The Top 5 Issues in LCFVs This Week: Less Money for Fuel Subsidies=More Money for Low Carbon Transport

10.20.16 | Blog | By:

Happy Thursday friends! Here’s my weekly take on the five most interesting developments in LCFV trends over the last week.

  1. A new paper from the Council on Foreign Relations advocates for the end of fuel subsidies, highlighting the successful strategies countries have used and why it’s in the strategic best interest of the U.S. to continue advocating for their end. Part of the reason: Less money devoted to fuel subsidies means more money devoted to other low carbon initiatives and efforts, including for transport.
  2. Per capita energy demand will peak before 2030, according to a World Energy Council (WEC) report launched at the 23rd World Energy Congress in Istanbul. In transport, the world will look to next generation biofuels/advanced alternative fuels and electric vehicles as key strategies to decarbonize transport.
  3. The American Transportation Research Institute (ATRI) released results of a survey conducted fleet fuel economy and fuel usage. Fleet managers generally favor the use of biodiesel blends, but are not keen at this time on other alternative fuels and vehicles.
  4. ICCT has developed a novel financing mechanism to support ultralow-carbon fuel (ULCF) production in California using a contract for difference (CfD) policy and released a paper about it this week. ULCFs are those with a carbon intensity of 30 grams of carbon dioxide equivalent per megajoule (gCO2e/MJ) or less.
  5. This week the NREL, together with W.R. Grace, and leading pilot plant designer Zeton Inc., built a unique pilot-scale facility that can produce biomass-derived fuel intermediates with existing petroleum refinery infrastructure. The approach could be represent huge potential for advanced biofuels production in the U.S. – and globally.

1. Council on Foreign Relations: Sustaining Fuel Subsidy Reform

While no agreement was reached at the recent G20 summit on ending fuel subsidies, a new paper from the Council on Foreign Relations notes that 22 countries over the last two years have steadily begun to dismantle their subsidy regimes anyway (shown in the figure below).  According to authors Varun Sivaram (recall our recent discussion on the podcast about U.S. fuel economy standards) and Jennifer M. Harris, these countries represent half of those with subsidy regimes in place.

The authors state:

“Fuel consumption subsidies threaten the fiscal and economic health of countries around the world. Economists widely agree that the subsidies, which reduce consumer prices for petroleum and natural gas below free-market prices, often strain government budgets, fail to target poverty efficiently, and distribute benefits unfairly. Yet, political barriers often obstruct practical policy changes; for example, the prospect of street protest discourages sensible subsidy reform.”

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In looking at the countries that have reduced and eliminated fuel subsidies, three strategies have emerged by which governments can reinforce reforms against back-sliding:

  • They can depoliticize fuel prices by transferring control over prices to an independent and transparent regulator who ensures that domestic prices track international markets.
  • By rapidly delivering tangible economic benefits from subsidy reform, they can preempt pressure to reverse reform.
  • Governments that maintain the momentum of reform and achieve further liberalization can lock in progress to date.

The U.S. can help countries pursue all three strategies to reinforce fuel subsidy reforms by doing the following:

  • Where it has strong relationships, it should prioritize reform durability at the highest political levels.
  • The U.S., acting through institutions such as the World Bank, can provide financial support for a limited period of time that creates a path for countries to consolidate their reforms.
  • The U.S. and international partners can create aid packages that reward long-term reform over decades; they can also drive private investment into the energy sectors of countries that have reformed fuel subsidies to support broader energy sector liberalization.

Such actions would advance U.S. economic, geopolitical, and environmental goals because subsidy reform can reduce world oil prices, instability in strategically important countries, and wasteful use of fossil fuels, which contributes to climate change.

The authors noted in Politico this week:

“Reform may not be a panacea to the world’s ills, but it certainly advances U.S. interests in many directions. Reforms by India and Indonesia, both major world economies, could materially reduce global greenhouse gas emissions that result from wasteful energy use induced by artificially low fuel prices. And higher domestic fuel prices could curtail their demand for oil, reducing global oil prices and benefiting U.S. consumers.”

Less money devoted to fuel subsidies means more money devoted to other low carbon initiatives and efforts, including for transport. The main initiatives that come to my mind are infrastructure development for electric and hydrogen vehicles and additional support for full commercialization of advanced biofuels/advanced alternative fuels.

2. World Energy Council: World Energy Scenarios 2016

Per capita energy demand will peak before 2030, according to a World Energy Council (WEC) report launched late last week at the 23rd World Energy Congress in Istanbul. WEC notes this “is in stark contrast to historic growth levels, which have seen global demand for energy more than double since 1970.” The reason for the peak? Technological innovation, government policies fostering energy efficiency and renewables, and lower growth expectations will have a significant impact on the sector in the coming decades. Moreover, next generation biofuels and electric vehicles will be key strategies to decarbonize transport. Read more about it here.

3. American Transport Research Institute, et.al: ATRI Releases Findings on Fleet Fuel Economy and Fuel Usage

The American Transportation Research Institute (ATRI), in conjunction with the University of Michigan Transportation Research Institute (UMTRI) and research sponsor ExxonMobil, released results of a survey conducted fleet fuel economy and fuel usage. The team surveyed 100 fleet managers on their views on current and future trends in fuel-saving technologies as well as the advantages and disadvantages of alternative fuels.  These fleets operate just over 114,500 heavy-duty truck-tractors and approximately 350,000 trailers.

First, a startling graphic: this depicts truck travel in the U.S. in a single day.

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Decarbonizing passenger transport is one challenge. Decarbonizing heavy-duty trucking on which the U.S. and other countries are so reliant will be quite another.

The survey found the median fleet-wide fuel economy of 6.5 miles per gallon was being achieved through the use of a variety of fuel-saving technologies. For truck-tractors, aluminum wheels, speed limiters and low rolling resistance tires were reported as the most common fuel-saving technologies.  For trailers, low rolling resistance tires, aluminum wheels and weight-saving technologies were identified as the most common technologies.

The figure below summarizes truck-based fuel-saving technologies and strategies selected by fleet managers. Generally, for all fleets, the top fuel-saving technologies currently in use are: aluminum wheels (90.4%), speed limiters (84.0%), and low-rolling resistance dual tires (76.1%). Technologies which met the most resistance to use (i.e., “would never use”) are hydraulic hybrids (67.0%) and hybrid electric drives (61.5%). These technologies are also the least currently used truck-based technologies.

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The fuel-saving technologies identified as showing the best return on investment are: aerodynamic treatments (18.8%); idle reduction technologies or strategies (15.6%); and automated manual or automatic transmissions (13.5%). Those technologies with the worst return on investment were aerodynamic treatments (28.1%), low-rolling resistance tires (12.5%); and idle reduction technologies or strategies (11.5%). The researchers note the dichotomy highlights how fleet-specific the application of these technologies can be.

Every heavy-duty fleet included in the survey currently uses diesel fuel, with biodiesel blends (B5, B10, and B20) the most common alternative fuels in use (shown in the figure below).

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Fleet managers generally see the top advantages of specific alternative fuels as: lower in cost, cleaner (reduced emissions) and more available than other alternative fuels; they see the disadvantages of specific alternative fuels as: having low (or no) availability or infrastructure for distribution, increased cost overall, and possibly lowering fuel economy for their fleet. Presumably, this is directed to electric and fuel cell trucks.

4. ICCT: Development and Analysis of a Durable Low-Carbon Fuel Investment Policy for California

ICCT has developed a novel financing mechanism to support ultralow-carbon fuel (ULCF) production in California using a contract for difference (CfD) policy and released a paper about it this week. The organization notes that to meet California’s ambitious climate change goals, a substantial portion of the state’s emissions reductions must come from the transportation sector. ULCFs are those with a carbon intensity of 30 grams of carbon dioxide equivalent per megajoule (gCO2e/MJ) or less. Read more about it here.

5. National Renewable Energy Laboratory (NREL): New Pilot Plant Demonstrates the Potential to Co-Process Biomass Streams with Petroleum (Hat Tip: GreenCar Congress)

This week the NREL, together with W.R. Grace, and leading pilot plant designer Zeton Inc., built a unique pilot-scale facility that can produce biomass-derived fuel intermediates with existing petroleum refinery infrastructure. The pilot plant, constructed in part with funding from the Bioenergy Technologies Office (under the U.S. Department of Energy-DOE), combines biomass pyrolysis together with fluid catalytic cracking (FCC) to demonstrate the potential to co-process biomass-derived streams with petroleum.

Of all the pilot projects going on out there, why would I include this? Because there are 110 domestic FCC units currently operating in the United States alone, and hundreds more globally. According to DOE, using them to co-produce biofuel could enable production of more than 8 billion gallons of bio-derived fuels, without construction of separate biorefineries in the U.S. alone.

The front end of this innovative pilot-scale system makes use of fast pyrolysis. However, upgrading this liquid product poses unique challenges, as bio-oil is acidic, chemically unstable, and contains more oxygenated compounds than petroleum crude oils. An effective approach to stabilize pyrolysis oil and minimize downstream processing challenges is to catalytically reduce the oxygen content before condensation of the vapors occurs. This step takes place in a separate reactor unit called the Davison Circulating Riser Reactor (DCR), designed by W.R. Grace.