. 
4. Additional domestic and imported RD and SAF supply may put Neste’s large Singapore RD and SAF production facility at an advantage to U.S. domestic supply as supply from Singapore can use foreign-flag vessels while domestic supply must use U.S.-flag vessels. The wild cards in such an assumption are the lack of 45Z credits for foreign RD and SAF production and the uncertainty of tariffs on RD and SAF from Singapore. 
5. Fuel distribution between the islands is handled by barge, with O’ahu as the hub, as there are no pipelines between the Islands. Transitioning from petroleum fuels to a portfolio of additional biofuel products may strain the existing system of ships, tanks, and docks used. 
6. The electrification of Hawai‘i’s transportation sector lags that of California and Oregon (less than 5% of Hawai‘i’s existing vehicle fleet is electric.) Like Washington, Hawai‘i will have to accelerate its program objectives to “catch-up” to states with pre-existing programs. This means the considerable investments needed will have to be financed over a much shorter time frame. 
7. While Hawai‘i’s progress towards renewable power generation is impressive, the carbon intensity of its power grid is still more than three times higher than California’s grid,[2] and the total volume of transportation energy used in Hawai‘i is more than two times greater than that generated and used for utility power. Taken together, these realities indicate that the renewable electricity currently produced in Hawai‘i is less than 10% of what will be needed by the state to reach its goals to fully decarbonize power generation and transport. As such, the complete decarbonization of the vehicle fleet by simultaneously converting it to EVs charged with renewably sourced electricity will be extremely challenging. 

Conclusions  

The differences and challenges highlighted above are likely to result in CFS credit prices in Hawai‘i needing to be higher than those in the West Coast states. For example, if RD is the marginal supply used to meet Hawai‘ian CFS credit requirements, the additional cost to transport it from the U.S. West Coast on Jones Act (U.S.-flag) ships will be notable. Similarly, the lack of 45Z credits for imported fuel will add to the net cost of RD coming from Singapore.  

Bottom line: With the addition of a CFS, the already high cost of transportation in Hawai‘i will grow significantly more than it has in the West Coast states.  

What now? 

As Hawai‘i navigates the complexities of potentially implementing a CFS, understanding the market impacts and program specifics will be critical to its success. For over twenty years, Stillwater Associates has been serving public and private sector clients in Hawaii. Stillwater brings unparalleled expertise in the intersection of petroleum and renewable fuels, offering insightful analysis and innovative solutions which can be tailored to Hawai‘i’s unique challenges. Visit StillwaterAssociates.com to learn how we can help you make informed decisions and seize new opportunities in this evolving energy landscape.