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FP6 - AMF2/503081/2003
PREMIA - R&D, demonstration and incentive programmes effectiveness to facilitate and secure market introduction of alternative motor fuels |
| Contract No: | AMF2/503081/2003 |
| Source: | Hydrogen in Asia, February 2006 |
| Source: | Hydrogen in North America, February 2006 |
| Source: | Biofuels in India, December 2005 |
| Source: | Biofuels in the USA, November 2005 |
| Source: | Bioethanol and Biogas in Sweden, May 2005 |
| Source: | Measures to implement biofuels in Europe, May 2005 |
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Report (1746 Kb PDF)
Preface: Outline and target-setting of the report
This report entails a summary of transport-related hydrogen activities in Asia, with particular reference to the following countries: Japan, China, South-Korea, Singapore and Australia.
The overall scheme of each case study is to seek information of the framework and target-setting that each national agenda has, list the main stakeholders among the government organisations, within the research and scientific community, as well as those private-sector enterprises and nongovernmental organisations that are represented.
Second main task for each case is the listing and overall description of R&D and/or promotional programmes that each country has on-going, or are from the immediate past (or future). This should entail, if available, target-setting, list of activities and budgetary framework. The achievements that each initiative has, would be most important to list, but as most of the activities are still on very early stages, such information appears not be readily available yet.
Predominant for this area of the world is that it is mainly relying imported oil and natural gas, and only Malaysia has some natural gas reserves. However, growth is strong in transport energy use, especially in emerging economies like China and to some extent also South Korea. Only Japan has managed to stabilise greenhouse gas emissions from the transportation sector. Therefore, the possibility to introduce renewable energy in the form of hydrogen is a strong impetus in many of these initiatives and efforts.
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Introduction
The United States and Canada together account for over a quarter of world energy demand. Fossil fuels dominate the region's energy supply. Oil and gas account for over 60% of primary demand. The region is rich in fossil fuel and renewable resources. Indigenous production meets a little over 80% of total energy needs.
The International Energy Agency estimates that the United States and Canada will remain heavily dependent on oil, which they use predominantly for road and air transport. The supply of renewables expands rapidly, though their share does not impact the transportation sector really. If the US and Canadian governments take no new action to control demand growth and boost production, net imports of oil will continue to rise up to 57% of the region's consumption, in 2030. A large and growing share of these additional imports will come from OPEC countries. R&D and demonstration activities of hydrogen for transport applications in North America make reference to programmes identified in this report and do propose elements that drive the uptake of new technology.
Only in the US does this appear to have been taken to the level of substantial public funds available to support public procurement and exploitation that is not simply a demonstration project. 22 States provide tax exemptions or subsidies for the application of fuel cell and hydrogen technologies. However, it has been noted that inter-state competition for funding does pose the risk of diluting the effectiveness of the programmes and could lead to duplication of effort. This applies to inter-regional and inter-jurisdictional competition at all levels also.
The experience of Canada in supporting introduction and market uptake of hydrogenrelated transportation technologies and components thereof follows a different path as compared to the USA: a longer history and the aim of supporting an existing and competitive national industry holding - and reasonably wishing to maintain - its world leadership in specific segments of hydrogen technologies. Nonetheless, despite the recognised potential of hydrogen to provide energy security and to reduce pollution, the analysis of the US Administration's Hydrogen Initiative caution against over optimism regarding the time line, in view of the major scientific breakthroughs needed in order for the Hydrogen Initiative to succeed.
The importance of peer reviewed fundamental research ('high risk/high payoff basic science' according to the APS report) needs to be emphasised to achieve the necessary breakthroughs and caution about investing too much in demonstration projects too early, since these are very costly and in addition to diverting money from fundamental research, may divert effort toward technology with limited potential if there is not a sufficient scientific knowledge base. Indeed, at a hearing of the House Science Committee on 3 March 2004, where both reports were presented, David Garman, Assistant Secretary for Energy Efficiency and Renewable Energy at the DoE stressed that the DoE does not intend to launch into premature large demonstration projects and that those which are planned will be for small numbers of vehicles.
This introductory paragraphs aim at 'setting the scene' for the following sections dedicated to emphasising the fact that despite growing attention and activities in the area of hydrogen for transportation in North America.
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Summary
The rapid growth of India's transport sector is increasing the dependence of India's oil imports. Half of India's oil needs are related with the transportation sector. India currently imports around 75% of the oil that it uses.
Ethanol India has an important sugarcane industry, with 5 million hectares used for sugarcane, resulting in 6 to 9 million tonnes of molasses per year and 1.2-1.8 million m3 ethanol per year (most of which for potable use or industrial use). Of great interest is the program that the Indian government has introduced in order to increase the production of ethanol. Surplus of sugar and molasses are being used in order to produce ethanol which is nowadays exported to the world market. The sugar industry lobbied the government to embrace a bio-ethanol programme for several years.
Government program At first instance government supported pilot projects to test the feasibility of blending ethanol with gasoline. In March 2002 the government gave the permission for the sale of E-5 across India. In September 2002, India's government mandated that nine states and four Union territories would have to sell E-5 by law from January 2003. Their combined demand was estimated at 345000 m3/yr. This was accompanied by an excise duty exemption for ethanol. In the next phase, supply of 5% ethanol-blended petrol would be extended to the whole country. Subsequently the percentage of ethanol mixture in petrol would be increased to 10%.
Implementation problems In view of supply constraints from the sugar industry, the Government of India had decided to supply 5% ethanol-blended petrol only in 4 States from January 2003. The other 5 states and 4 Union territories would be covered by July 2003. Implementation of the excise duty for ethanol was delayed until February 2003 due to opposition from the chemical industry, in fear of higher prices and shortages of alcohol. During the last years, pricing became an unsurpassed obstacle. So, in June 2003 India's Petroleum Ministry announced that it would appoint a Tariff Commission to fix an appropriate price for ethanol sourced from sugar mills. Ethanol pricing in India is also complicated by differences in excise duty and sales tax across states and the central government is trying to rationalize ethanol sales tax across the country. More significantly, there are still substantial differences in the profitability of potable alcohol compared to fuel alcohol in several states. This, in turn, has brought on production of insufficient fuel alcohol to meet demand.
Moreover, with the cane crop shortfall of the last two seasons (2003-2004), India has had to import molasses and even ethanol to cover domestic needs. For the time being, the Indian industry tries to bridge the supply gap by importing extra molasses from neighbouring Pakistan and by purchasing alcohol from Brazil with total shipments in the region of up to 400.000 m3 (in the first half of 2005).
So the success of the programme has been hampered by problems related to feedstocks supply, price agreements and reluctance of domestic oil companies. In late November 2004 the Indian government suspended the mandatory blending of ethanol in gasoline because of poor ethanol supply. Currently the government is however considering a revival of the original plans. India's ethanol production is expected to go up again, following forecasts that sugarcane and sugar production will increase after a two-year dip. Total ethanol output in the following season (2005/2006) is seen at 1.7 million m3, of which 1.2 million m3 will be used for beverages and cheminals. This would leave 500.000 m3 for blending with gasoline throughout the country.
Biodiesel Unlike other countries like Malaysia or Thailand, the use of edible oils for biodiesel production is not an option for India at this stage since edible oils and seeds should be used in order to fulfil other primary needs. Thus the use of non-edible seeds is the only solution in which development should focus. There is ample scope for cultivation of non-edible oil seeds plants in most Indian States. Some of these plants, especially Jatropha, can be grown in areas with low availability of water and even in deserts. At the national level, 10 million hectares of wasteland could give about 5 million tonnes of biodiesel output. Non-edible oilseeds can be grown along railway lines, wastelands, highways and fencing of various types.
It is for this reason that the Planning Commission has proposed a National Mission on biodiesel and Jatropha curcas, which includes large scale plantation, collection of seeds and setting up of plants for producing biodiesel. Work on this project is now proceeding in 16 of India's 28 states.
National Mission The National Mission biodiesel program consists of two phases. The first phase consists of demonstration projects covering both forest and non-forest lands in various states across the country. The phase II of the mission will focus on uncovered areas with a target to achieve 20% blending of bio-diesel with diesel.
The phase II of national mission is proposed to be people driven with the government playing the role of facilitator. It aims to expand the program to cover up to 11 million hectare in phase II. The implementation will be done in phased manner. The first step is to achieve a 5% biodiesel blend in diesel in 9 states; then aim at a 5% biodiesel blend all over the country. Later the biodiesel blend percentage will be increased to 10% across the country and lastly work towards more than 10% biodiesel blend in the entire country.
In order to achieve the set targets, the National Mission will look into nurseries development, plantation on forest and non-forest lands, seed collection and oil extraction centers, transesterification units, blending and marketing arrangements and research and development (R&D) studies to fill gaps in knowledge. In order to manage the entire program, there is a proposal to create a National Biodiesel Board.
Conclusion India has one of the fastest growing economies in the world and fuel consumption is rising with an average of around 5% per year. This will seriously increase India's dependence on imported oil. India has already taken actions to introduce ethanol and biodiesel in gasoline and diesel fuel respectively. Despite of the existing presence of sugar cane and ethanol production in India (not for fuel purposes), the fuel ethanol story has been hampered by discussions on price, availability and the lack of appropriate policy framework that accommodates various interest groups, so ambitious targets were not met. One of the main problems is the competition between uses of ethanol and its feedstock.
The strategy on biodiesel is different. From the beginning it is decided that the focus will be on non-edible oils, which do not compete with food markets. Advantage is also that crops can be used which are not very demanding and can use wasteland in difficult climatic conditions.
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Summary
Research on alternatives for petroleum fuels in the US fluctuated over the years, with interest peaking during emergency situations, such as World Wars I and II and the energy crisis of the 1970s, when petroleum fuel supplies were interrupted. More recently, issues related to the environment and energy security have increased the attention for alternative fuels such as ethanol, natural gas, and biodiesel. Legislation, such as the Clean Air Act Amendments (CAAA) of 1990 and the Energy Policy Act of 1992, has opened markets for alternative fuels that can be produced from US domestic resources and give an environmental advantage over petroleumbased fuels. In addition, many US farmers and policymakers support the development of ethanol and biodiesel, as a means of creating new markets for agricultural commodities. Recently the JOBS Act of 2004 and the Energy Policy Act of 2005 have given a real boost to biofuel production in the US. Concerning biofuels the focus in the United States has mainly been on ethanol from corn. Research is pointed at ethanol from cellulose. In the past years the biodiesel share is also growing, although still at a far lower level than bio-ethanol.
Federal incentives The U.S. government has, since 1978, continuously maintained national tax incentives to encourage ethanol fuel production and use. Several revisions, additions and extensions of the federal ethanol tax incentives have been enacted by Congress since the original implementation. The federal ethanol incentives are provided in the form of a motor fuel excise tax exemption or an alternative income tax credit, along with an additional income tax credit for small ethanol producers. The federal ethanol fuel incentives, primarily the reduced excise tax on ethanol/gasoline blends, are generally acknowledged as the driving force for ethanol production and use in the U.S. As originally intended by Congress, this incentive (or subsidy) has made ethanol competitive with gasoline and other gasoline blending components in the marketplace. Without this long-standing federal energy policy, it is highly unlikely that ethanol production and use in the U.S. would have reached its current level. The small producer credit contributes to an industry trend toward more producers and smaller plant sizes. There is also a tariff on imported ethanol that gives domestic ethanol producers a competitive advantage over foreign producers.
Federal regulations
Air quality regulations Federal air quality regulations have contributed indirectly to the use of ethanol for gasoline blending. These include: (1) phase-out of lead as a gasoline octane-enhancing additive and (2) introduction of oxygenated gasoline requirements. Both of these federal initiatives have served to increase the marketing of ethanol as a gasoline component. The ethanol program received a boost from US Congress in 1990 with the passage of the Clean Air Act Amendments (CAAA), which included the Oxygenated Fuels Program, and the Reformulated Gasoline Program (RFG). The 'Oxygenated Fuels Program', was designed to reduce carbon monoxide (CO) emissions, mainly in metropolitan areas (carbon monoxide nonattainment areas). In these areas only gasoline with a minimum oxygen content of 2.7% (mass) was allowed in certain periods of the year (mainly winter time). The 'Reformulated Gasoline Program' (RFG) was focussed at ozone non-attainment areas, mandating a minimum level of 2.0% oxygen content in the gasoline. The two most common methods to increase the oxygen level of gasoline are blending with MTBE and blending with ethanol. Unfortunately, ethanol's high volatility, measured by Reid vapour pressure (RVP), limits its use in hot weather, where evaporative emissions can contribute to ozone formation. So as a result MTBE captured most of the RFG market (which is about one third of the total US gasoline market), and ethanol captured the bulk of the small oxygenated fuels market. As MTBE use increased, many areas began experiencing incidents of MTBE groundwater contamination primarily from leaking underground storage tanks. Laws to prohibit or restrict the use of MTBE have already been passed in several states. As a result, the amount of RFG containing ethanol is now greater than the amount of RFG containing MTBE. Especially with the addition of the New York and California markets (which had a high reliance on MTBE) in 2004 the US ethanol use swelled to record levels.
Fleet requirements The 'Energy Policy Act of 1992' (EPAct) requires certain Federal, State, and alternative fuel provider-owned light-duty-vehicle fleets to gradually switch to alternative-fuelled vehicles. US DOE's FreedomCAR & Vehicle Technologies (FCVT) Program manages the regulatory aspects of EPAct through Federal Fleet Requirements and the State & Alternative Fuel Provider Rule. EPAct's voluntary activities are being implemented through the U.S. Department of Energy's (DOE) Clean Cities initiative. EPAct's vehicle-purchase requirements have never been satisfied by all covered fleets. EIA estimates that AMF from APACT-mandated fleet requirements will account for at most 3% of the highway transportation fuels by 2010. Most of the covered fleets belong to the Federal or State governments. Costs for alternative fuels and alternative-fuelled vehicles are higher than costs for conventional fuels and vehicles, yet no funding is appropriated specifically to defray the added costs. Compliance with the EPAct would therefore reduce funding available to carry out the agencies' functions. In addition, the EPAct has never been rigorously enforced, so it is not surprising that many fleets are not in compliance.
CAFE credits The 'Alternative Motor Fuels Act' (AMFA) of 1988, extended by the Automotive Fuel Economy Manufacturing Incentives for Alternative Fuelled Vehicles Rule of 2004, encourages the production of motor vehicles capable of operating on alternative fuels. This incentive gives a credit of up to 1.2 mpg toward an automobile manufacturer's average fuel economy which helps it avoid penalties of the corporate average fuel economy (CAFE) standards. A gallon of alternative fuel used in an alternative fuel vehicle is counted in the calculation of the CAFE as equivalent to 15% of a gallon of gasoline. Because of this credit, automakers sold FFV's for comparable prices as standard models. As a result about 4 million E85 FFV's have been introduced on the US market. (up to 2005). However most of these vehicles are operated on gasoline.
Renewable Fuels Standard Recently, the 'Energy Policy Act of 2005' came into law. The comprehensive energy legislation includes a nationwide renewable fuels standard (RFS) that will double the use of ethanol and biodiesel by 2012 up to 7.5 billion gallons (28 million m€) per year. The RFS also provides that beginning in 2013, a minimum of 250 million gallons (0.95 million m€) a year of cellulosic derived ethanol be included in the RFS. A credit trading program will be put in place that allows refiners to use renewable fuels where and when it is most efficient and cost-effective for them to do so.
State incentives A number of state incentives are currently in place in the states addressing the production and/or use of ethanol fuel. An overview can be found in one of the following chapters. The various types of state ethanol incentives that were identified can be categorized as follows:
Production Incentives
Producer payments and production-based tax credits are the primary measure used by states to support expansion of ethanol production. Both of these approaches supplement the federal ethanol excise tax's effect of allowing producers to supply ethanol to motor fuel markets at a price close to that of petroleum fuels by underwriting a portion of the higher cost of ethanol production (versus that of petroleum fuels).
Application Incentives
Reduction in state excise tax and/or sales tax on ethanol/gasoline blends is the oldest type of incentive for ethanol use practiced in the U.S. Such state tax incentives, applied at the point of fuel distribution, add to the effect of the federal ethanol excise tax incentive (albeit at much smaller amounts), which is to increase the price the fuel marketer can pay the ethanol producer by reducing the marketer's tax liability, thus making ethanol more competitive with gasoline in the motor fuel marketplace.
Many states have active incentive programs to encourage the acquisition of alternative fuel vehicles (AFV's) and/or installation and operation of alternative fuelling facilities to serve these vehicles. Corporate and/or personal tax credits against state income tax or property tax are the most common form of such incentives. In most cases, E85 and vehicles capable of operating on E85 qualify for these incentives. The advent of flexible fuel vehicle (FFV) production by the "Big Three" U.S. auto makers is prompting many states to implement specific incentives for E85 fuelling infrastructure. Purchase of the FFV's themselves may or may not benefit from state AFV incentives, since these incentives typically (but not always) apply only to the incremental cost of such vehicles, over and above the cost of a standard gasoline version.
Market - Bio-ethanol At the current time the ethanol market in the US is mainly driven by tax incentives, clean fuel standards including the RFG oxygen requirement, restrictions on MTBE and rising gasoline prices. Also the current RFS is expected to give a boost on ethanol production. Production of ethanol in the US in 2005 is estimated around 15 million m3, production which is in the same range as Brazil. In 2000 this was still 6 million m3. The 2005 production figure is expected to almost double by 2012. At that time also ethanol from cellulose is scheduled to come to market in significant volumes.
Almost all ethanol in the US is used in the blend market at levels up to 10% by volume. Today, approximately 30% of the US gasoline is blended with ethanol. There are also applications of high ethanol concentrations (E85) and up to 4 million FFV's are currently on the US market which are flexible to use either gasoline either E85. However most of these vehicles are running on gasoline. In total ethanol consumption in 2005 accounts for around 3%vol (=2% by energy) of gasoline consumption in the US.
Market - Biodiesel Biodiesel has been under attention in the United States for research purposes, but for now did not achieve the same success as ethanol. To a certain extent this has to do with the high fraction of gasoline use, and the low reputation and acceptance of diesel vehicles in the US. However in recent years biodiesel use in the US is growing, certainly now also legislative actions have been taken to promote the use of biodiesel. While soybeans are not the most efficient crop solely for the production of biodiesel, their common use in the United States for food products has led to soybean biodiesel becoming the primary source for biodiesel in the US. Soybean producers have lobbied to increase awareness of soybean biodiesel, expanding the market for their product.
The most common biodiesel blend used today in demonstration and test engines in the United States is B20. In 1998, Biodiesel as a 20% blend ("B-20") with petroleum diesel was designated an "alternative fuel" under the Energy Policy Act. As of 2003 some tax credits are available in the U.S. for using biodiesel. 2005 biodiesel production in the US is estimated around 75 million gallons (300.000 m3), up from 200.000 gallons (750 m3), in 1999. The 2005 figure represents 0.2% of the US diesel market.
Conclusions The US has a long ethanol history, which is mainly focussed on blendings up to 10% (gasohol). The reasons behind the introduction of bio-ethanol in the US varied between security of energy supply in the beginning (energy crisis in the 1970s), reduction of vehicle pollution in the 1990s and again security of energy supply after 2000. The fact that the fuel is domestically produced is an important factor, and biofuels can reduce to some extent the major oil imports into the US. Since 1978, there have been continuously maintained national tax incentives to encourage ethanol fuel production and use. This has been supplemented with fuel regulations (oxygenates and RFG), fleet requirements, import tariffs, CAFE credits and research funding. On top of Federal initiatives, also State initiatives play an important role.
State incentives, which come on top of federal incentives at the end can make the difference. These State incentives often depend on the role of lobby groups and local stakeholders. Most of the ethanol production is now in the agricultural states in the Mid-West, reflecting the fact that about 95% of US ethanol production is from corn, with an important role for local agriculture. Current biofuel use in the US represents around 1.5% of transport fuels on energy basis (status 2005). Taking into account the steady rize of transport fuel consumption and the anticipated biofuel increase by 2012 in the 2005 Energy Policy Act, biofuels consumption would represent around 2.5% of transport fuels on energy basis (3.6% by volume) in the US in 2012.
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Abstract
This report is the result of an assignment on assessment of bio-ethanol and biogas initiatives for transport in Sweden, granted by VTT Processes, Energy and Environment, Engines and Vehicles, Finland to Atrax Energi AB, Sweden.
The report of the assignment is intended to append the literature and other information used in the PREMIA project. The work has been carried out by Björn Rehnlund, Atrax Energi AB, Sweden, with support from Martijn van Walwijk, France.
The report describes the development of the production and use of biobio-ethanol and biogas (biomass based methane) as vehicle fuels in Sweden and gives an overview of today's situation. Besides data and information about numbers of vehicles and filling stations, the report also gives an overview of:
Public acceptance, side effects and the effect off the introduction of bio-ethanol and biogas as vehicle fuels on climate gases are to some extent also discussed in this report.
It can be concluded that since the early 1990s Sweden has had a perhaps slow but steadily increasing use of bio-ethanol and biogas. Today having the EC directive on promotion of bio-fuels and other renewable fuels in place the development and introduction of filling stations and vehicles has started to increase rapidly.
From 1994 to 2004 the number of filling stations for bio-ethanol grew from 1 to 100 and during the year 2004 until today to 160 stations. The situation is similar concerning introduction of Flexible Fuel Vehicles (FFVs). Today there are at least 14 000 FFV`s operational in Sweden. Besides that there are also 450 buses running on neat ethanol and almost all gasoline sold in Sweden is blended with 5 % ethanol.
Also the production and use of biogas is increasing fast these days. Until today most of the biogas used for vehicle purposes has been produced as a by-product of treating sewage sludge (anaerobic digestion) for odour control and to reduce the risk of health problems. However, the production of biogas from different kinds of residues has slowly started during the 1990s, a production that is focused on just the production of gas and not taking care of a waste problem. A Swedish company is at the moment building a new biogas plant for anaerobic digestion of agricultural residues and also has scheduled to build 5 new plants the coming 6 years for anaerobic digestion of agricultural products. Besides that there are also initiatives to fuel local trains and ferries by biogas.
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Report (544 Kb PDF) from this meeting.
The The discussion forum "Measures to implement biofuels in Europe" was organized in the context of the preparation of the EC report on the Biofuels Directive in 2006. It was directed towards key stakeholders in the field of biofuels as well as to national representatives of member states. The main goals of the forum were to list possible measures to accelerate market introduction of biofuels, give examples of where measures have been applied successfully, and to supply a forum to discuss various topics and approaches.
© Copyright 2006 Policy Statements
Updated
by CPL Press:
03/07/2007
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