alternative fuels and the global auto industry report

7/31/2019 Alternative Fuels and the Global Auto Industry Report

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Alternative fuels and the global auto industry

(2nd editon)


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Alternative fuels and the global auto industry

(2nd editon)

Published: June 2011

AnAutomotiveWorld.comreport published by:

Automotive World Ltd

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United Kingdom

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ABOUT THE AUTHORS

Mike MurphyMichael Murphy, BSc, MPhil (Hons I), is an automotive industry researcher and writer who has written automotive

features and columns for many years, and industry sector reports since 2004. He was previously one of Automotive

Worlds news editors and continues to contribute to the news publication side of the business.

Contact Details:

Automotive World

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Westminster

London SW1P 3RX

Telephone: +44 (0) 20 7878 1030

Fax: +44 (0) 20 7878 1031

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This report is the product of extensive primary and secondary research. It is protected by copyright under the

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neither accept responsibility for loss arising from decisions based on this report.

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TABLE OF CONTENTS

LIST OF FIGURES / TABLES iiiEXECUTIVE SUMMARY 1

INTRODUCTION 2

MARKET DRIVERS 4The global oil and gas supply 4

Energy security 5

Carbon dioxide emissions regulations 5

Europe 5

The United States 6

Japan 6

Other countries 6

Toxic emissions regulations 6

Ethanol 7

Butanol 7Biodiesel 7

Gas-to-liquids diesel 7

Dimethyl ether (DME) 7

Natural gas (NG) 8

Liquefied petroleum gas (LPG) 8

Regulations requiring biofuels use 8

Europe 8

The United States 8

Other countries 9

Incentives 9

The United States 9The European Union 10

MARKET BARRIERS 13Production volumes 13

Supply infrastructure 13

Actual greenhouse gas emissions reductions 14

Biofuels 15

Bioethanol 15

Biobutanol 16

Biodiesel 16

Natural gas 16

Liquefied petroleum gas 16

Hydrogen 16

Synthetic fuels 16

Overview 17

Reduced fuel storage and operating range 18

Competition with food 18

MARKET DYNAMICS AND FORECASTS 21Alcohols 21

Biodiesel 22


Natural gas 22Hydrogen 23

automotiveworld.comAlternative fuels and the global auto industry (2nd edition)

Contents i


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ALTERNATIVE FUELS 25Algal biofuels 25

Cyanobacterial biofuels 25

Alcohols 26

Methanol 26

Ethanol 26

Blends 27

Ethanol-capable vehicles 28

Butanol 28

Biodiesel 29

Properties 29

Feed-stocks 30

Blends 31

Environmental issues 31

New production processes 31

Biogasoline 32

Dimethyl ether 32Hydrogen 33


Natural gas 34

Compressed natural gas 34

Liquefied natural gas 35

Biogas 36

Methane hydrates 36

Hythane 37

Gas to liquids (GTL) 37

Indirect via methanol 37

Fischer-Tropsch 37Coal to liquids 38

Waste to liquids (WTL) 38

Carbon dioxide to fuel 38

Vegetable oils 39


Contents II


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LIST OF FIGURES & TABLES

Figure 1: Global natural gas reserves, 1 January 2009 5

Figure 2: Fuel economy targets in selected countries in mpg (US) 6

Figure 3: E85 station distribution by US state 14

Figure 4: Existing or planned hydrogen refuelling stations in Europe 14

Figure 5: WTW CO2 emissions by fuel source for US light vehicles (g/mile) 17

Figure 6: Lifecycle CO2 emissions (tonnes) by fuel source, C-segment car 18

Figure 7: Global ethanol production forecast to 2019 (billions of litres) 21

Figure 8: Global biodiesel production forecast to 2019 (billions of litres) 22

Figure 9: Global light distillate consumption (1,000 barrels per day), 2005 2009 22

Figure 10: Global natural gas production (billion cubic metres), 2005 2009 22

Figure 11: Switchgrass 27

Figure 12: Biodiesel plant built into a shipping container 30

Figure 13: LNG tanker 35

Figure 14: Shell Prelude Floating Liquefied Natural Gas (FLNG) Project 36

Table 1: Top 15 world oil producers, proven reserves, annual production and reserve life (2009) 4

Table 2: WTW CO2 emissions by fuel source for US light vehicles 17

Table 3: Feed-stock to fuel type 25

Table 4: Estimates of the yield potential of different vegetable oil crops per acre vary considerably: 30

Contents iii


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1Executive summary

Alternative fuels and the global auto industry (2nd edition) automotiveworld.com

EXECUTIVE SUMMARY

Fuels that offer alternatives to petroleum-sourced conventional automotive fuels include other fossil fuels such as

natural gas and synthetic liquid fuels produced from natural gas and coal.

Non-fossil alternative fuels include alcohols and biodiesel produced from a variety of biomass feed-stocks via

fermentation and other processes including photosynthesis by algae and bacteria.

The markets for alternative fuels are being driven by concerns regarding the worlds ultimately finite supply of oil,

energy security, greenhouse gas emissions associated with global climate change, attempts to reduce toxic fuel

emissions to improve public health, regulations requiring their use and incentives to do so.

The markets for alternative fuels, particularly biofuels, are limited by the relatively small production volumes that

are possible to date, the lack of a supply infrastructure in some cases, concerns regarding the actual greenhouse gas

emissions reductions that are possible and concerns regarding feed-stock competition with food crops.

In general, the production and demand for all alternative fuels are increasing although there was a downturn in

alternative fossil fuel production during 2009 during the global economic recession. Biofuel production is forecast

to increase substantially in future.


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INTRODUCTION

The markets for alternative automotive fuels and the vehicles that can operate on them have been growing

dramatically during recent years, stimulated by a growing list of factors accompanied by an increasing sense of

urgency. The range of alternative fuels already in use and under development is varied and wide, and includes

biofuels produced from materials such as food crops and organic waste, hydrogen produced from natural gas or via

the electrolysis of water, compressed or liquefied petroleum gases, and a number of reformulated or synthesised

gases and liquids produced from petroleum gas or coal.

Similarly, the factors driving these developments are manifold and include the ultimately finite global petroleum

reserves, national interests in improving energy security and regulations that require lower levels of toxic and

greenhouse gas (GHG) emissions which, in turn, have led to the enactment of regulations and the provision of

incentives designed to increase the use of biofuels.

However, there are significant barriers restricting almost all pathways to developing and producing sustainable fuels

that can replace the petroleum-based products that the worlds economies and transportation systems have utilised sofreely for so long. Perhaps the most disappointing of these is that the lifecycle GHG emissions savings resulting from

the use of some alternative fuels are not as significant as first hoped and in some cases even appear to be worse than

using conventional petroleum fuels. Furthermore, the enormous areas of land required to cultivate sufficient

biofuels crops are simply not available and the clearing of rain forests or peat land to provide more agricultural land

is counterproductive to the espoused goal of reducing GHG emissions.

This report does not cover, apart from brief mention, the use of electricity as an alternative fuel in electric or

plug-in hybrid-electric vehicles, or the use of hydrogen in fuel cell vehicles. For a full review of those, see

Automotive Worlds The electric car report (2nd edition), The electric and hybrid commercial vehicles report (2nd

edition), The fuel cell vehicle and hydrogen infrastructure report and The electric vehicle recharging

infrastructure report.


Introduction 2


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MARKET DRIVERS

The global oil and gas supply

Oil currently provides about 40% of the worlds energy and 96% of its transportation energy, and global consump-

tion has steadily grown for the last century. More recently, the enormous economic growth in China, India and other

developing countries has introduced a new factor into global oil demand, with consumption in China increasing at

8% per year since 2002. The US Energy Information Administration has forecast that global oil demand will increase

37% by 2030, and that growth will be largely driven by the transportation sector.

As has been evident from the rapid increase and on-going volatility of crude oil prices during the last few years, the

worlds oil supply is under pressure. This is, in part, because there is a need to expand the extraction and refining

infrastructure that attracted inadequate investment for many years while oil was inexpensive and the supply suffi-

cient to meet demand. However, of greater long term concern is that the worlds oil reserves are ultimately f inite and

extraction of the dwindling and less accessible supply is going to become increasingly expensive.

This issue has been cast into sharp relief by the now widespread concept of peak oil, the point at which the maxi-

mum potential rate of global oil production is reached before declining rapidly in the face of increasing demand. Just

when this will occur is difficult to determine, with the more pessimistic analysts asserting that it has already

occurred, or is imminent, while optimists suggest that it could be several decades away.

The uncertainty is at least in part because of the difficulty in estimating global reserves, which is confounded by the

fact that large regions have not been the subject of thorough exploration, and by different suppliers using different,

and in some cases apparently doubtful, methods of accounting for their reserves. Moreover, reserves are defined as

the quantities that are economically extractable, a figure that shifts in parallel with the price of crude oil. Estimates

of reserve life are, of course, based on estimated demand. In the table below, reserve life is calculated simply on 2009

production volume yet demand is increasing steadily. For example, 2010 production increased 2.38% over 2009volume and as the global economy recovers, annual demand increases will be considerably greater.

Table 1: Top 15 world oil producers, proven reserves, annual production and reserve life (2009)

Sources: CIA World Fact Book, US Energy Information Administration


Market drivers 4

CountryReserves

(trillion barrels)

Production

(trillion barrels per year)

Reserve life

(years)

Saudi Arabia 263 3.562 74

Canada 179 1.202 149

Iran 133 1.525 87

Iraq 112 0.876 128

United Arab Emirates 98 1.02 96

Kuwait 97 0.911 106

Venezuela 76 0.902 84

Russia 69 3.626 19

Nigeria 36 0.807 45

Mexico 33 1.095 30

United States 22 3.336 7

China 18 1.459 12

Brazil 15 0.941 16

Algeria 12 0.761 16

Norway 10 0.858 12

Total 1,349 30.783 44


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In the case of natural gas, global reserves total over 6,600 trillion

cubic feet, or about 62 times the volume consumed in 2009.

However, Russia has 26.8% of these, Iran 15.9%, Qatar 14.3%,

other OPEC countries 21.3%, and other Caspian countries 3.9%.

North America has only 5.1% and Western Europe, 2.6%, mostly

in Norway and the Netherlands. China has 1.3%, India has 0.6%

and Japan has virtually none. Furthermore, much of the proven

natural gas reserves are designated as stranded because they are

located long distances from consuming markets.

Energy security

The US consumes about 25% of the oil used worldwide and about

20% of the natural gas, while the EU consumes about 18% of the oil

and more than 16% of the natural gas, and Japan consumes about

7% of oil and about 3% of natural gas. Because large proportions of

these supplies must be imported, all three regions, which togetherconsume 50% of global oil and 40% of natural gas, are vulnerable

to the external control of supply and price. Consequently, all have a

strong interest in reducing dependence on foreign fuel supplies

through increased fuel economy and the use of alternative fuels.

Despite concerns that several of the largest oil fields in Saudi

Arabia and the United Arab Emirates are now mature, the Middle

East is still regarded as having a major share of the worlds oil reserves and OPEC countries account for around 75%.

Added to this, the oil fields in the Caspian region are the subject of competition from all the major powers. Western

countries want to increase supplies through Turkey to the Mediterranean, through Azerbaijan and Georgia to the

Black Sea, or through Turkmenistan and Afghanistan to Pakistan and the Indian Ocean, and wish to prevent accessthrough Iran. Russia has a pipeline through Chechnya and has considerable influence in Kazakhstan and Kyrgyzstan.

China is constructing a pipeline from Kazakhstan, where India is also seeking influence.

With respect to natural gas, more than 50% of known reserves are held by OPEC countries and more than 30% by

Russia and other Caspian countries. The developed nations and the new growth nations of China and India must

import it, either by pipeline, as is the case with much of Europe sourcing it from Russia, or by transportation of lique-

fied natural gas (LNG) by ship.

Carbon dioxide emissions regulations

With CO2 implicated as a major GHG, almost all jurisdictions worldwide have introduced regulations designed to

reduce CO2 emissions by light vehicles, either directly or through fuel economy targets. Penalties can be imposedon OEMs for new vehicle sales that fail to meet the average required. Similar regulations are being developed in

Europe and the US for heavy commercial vehicles.

Several of the alternative fuels under consideration, particularly those produced from biomass and natural gas offer

the potential to help reduce CO2 emissions compared to the use of gasoline and petrodiesel. Counter to these advan-

tages, however, ethanol provides as much as 20% to 30% poorer fuel efficiency when measured on a per volume

basis such as miles per gallon.

EuropeIn December 2007, the EC adopted mandatory manufacturer fleet average CO2 emission limits for new cars from

2012 of 130 grams of CO2 per kilometre (g/km), equivalent to around 5.2 litres/100km for gasoline, or 50mpg(Imperial) or 42mpg (US). For light vans, the fleet average emission targets will be 175g/km by 2012 and 160g/km

by 2015. Part of the target (10g/km) can be achieved by measures such as the use of biofuels.


Market drivers 5

Figure 1: Global natural gas reserves, 1

January 2009

Source: Oil and Gas Journal


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The United StatesThe US Corporate Average Fuel Economy (CAFE) standards that were introduced in 1975 following the f irst OPEC

oil shock were essentially reinstated and revised as part of the December 2007 energy bill. In 2009 the target date of

2020 was brought forward to 2016. The new standards require an average of 35.5mpg (US) for passenger cars, pick-

ups, minivans and SUVs combined, by model year 2016. OEMs can trade credits and there are exemptions for OEMs

that sell fewer than 60,000 vehicles per year in the US.

JapanJapanese OEMs have exceeded regulatory fuel economy targets set to date, but new regulations were introduced

during 2007 that require them to improve the average fuel efficiency of their vehicles by more than 23% over 2004

levels by 2015, taking the average fuel economy of the Japanese fleet to 40mpg (US) by 2015, from around 32mpg

(US) in 2004.

Other countriesSeveral other countries, including Australia, Canada, China, Taiwan and South Korea have also set fuel economy or

CO2 emissions targets.

Figure 2: Fuel economy targets in selected countries in mpg (US)

Sources: Green Car Congress; ICCT.

Note: Fuel economy estimates are calculated using differ ent test protocols in different jurisdictions.)

Toxic emissions regulations

Vehicle emissions regulations were first introduced during the 1960s and 1970s to address the various toxic emis-

sions released by vehicle exhausts and fuel systems because of concerns regarding public health and the effects of

acid rain. Over time, those regulations have become more and more stringent to the point that further gains beyond

the limits proposed for introduction during the next few years in the developed regions will be difficult to achieve.

However, most of the alternative fuels currently under consideration burn more cleanly than petroleum-derived fuelsand can make a useful contribution to lowering toxic emissions levels. Hydrogen is particularly clean-burning, and

petroleum gases produce signif icantly lower levels of all regulated toxic emissions than gasoline and diesel.


Market drivers 6


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EthanolUS studies presented in a literature review found that E10 resulted in 22% to 36% lower PM emissions compared to

gasoline, depending upon the age of the vehicle, HC emissions were reduced 16.5% and NOx emissions levels were

similar to those from gasoline. According to the US Renewable Fuels Association, ethanol reduces carbon monox-

ide (CO) emissions by as much as 30%, particle mass (PM) by 50% and unburned hydrocarbons (HC) by 13%,

despite a threefold increase in evaporative emissions. However, nitrogen oxides (NOx) emissions increased.

An Australian government study of E20, found that NOx emissions increased by about 30%, compared to no increase

for E10. However, the 30% increase took NOx to no more than 50% of the allowable limit.

E85 has a signif icantly lower energy density than gasoline and combustion flame temperatures are lower, helping to

lower NOx production to levels similar to gasoline. CO and HC levels are lower than for gasoline, although acetalde-

hyde emissions can increase. However, modern catalytic converters reduce acetaldehyde levels to around those from

gasoline.

As well as being blended into gasoline, ethanol can be blended with diesel. O2Diesel Europe, for example, produces

a blend of ethanol and diesel that consists of 7.7% ethanol with about 1% proprietary additive and a cetane improver.Compared to petrodiesel, the blend reduces PM emissions by 46%, CO by 23% and NOx by 8.5%.

ButanolIn 2005, ButylFuel founder, David E. Ramey, drove an unmodified 1992 Buick Park Avenue across the US on 100%

butanol. The car returned 24mpg compared to 22mpg on gasoline and independent emissions tests conducted by the

US Environmental Protection Agency (EPA) found that HC was reduced by 95%, NOx by 37% and CO was almost

eliminated.

BiodieselBiodiesel contains fewer aromatic hydrocarbons than petrodiesel and no sulphur, reducing HC emissions by up to

67%, CO by up to 48% and PM by up to 47% compared to low-sulphur (less than 50ppm) petrodiesel. However,NOx emissions may be about 10% higher and a European study found that the use of more than a 30% of biodiesel

could result in NOx emissions at higher levels than the limits set by Euro 4. PM emissions during production can be

reduced by as much as 50%.

SunEco Energy claims that its biodiesel produces up to 82% less PM. Daimler Trucks claims that using palm oil-

based biodiesel reduces NOx emissions by up to 15% compared to ultra-low-sulphur (less than 10ppm) petrodiesel

(ULSD).

Gas-to-liquids dieselIn a six-month trial by Volkswagen and Shell, 25 Euro 4-compliant but otherwise unmodified Volkswagen Golfs were

fuelled with gas-to-liquids (GTL) synthetic diesel. Against identical vehicles run on petroleum ULSD, reductions of

91% for CO, 63% for HC, 26% for PM and 6% for NOx were measured. More recently, Shell has claimed that itsGTL diesel emits 50% less NOx than petrodiesel while HC levels are lower.

Dimethyl ether (DME)Tests conducted using dimethyl ether (DME) in a 5.9-litre Cummins diesel engine found that PM emissions were

reduced by 75% and the remaining PM was largely attributed to normal consumption of crankcase lubricating oil.

NOx, CO and sulphur oxides (SOx) levels easily complied with Euro 5, US2010 and J2009 requirements. However,

HC emissions increased although these were essentially unburned DME, which is considered non-toxic and envi-

ronmentally benign. The levels of several non-regulated toxic emissions, including formaldehyde and methane, were

significantly higher but were still only present in very small quantities. Acetaldehyde emissions were reduced by

79%, acetone emissions by 77%, and acrolein, ethylene, propylene and propionaldehyde emissions were reduced to

insignificant levels.


Market drivers 7


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It was believed that further significant reductions in exhaust emissions could be realised by optimising the DME

injection/combustion systems, incorporating an exhaust gas recirculation (EGR) system and installing a more effec-

tive exhaust catalyst. Due to very low PM emissions, large quantities of EGR could be implemented for DME oper-

ation without incurring engine reliability issues associated with high levels of PM entering the combustion chamber.

Natural gas (NG)According to Natural Gas Vehicles for America, natural gas vehicles emit 70% to 90% less CO, 75% to 95% less

NOx and 50% to 75% less non-methane organic gases than a gasoline vehicle. However, NaturalDrive Partners

claims 51% less CO and 41% less NOx from laboratory tests of a 6.0-litre GM light truck engines it converted to

natural gas operation.

Liquefied petroleum gas (LPG)According to the US Propane Education & Research Council, liquefied petroleum gas (LPG), which is also known

and marketed as propane although it typically includes other gases, produces 60% less CO, 20% less NOx and up

to 78% less PM than gasoline.

Regulations requiring biofuels use

During recent years, regulations have been introduced in several countries that require the increasing use of biofu-

els. However, questions have been raised about their worth and the adverse consequences that biofuel production can

have, and targets have been revised downward.

EuropeIn 2003, the European Commission (EC) introduced a Biofuels Directive and an action plan that targeted increasing

the biofuels share of EU transportation fuels to 20% by 2020. In 2008, the EC reaffirmed its commitment to the

programme but introduced conditions that food prices and food security must be taken into account and that produc-

tion must not use land with high biodiversity value, such as natural forests and protected areas. The 5.75% target

originally set for 2010 was relaxed to 4% by 2015 because of concerns regarding first-generation biofuels produc-tion but the expectation that second-generation biofuels would meet environmental and social sustainability criteria

encouraged the retention of a revised 2020 target of 10%.

The Netherlands had already called upon the EU to reconsider its biofuels targets, asserting that the GHG savings

fell short of the required 35% and that the land required to grow sufficient biofuel crops was simply unavailable.

France and Germany revised their targets downward and the UK moved its Renewable Transport Fuel Obligation

target of 5% from 2010/11 to 2013/14.

In 2008, the EU also approved the inclusion of up to 10% ethanol in gasoline and up to 7% fatty acid methyl ester

(FAME) in diesel, although it allowed member states to approve higher FAME blends, a move that was opposed by

the European Automobile Manufacturers Association (ACEA), which had agreed to ensure that the diesel vehicles

its members manufactured were capable of operating safely and reliably on a maximum of 7%.

The United StatesThe US Renewable Fuels Standard (RFS) was established by the federal government through the Energy Policy Act

of 2005. The RFS originally required that the use of renewable fuels rise gradually from 4.7 billion gallons in 2007 to

7.5 billion gallons in 2012 with a 2.5% transport fuel obligation from 1 April 2009. Some states have adopted

mandates requiring the use of ethanol-blended gasoline. In California, for example, all gasoline contains 5.7% ethanol.

Enacted in 2007, the Energy Independence and Security Act (EISA) required nine billion gallons of renewable fuels

to be blended into the US transportation fuel supply during 2008 and increase incrementally to 36 billion gallons by

2022. The EISA also contains specific targets for cellulosic biofuel and biomass diesel, with 0.6 billion gallons to

be used in 2009, rising to 21 billion gallons in 2022. The EPA raised the RFS for 2008 from 4.66% to 7.76% to ensurethat the targets were met and increased it to 10.21% for 2009, which equates to at least 11.1 billion gallons of renew-

able fuel.


Market drivers 8


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Renewable fuels that qualified under the RFS include ethanol from corn, cellulose, or sugar, as well as biodiesel,

ETBE, biobutanol, and gasoline or diesel from biogas or biomass gasification. However, in March 2008, the

Renewable Fuels Agency launched a review, calling for evidence of the indirect impacts of biofuels production such

as land-use change and food insecurity.

In 2009, standards were introduced that required fuel-cycle GHG emissions savings before the fuel qualified for

credits: 50% less for biomass-based diesel and advanced biofuels, and 60% less for cellulosic biofuels. A lower

threshold of 20% GHG savings was introduced for new production facilities that had commenced construction

before 19 December 2007.

States can set requirements for biofuel content in fuel. For example, Minnesota and Oregon require that diesel

contains 5% biodiesel with the Minnesota requirement set to increase to 10% by 2012 and 20% by 2015. In 2009,

California also introduced a Low Carbon Fuel Standard that calls for a 10% reduction in GHG emissions by 2020,

designed to increase the diversity of transportation fuels and support the market for alternative-fuel vehicles. When

the then Governor Schwarzenegger ordered the standards in 2007, the objective was to replace 20% of the fuel used

in the states vehicle fleet with renewable fuels by 2020.

Other countriesCanadian regulations require that gasoline must contain an average of 5% renewable content and from July 2011,

diesel fuel for on-road vehicles and heating oil must contain a 2% blend of biodiesel.

South Korea plans to increase the blend of biodiesel in its diesel fuel from 1% in 2008 to 3% by 2012 in annual 0.5%

increments and is considering further increases to take it to 5%.

The introduction in Germany of gasoline with a 10% ethanol content - known as E10 - met widespread disapproval

among German drivers, many of whom refused to use the new fuel amid concerns that it could be harmful to some cars.

IncentivesThe production of biofuels has attracted various subsidies in several countries, encouraging the rapid growth that hasoccurred in the industry during recent years. In some cases, the production of biofuels-capable vehicles also attracts

incentives, and vehicles that run on biofuels are eligible, in some countries, for relief from licensing taxes and

congestion charges.

The United StatesThe US government has subsidised ethanol since the late 1970s, protected domestic ethanol producers with tariffs,

and offered tax incentives and CAFE credits to encourage automotive manufacturers to produce biofuel-capable

vehicles. The Renewable Fuel Standard (RFS) increased the incentives for ethanol use and production, and an addi-

tional tariff of US$0.54 per gallon was imposed on imported ethanol, taking it to US14.27 cents per litre. A tax credit

of US$0.51 per gallon of ethanol blended into gasoline was introduced while the tax credit for blended biodiesel

ranges from US$0.50 to US$1.00 per gallon, depending on the source feed-stock.

The US Department of Agriculture (USDA) provides grants and loans and other financial support to assist with the

establishment of biofuels and renewable energy commercialisation including the harvesting, collection, storage and

transportation of eligible biomass. In 2009, President Obama established the Biofuels Interagency Working Group,

co-chaired by the USDA, the Department of Energy (DOE) and the EPA, to develop a comprehensive approach to

accelerating the investment in and production of biofuels.

In 2007, the federal funding available for development programmes for second-generation, non-food, cellulosic

ethanol production was increased with the DOE to provide up to US$33.8m in funding to support R&D to improve

enzyme systems for the production of cellulosic biofuels. In 2008, the Farm Bill introduced provisions aimed at

increasing cellulosic production through a tax credit of US$1.01 per gallon and reducing the credit on corn ethanolto US$0.45. The bill also increased the funding available for second-generation development programmes. Subsidies

are also available towards the cost of adding E85 pumps at filling stations.


Market drivers 9


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In October 2010, the USDA announced that it would resume payments to eligible producers of biomass through the

Biomass Crop Assistance Program (BCAP), which had been operating as a pilot programme to ensure that a suffi-

ciently large base of new, non-food, non-feed biomass crops is established in the US. Producers who enter into BCAP

contracts can receive payments of up to 75% of the cost of establishing eligible perennial crops and can receive

payments for up to five years for annual or non-woody perennial crops and up to 15 years for woody perennial crops.

BCAP also assists agricultural and forest landowners and operators by providing payments for the transportation of

eligible materials that are sold to qualified biomass conversion facilities.

In some cases, state funding is also available. For example, in October 2008, Mascoma received US$26m from the

DOE and US$23.5m from the State of Michigan towards building a cellulosic ethanol plant. For 2011, the California

Energy Commission proposed allocating US$100m for investments in alternative fuel projects, including electric

vehicle recharging infrastructure. US$22m was to be allocated to medium- and heavy-duty trucks, US$8m to support

biomethane production, US$8m for natural gas infrastructure, US$7.5m for producing biofuel gasoline substitutes

from waste-based cellulosic feed-stocks, US$7.5m for producing diesel substitutes, US$4m for terminal and infra-

structure for diesel substitutes and US$2m for hydrogen-powered vehicles.

At the end of 2009, a tax incentive programme worth US$1 per gallon and designed to promote the production ofbiodiesel was terminated and entrepreneurs in the US who would like to invest in algae-based biofuel production

have pointed out that the current tax regime does not provide incentives for the sector that would significantly assist

in the creation of an algal fuel industry. In May 2010, the US House of Representatives voted to extend the credits

until the end of the year.

In December 2010, the US Congress approved tax credits of US$0.50 per gallon equivalent for compressed natural

gas and liquefied natural gas when used as transportation fuel. The credit had expired in 2009 but was made retroac-

tive for 2010. Congress also approved investment tax credits for refuelling property, such as natural gas stations, of

up to 30% or US$30,000, whichever is less and up to US$1,000 for a home refuelling unit. Tax credits for the

purchase of natural-gas vehicles were not extended beyond the end of December. In April 2011, a bill was introduced

that, if passed into law, will provide incentives for the use of natural gas as a fuel, the purchase of natural gas-fuelledvehicles and the installation of a refuelling infrastructure.

US automotive manufacturers receive CAFE credits for producing E85 flex-fuel vehicles, although there is no

requirement that consumers operate the vehicles on E85, and E85 has only limited availability throughout the US. It

costs only about US$200 extra to produce a flex-fuel vehicle, which needs corrosion-resistant fuel lines, higher flow-

rate injectors and sensors that measure the ethanol-gasoline blend in real time to enable the engine management

system to adjust fuel-air mixture and ignition parameters.

Some vehicles also attract US federal tax credits. In 2010, Altech-Eco Corporation of Asheville, North Carolina,

negotiated a US$4,000 tax credit for purchasers of their natural gas-converted Ford Focus. Previously, one Honda

natural gas model qualified for a similar tax credit in the US. For trucks dedicated to run on natural gas, tax credits

range from US$5,000 for light-duty vehicles; US$10,000 for medium-duty; US$25,000 for medium-heavy-duty; andUS$40,000 for heavy-duty models. In 2010, a bill was introduced to double those tax credit amounts in order to

better match them to the purchase price premiums associated with natural gas-powered trucks.

The European UnionIn 2004, the EC introduced a subsidy of 45 per hectare for biofuels crops in an effort to increase the productive area

from 0.31 million hectares to 2.0 million hectares in 2007. However, applications reached 2.84 million hectares by

October 2007, substantially exceeding the 90m budget such that the Commission reduced the subsidy accordingly.

By that time, the issues regarding actual GHG emissions savings and increased food prices were being raised, and

there were calls for the subsidy to be reviewed. In January 2008, Germany increased taxes on biofuels to the same

level as those on petroleum fuels, and in September, France announced plans to remove all tax incentives for biofu-els. The Netherlands and the UK also revised incentives for biofuels.


Market drivers 10


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In 2010, the UK extended a 20p per litre duty differential for sustainable biodiesel until 2012. The UK government

had intended to abolish the incentive because it was difficult to administer but decided that it would apply only to

biodiesel made from used cooking oil. Biodiesel produced from plant-based feed-stocks attracts the same fuel duty

as petrodiesel.

Italy has been at the forefront of encouraging natural gas vehicles and provides incentives of 500 for conversion to

LPG and 650 for natural gas. Conversion prices for cars range from 1,400 to 2,400. The Czech Republic waives

purchase tax and road tax from vehicles up to 12 tonnes that run on compressed natural gas.


Market drivers 11


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Chapter 2:

Market barriers

12



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MARKET BARRIERS

Production volumes

A 2009 study by Lux Research found that to produce biofuels in volumes equivalent to the worlds use of petroleum,

the area of cultivated crop land required would be around the total size of Russia. Furthermore, even crops that are

viable on non-arable land will put unsustainable demands on water resources, which are already approaching crisis

in many areas.

According to the Global Renewable Fuels Alliance, global production of ethanol in 2010 increased 16% over 2009

output to reach more than 85 billion litres, of which the US produced more than 45 billion litres. Global ethanol

output displaced the need for around 350 million barrels of oil alongside the global demand for 85 billion barrels.

However, to put this into perspective, the 2010 global output of fuel ethanol equals 535 million barrels while road

transport used around 17.4 billion barrels. In other words, global fuel ethanol accounted for around 3% of 2010 trans-

portation fuel without adjusting for the fact that ethanol has a lower thermal value than gasoline or diesel.

Of the four major ethanol producers - the US, Brazil, the EU and China - three will almost certainly be unable to

meet their own internal ethanol demand despite crop output increases. Only Brazil, which is predicted to have an

export capacity of around six billion litres per year by 2010 (increasing to 12 billion by 2030), is seen as becoming

a major exporter of ethanol.

According to Agricultural Outlook, global production of biodiesel in 2010 stood at around 21 billion litres, or 132

million barrels, which is equivalent to around 0.75% of the 2010 global demand for transportation fuel. The EU is

the largest biodiesel producer, accounting for around 65% of global output. The low capacity utilisation has recently

been attributed to subsidised US and Argentine biodiesel entering the market and the restrictive limit of a maximum

blend of 7%. The US is also producing at well below installed capacity through a lack of meaningful incentives otherthan the federal mandate to use 1.15 million gallons and US$1 per gallon tax credit. In 2010, there were 173 biodiesel

plants in the US with production capacity for 2.7 billion gallons. Canada has 12 biodiesel plants that are expected to

be able to supply 550 million litres to meet its B2 standard.

Argentina has been exporting its entire production but domestic use has increased markedly since the mandated

blending of 5% then 10% in the countrys diesel fuel began during 2010. It had installed capacity for 2.37 million

tonnes in 19 plants in 2009. Brazil, on the other hand, used its entire production of 2.35 billion litres under its B5

blending mandate and has installed capacity for 4.6 billion litres. Colombia is South Americas largest palm oil

producer and biodiesel production capacity was around 500,000 tonnes in 2009.

According to Eurostat, at least 28 countries within the Euro region produce biogas, and production increased 56%

between 2006 and 2008 to the equivalent of 7,585 tonnes of oil. Future capacity for biogas production in Europe isforecast at 20% or more of the overall energy consumption by the transportation sector. The EU has developed stan-

dards that biogas must meet before it can be fed into the natural gas supply infrastructure.

Supply infrastructure

While synthetic gasoline and diesel, biodiesel and small proportions of ethanol can readily be blended into conven-

tional gasoline and diesel and distributed via the existing infrastructure, most other alternative fuels require signifi-

cant additional investment in new distribution infrastructure.

As at 31 March 2011, E85 was sold at only about 2,349 of the 170,000 gasoline stations in the US and they are

concentrated in the upper Midwest, while many states have fewer than twenty E85 stations.


Market barriers 13


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Figure 3: E85 station distribution by US state

Source: US Department of Energy

As of the same date, there were 615 stations in the US selling B20 (led by North Carolina, some nearby states and

the Pacific seaboard states), 870 selling CNG (led by California and New York), 40 selling LNG, 2,582 selling LPG

(led by Texas, California and Alabama) and 58 selling hydrogen (California and eastern seaboard). Distribution maps

similar to the one above are available on the same website for each fuel type.

In Europe, CNG refuelling stations are concentrated around

Germany, Denmark, The Netherlands, Belgium and eastern France

with other clusters in southern Sweden, southern Finland andBulgaria. Similarly, while still a long way from constituting

comprehensive networks, the establishment of hydrogen refuelling

infrastructure in Europe is accelerating with plans for hydrogen

highways from Norway and Sweden to Portugal and Italy, many

of which will use renewable sources of electricity for electrolysis

production. Again, Germany has become something of a central

demonstration location for hydrogen transportation with an exten-

sive list of automotive OEMs and energy companies constituting

the Clean Energy Partnership.

In January 2011, a group of gas suppliers and oil companies in

Japan announced plans to install 100 hydrogen refuelling stationsacross the four major metropolitan areas of Aichi, Fukuoka, Osaka

and Tokyo by 2015. Until recently, there have been only about 12

refuelling stations in Japan, five of which were within the Tokyo

metropolitan area. Hydrogen is produced at the stations by reform-

ing coke gas, gasoline, kerosene, LPG, methanol, naphtha and

natural gas, and by electrolysis.

Actual greenhouse gas emissions reductions

At first glance, most of the alternative fuels under consideration offer significant reductions in GHG emissions, espe-

cially the biofuels that are produced from plant and other biomass that has absorbed CO2 while growing. However,for realistic comparisons, a full well-to-wheels (WTW) assessment of all the GHG emissions that result from all

aspects of extraction, production and transportation must be included.


Market barriers 14

Figure 4: Existing or planned hydrogen refu-

elling stations in Europe

Source: Hydrogen Cars Now


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In 2009, Cornell University published a study that drew on the work of 75 scientists from around the world which

concluded that the then current mandates and targets for liquid biofuels should be reconsidered in the light of poten-

tially adverse environmental consequences, potential competition with food crops and difficulty meeting the goals

set without large-scale land conversion. The study concluded that biofuels produced from organic waste and cellu-

losic feed-stock from short-rotation forestry and grasslands were more environmentally advantageous than those

produced from food crops but that biomass could be used more efficiently through direct combustion to generate

electricity and heat than it could through conversion to liquid fuels.

The latter conclusion is consistent with calculations made by Professor Elliott Campbell of the University of

California and published in Science, that using biomass to generate electricity to power electric vehicles is three

times more efficient than using it to make cellulosic ethanol for use as fuel, largely because an electric motor is much

more efficient than an internal combustion engine. Professor Elliott calculated that an electric vehicle would travel

81% further than an ethanol-powered one on the energy derived from the same quantity of biomass. Furthermore,

the electric vehicle offset 108% more GHG emissions that the ethanol-powered one.

Biofuels

Estimates for the GHG emissions savings provided by using biofuels vary considerably, partly because of the variedfeed-stocks and methods of production, the complexity of the task and the incomplete knowledge base. Nevertheless,

some exhaustive efforts to determine the lifecycle GHG savings have been undertaken by, for example, the US EPA

and consultancies such as (S&T)2 Consultants. A 2009 report published by (S&T)2 found that world production of

biofuels exceeded 100 billion litres that year, displacing 1.15 million barrels of crude oil per day and saving 57% of

the GHG emissions that the petroleum-based fuels would have created.

This appears to address concerns expressed in recent years regarding, for example, the underestimation of the use of

fertilisers and the resultant nitrous oxide emissions. Furthermore, it has been pointed out that food crops yields have

been increased by as much as 30% during the last decade and researchers continue to develop processes that reduce

energy intensity and emissions, such as the BPX process developed by Poet in the US that eliminates much of the

heat required in ethanol production.

Other concerns regarding biofuels include that extra crops require extra water, a resource that is already under pres-

sure in many regions, and that incentives provided for biofuel production encourage farmers to shift from food crops

to fuel crops and to clear forests for cropping land, removing the associated carbon sinks and releasing methane and

NOx during burning and decomposition.

Such land use changes have been implicated as major sources of GHG emissions. Studies published in Science in February

2008 indicate that a US cornfield devoted to producing ethanol would not achieve a net reduction in GHG emissions for

167 years, and that clearing Brazilian rainforest or Indonesian peat land for biofuel crops would not achieve net reductions

for 319 years and 423 years respectively. A study conducted at Princeton University estimated that devoting 12.8 million

hectares of cornfields in the US for ethanol production would result in an increase of 10.8 million hectares of additional

cultivated land throughout the world, much of which would result in the felling of forests and the cultivation of grasslands.

BioethanolUsing ethanol in an internal combustion engine (ICE) results in lower CO2 emissions than gasoline because of the

lower carbon intensity of ethanol and higher engine efficiency. However, on a WTW basis, the most optimistic esti-

mates for temperate-climate, first-generation bioethanol is a 40% saving in GHG emissions, although more

pessimistic experts suggest it may be only 10% less than gasoline. Typically, bioethanol is credited with around 20%

savings with rapeseed (canola) ethanol at around 13% and corn-based at around 18%.

Second-generation bioethanol, however, such as cellulosic ethanol from switchgrass, can offer greater savings over gaso-

line. Coskatas bioreactor process is believed to reduce WTW CO2 emissions by up to 84%. However, a 2009 study by

Cheminfo Services for the Canadian Renewable Fuels Association using the Natural Resources Canada GHgenius life-cycle assessment model to analyse eight Canadian ethanol plants found that a unit of energy produced using the ethanol

resulted in 62% of the GHG emissions released by generating a unit of energy with gasoline a 38% reduction.


Market barriers 15


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BiobutanolCobalt Technologies, which produces biobutanol, claims that it achieves an 85% reduction in GHG emissions

compared to gasoline.

BiodieselBiodiesel is generally credited with GHG savings of around 50% and Daimler Trucks claims 60% for biodieselproduced from renewable palm oil feed-stock. However, others suggest that it can actually increase GHG emissions

when land use changes and fertiliser use are taken into account.

A 2009 study by the US National Biodiesel Board and Indigenous Energy claimed that using soy-based biodiesel

reduced CO2 emissions by 78% compared to petrodiesel although the claimed lifecycle basis appears to include

only an estimate of the CO2 absorbed by the soy as it grew. A US DOE study found that the production and use of

biodiesel, compared to petrodiesel, resulted in a 78.5% reduction in CO2 emissions, which is consistent with the 78%

reduction claimed by the US National Biodiesel Board.

The UK Department of Transport calculated the emissions from biodiesel produced from different feed-stocks grown

in different countries but used in the UK, and found that palm oil from Indonesia or Malaysia ranked lowest at 38grams of CO2 per megajoule (g/MJ) of available energy. This represents a 56% reduction in CO2 emissions when

compared to petrodiesel at 86g/MJ. Soy biodiesel ranged from 42g/MJ (-51%) for Argentine crops to 73g/MJ (-15%)

for Brazilian soy. Rapeseed oil biodiesel ranged from 45g/MJ (-48%) for Polish crops through to 63g/MJ (-27%) for

rapeseed from Australia, with UK-sourced rapeseed producing 55g/MJ (-36%).

However, a document obtained by Reuters from the EU in 2010 under freedom of information laws indicated that

GHG emissions by soy-based biodiesel, including all indirect emissions, could be as much as four times greater than

those from petrodiesel while emissions from rape seed-based biodiesel are about 76% higher than for petrodiesel.

Natural gas

Although it is a potent GHG in its own right, methane is the least carbon intensive fossil fuel and its use results inCO2 emissions that are up to 30% lower than gasoline and 45% lower than coal.

Liquefied petroleum gasLPG is less carbon intensive than gasoline or diesel and produces 15% to 20% less CO2 per equivalent energy released.

HydrogenThe use of electrolysed hydrogen in an ICE can be CO2-free as long as the electricity supply is CO2 free, which is

essentially the case in Iceland and Sweden, for example. However, if it is produced by electrolysis from electricity

produced using fossil fuels, which is the case for 72% of electricity in the US, for example, with about half from

coal, the in-use CO2 emissions would be around twice that of gasoline.

If the hydrogen was used to power a fuel cell vehicle with the 70% thermal efficiency that Honda has recentlyclaimed for its Clarity model, once ancillary and driveline losses are factored in, the CO2 emissions from SMR

hydrogen would be about 120g/km, but from electrolysed hydrogen in countries with predominantly fossil-fuel elec-

tricity, they would considerably exceed those produced by using gasoline in an ICE.

Synthetic fuelsRentech has claimed a 30% reduction in GHG emissions for its GTL synthetic diesel, based on trials using an Audi

A3 TDI, and 97% if it is produced from biomass and waste resources. The company also claimed a fuel economy

increase of between 20% and 50%.

However, the US DOE and the Argonne National Laboratory conducted a study to estimate the total GHG emissions

of CO2, methane and N2O resulting from the production and transportation use of synthetic fuels. For diesel fuels,the baseline GHG of ULSD was estimated at 95g/MJ and GTL diesel was found to release 105g/MJ (+10.5%), coal-

to-liquids 220g/MJ (+132%) and biomass-to-liquids 15g/MJ (-84%).


Market barriers 16


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The study using a baseline of 23.2mpg (US) (10.1 litres/100km) for a gasoline-powered car and assuming a 20%

improvement with diesel power calculated similar results by setting WTW GHG emissions at 250g/km for ULSD.

GTL diesel emissions were calculated at 290g/km (+16%), coal-to-liquids 600g/km (+140%) and biomass-to-liquids

50g/km (-80%).

OverviewThe Argonne National Laboratory has calculated the WTW CO2 emissions associated with all major alternative fuels

compared to petroleum gasoline, for light vehicles in the US, including fuel cell vehicles (FCV) and electric vehi-

cles (EV).

Table 2: WTW CO2 emissions by fuel source for US light vehicles

Source: Argonne National Laboratory

Figure 5: WTW CO2 emissions by fuel source for US light vehicles (g/mile)

Source: Argonne National Laboratory


Market barriers 17

Fuel source g/mile g/km

Current US gasoline vehicle 476 296

Future US gasoline vehicle 373 232

Direct injection diesel vehicle 325 202

Gasoline-electric hybrid 270 167Diesel-electric hybrid 243 151

Natural gas ICE 294 182

Natural gas to hydrogen ICE 302 187

Natural gas to hydrogen FCV 183 113

Ethanol from corn E85 ICE 286 178

Cellulosic ethanol E85 ICE 103 64

Ethanol to hydrogen ICE 206 128

Ethanol to hydrogen FCV 103 64

Hydrogen from US grid FCV 492 306

US grid EV 230 143


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In 2010, in order to compare lifecycle GHG savings of different automotive manufacturing materials,

WorldAutoSteel used the Phase 2 UCSB Green House Gas Comparison Model to compare the use of the different

materials on vehicles using different fuels. The results for a conventional, steel-bodied, C-segment car are in the table

below.

Figure 6: Lifecycle CO2 emissions (tonnes) by fuel source, C-segment car

Source: WorldAutoSteel

Reduced fuel storage and operating range

While ethanol, biodiesel, LPG and DME can be stored as liquids at normal temperatures, CNG and compressed

hydrogen require bulky, heavy gas cylinders and storing fuel as gas provides limited operating range before refuelling

is necessary. Even E85 provides a shorter driving range because of its lower thermal content than gasoline. Taking

the range achievable on petrodiesel as a baseline, using gasoline in the same sized fuel tank typically results in a

range reduction of about 25%; E85 about 43%; CNG about 56%; and gaseous hydrogen in an ICE about 76%.

The stored thermal capacity of hydrogen and natural gas can be increased markedly if they are liquefied, but this

requires high pressure, the use of highly-effective insulation and the consumption of energy to maintain extreme

refrigeration, sophisticated fuel tanks and comprehensive safety systems to release or collect boiled off gas. Both

hydrogen and natural gas are highly volatile and form explosive mixtures with air, and natural gas is also mostly

methane, which is a GHG.

For hydrogen, the possibilities for solid-state storage are the subject of several research projects including the use of

ammonia borane and aluminium hydride, also known as alane. Another alternative has been developed by Asemblon,

which is promoting a hydrogen-rich liquid chemical called Hydrnol that is stable at normal temperatures and pres-

sures so that it can be transported and stored like conventional automotive fuels. The hydrogen can be extracted

through the use of a heated catalyst within the tank, leaving spent liquid that can be pumped out during the next refu-

elling for recycling.

Competition with food

In 2008, concerns were raised that food crops and arable land were being diverted to the production of biofuels and

causing the rapid rises in food prices at the time. In response to this, UN and EU officials called for a moratoriumon increases in mandated biofuel content and the UN secretary general, Ban Ki-Moon, called for a comprehensive

review of biofuels policies. Subsequent analyses, including one by the World Bank, found that using crops for biofu-


Market barriers 18

Fuel source CO2

Cellulosic E85 13

Soy B99 20

Hydrogen FCV 25

Hybrid-electric 28

Soy B20 32

Corn E85 34

Petrodiesel 35

Gasoline 38


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els was a small factor among several that were causing food price increases, such as increasing demand from devel-

oping countries, droughts in important growing regions, increasing meat and animal feed demand in developing

countries and high energy prices affecting production and transportation.

The US National Biodiesel Board (NBB) asserted that the growth of the biodiesel industry in the US is leading to

higher production of lower-cost food protein because biofuel production uses only the oil from soybeans, with the

remaining 80% of the bean providing protein meal for livestock and human consumption. The NBB also pointed out

that the US biodiesel industry is advancing feed-stock development by adding yield to existing oilseed crops and

promoting non-food production.

Similarly, the ethanol industry takes only the starch out of corn and puts the protein, f ibre and oils into what is known

as dried distillers grains. Adding further support, the Oak Ridge National Laboratory found that corn ethanols

contribution to indirect land use change is minimal to zero.


Market barriers 19


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Biodiesel

Because of factors such as revised blending targets

and the burgeoning demand for cooking oil in Asia

diverting palm oil from fuel production, the installed

capacity for biodiesel production worldwide consid-

erably exceeds current production. However, with

increasing use of waste and biomass, and with new

sources such as Indias jatropha project coming on

stream, Agricultural Outlook has forecast that

production will increase from about 21 billion litres

in 2010 to 32 billion litres by 2015 and 41 billion

litres by 2019.

Liquefied petroleum gas

LPG is produced from the light distillates of oil,global production of which averaged 27,173 thou-

sand barrels per day in 2009, a decrease of 1.4%

from 2008. Of this, North America consumed 39.8%

(US 33.9%), Asia-Pacific 28.8% (China 8.8%, Japan

6.2%), Europe 12.2%, Latin America 6.7%, the

Middle East 5.8%, the former Soviet Union 4.1%

and Africa 2.6%.

Although global consumption is likely to advance on

2008 volume as economic recovery occurs, US

consumption of LPG is expected to remain flatduring the next few years with only slight increases

in 2014 and 2015.

Natural gas

Global natural gas consumption has been growing at

around 2.5% per year although it declined 2.1% in

2009. In 2010, natural gas vehicles consumed

around 43.4 billion cubic meters of gas, or about

1.5% of global production. In energy terms, that is

equivalent to only 37.3 million tons of crude oil, or

around 1.0% of global oil production, of whichtransportation consumes about 55%.

In 2009, Pike Research forecast that the number of

natural gas vehicles on the worlds roads would

increase from 9.7 million in 2008 to 17 million by

2015, at which time annual sales are expected to

exceed three million. In January 2011, Pike reaf-

firmed this forecast by predicting that natural gas vehicle sales will grow at a compound annual growth rate of 7.9%

to reach 3.2 million in 2016. The company also forecast that natural gas refuelling stations worldwide would increase

from 18,000 in 2010 to around 26,000 in 2016.


Market dynamics and forecasts 22

Figure 8: Global biodiesel production forecast to 2019

(billions of litres)

Source: Agricultural Outlook

Figure 9: Global light distillate consumption (1,000barrels per day), 2005 2009

Source: BP Statistical Review of World Energy, 2010

Figure 10: Global natural gas production (billion cubic

metres), 2005 2009

Source: BP Statistical Review of World Energy, 2010


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According to the Natural Gas Vehicles Association of Europe, there were more than 13 million natural gas-powered

vehicles on the worlds roads in 2010 and the International Association for Natural Gas Vehicles forecast that by 2020

there will be more than 50 million, accounting for more than 9% of the worlds road transportation fleet.

HydrogenIn 2010, Freedonia reported that the hydrogen market was worth US$39bn and forecast that it would increase by

3.4% per year through to 2013, by which time global production would be 475 billion cubic metres. Demand for

hydrogen is growing fastest in the Asia-Pacific region, which is expected to increase its share of global consumption

from 30% in 2008 to 33% in 2012 while the North American share will decrease from 30.5% to 28% and the Western

European share from 18% to 16%.

Petroleum refining accounts for around 89% of global hydrogen demand, while ammonia and methanol production

account for 6%.


Market dynamics and forecasts 23


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Chapter 4:

Alternative fuels

24



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ALTERNATIVE FUELS

Table 3: Feed-stock to fuel type

Algal biofuels

The production of biofuels using natural and engineered strains of algae is currently one of the leading edges of

sustainable fuel technology, with a variety of approaches being investigated in outdoor ponds or closed photo-biore-

actor environments. The water used can be fresh, salty or waste and the algae are supplied with nutrients from a vari-

ety of feed-stocks to combine with either ambient or industrial-sourced CO2 to form hydrocarbons that can be

refined into fuel products such as biodiesel, methanol, ethanol or biogasoline. The feed-stocks used include those

used for other biofuel production such as food crops and other biomass including animal and human waste, and

industrial by-products such as glycerol. In 2010,Bloombergreported that at least 75 developers around the world are

investigating the use of algae in producing fuels.

A SunEco Energy project in California provides an example of an open pond operation, in which 200 acres of pondsat a disused fish farm are supplied with brackish water similar to seawater and a variety of nutrient feed-stocks.

According to SunEco, yield of the biocrude is around 33,000 gallons per acre per foot of water per year. Photon8,

a Texas venture, claimed in January 2011 that it had developed a low-cost system capable of producing up to 10,000

gallons per acre per year at a cost of US$1.25 per gallon. In 2009, BioFields announced that its Aurora Biofuels

algae-based production system in Florida, using industrial-source CO2, was capable of producing 6,000 gallons per

acre per year at a cost equivalent to US$50 per barrel.

Closed photobioreactor systems avoid the contamination and evaporation problems that open systems can encounter

and are better able to utilise CO2 in flue gases from industrial sources such as coal-fired power stations. They also

enable closed-loop monitoring and control of light and temperature conditions and nutrient concentrations. OriginOil

of California and MBD Energy of Australia have a closed system that they claim has the capacity to produce 11

million litres of oil per year from 80 hectares of algae production alongside each of MBDs power stations. Algae.Tecclaims 32,000 gallons of production per acre per year from its Perth, Western Australia, system that uses industrial

CO2 and sunlight via fibre optics.

ExxonMobil and Synthetic Genomics opened a greenhouse facility in California in 2010 as a next step in their joint

research into algae biofuel production. In the new facility, they will investigate different algae strains in different

growth systems under a wide range of conditions, including different temperatures, light intensities and nutrient

concentrations. They will also investigate different harvesting and recovery methods.

Cyanobacterial biofuels

Cyanobacteria can also be used to photosynthesise CO2 and water into ethanol or hydrocarbons and are less complexorganisms than algae and hence easier to genetically manipulate. One company that has genetically engineered a

cyanobacterium strain to produce the ingredients of biofuel, Joule Unlimited, claims that its process is capable of


Alternative fuels 25

Feed-stock Fuel Gasoline Diesel CNG LNG LPG Methanol Ethanol Butanol DME HydrogenCrude oil X X X X

Natural gas Synthetic F-T diesel X X X X X X

Coal Synthetic F-T diesel X X X

Corn Biogasoline Biogas X X

Sugar crops Biogasoline Biogas X X

Vegetable oils Biodiesel

Cellulosic biomass Biogasoline F-T diesel Biogas X X X X X

Other biomass Biogasoline Biodiesel Biogas X X X X X

Algae Biogasoline Biodiesel X X X


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producing 15,000 gallons of diesel per acre per year at a cost of around US$30 per barrel. A major challenge,

however, remains in terms of retrieving the relatively small quantity of product from the water.

At least two major oil companies, ExxonMobil and BP, are supporting research initiatives into the use of cyanobac-

terial biofuels by Synthetic Geonomics and Arizona State University, respectively.

Alcohols

Methanol, ethanol, propanol and butanol are all clear liquids that burn cleanly with energy densities that range from

about half that of gasoline to about 92% for butanol. They all have high octane ratings, produce low levels of toxic

emissions, provide good driving performance and range and can be used in engines developed for gasoline with only

minor modifications to the fuel and ignition systems, although increasing the compression ratio will better utilise the

higher octane ratings.

While methanol is relatively volatile and toxic, the other three can be easily transported and stored in conventional

liquid fuel facilities. However, ethanol absorbs water, which causes problems in reticulating pipe systems and the

inefficiencies in the production of propanol rule it out as a mass-market fuel. The other three can readily be blendedwith gasoline and ethanol and butanol can be blended in small proportions with diesel and biodiesel. Alcohols can

also be used, via reforming, to produce hydrogen for fuel cells.

Corrosion inhibitors must be added to methanol and ethanol because they contain contaminants that cause corrosion

of metal fuel system components and degradation of some older polymer components. Both also exhibit higher

conductivity than gasoline, increasing galvanic corrosion so that fuel level sensor wires must be fully insulated and

the sensor must be of the pulse-and-hold type.

MethanolMethanol is the lightest alcohol with energy density of about 16 MegaJoules per litre (MJ/litre) despite which it has

been used as an ICE fuel for many years, particularly in motor sport because of its high octane rating of 136 RON.However, its toxicity, its colourless flame and the tendency for its highly volatile vapour to remain near the ground

if it is spilled make it unsuitable as a mass-market automotive fuel. Nevertheless, Lotus developed an Exige demon-

strator that can run on gasoline, ethanol or methanol and several Chinese OEMs, including Chery, Geely and

Shanghai Maple produce vehicles that can use methanol or blends of up to 85% methanol and 15% gasoline.

Currently, most methanol is produced from natural gas via the syngas process. It can also be produced via the anaer-

obic digestion of algae, although the process has not been developed to commercial scale. Recent research indicates

that it can be produced, via methane, with photo-catalysts that use light energy to reduce CO2, and also by synthe-

sising hydrogen and CO2.

EthanolEthanol has energy density of about 21MJ/litre, which is about two thirds that of gasoline and results in poorer fueleconomy by volume. However, its octane rating is 129 RON, compared to about 95 RON for regular gasoline.

Traditionally, ethanol has been produced by the fermentation of sugar-containing food crop biomass such as sugar

cane in Brazil and corn in the US as well as wheat, sugar beet and waste from sugar refineries. However, because of

poor energy balance, limited GHG savings, the substantial land areas required and competition with food supplies,

research is focussing on more efficient methods of production, particularly from non-food, cellulosic sources, such

as straw, leaves, stalks, citrus waste and wood waste.

Some hardy grasses, such as Bermudagrass, Napiergrass and switchgrass can provide cellulosic sources for the

production of ethanol. They grow prolifically almost anywhere and have a more efficient CO2 fixing process than

most other biomass sources. Switchgrass has been found to deliver ethanol with around five times more energy thanit consumes during growth, harvesting and manufacture, and emits significantly fewer GHGs than corn-based

ethanol.




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Another promising source of ethanol is sweet

sorghum, a rapidly-growing, cane-like plant with

high sugar content that grows in marginal soil,

requires less water than corn or sugarcane, provides

a high yield of 500 to 800 gallons of ethanol per acre

and requires less than half the energy required to

convert corn to ethanol.

Woody biomass can be used to produce ethanol, but

the main challenge is the development of efficient

methods to break up its fibre structure prior to

processing. Mechanical, thermal, chemical and

biological processes, and combinations of those,

have been tried, but all remain unsuitable so far because of high costs, low yields, waste production or unwanted by-

products. Another barrier is the high cost and current low productivity of the enzyme, cellulase, which is needed to

convert cellulose to glucose. Thirdly, a suitable organism for the fermentation of five-ringed sugars present in hemi-

cellulose needs to be found or developed. Ethanol can also be produced from woody biomass via gasificationfollowed by fermentation using anaerobic bacteria or catalytic processes. This eliminates the need for hydrolysis to

break up the cellulose and hemicellulose fractions of the biomass.

Other second-generation ethanol production processes have been developed to convert almost any carbon-based

feed-stock into ethanol, including municipal and industrial waste, and even used tyres. Coskatas propriety process,

which uses microorganisms and bioreactors, and less water than other processes, has been found to produce ethanol

that provides up to 7.7 times the energy used in production, and WTW CO2 emissions reduced by up to 84%

compared to gasoline.

Algenol Biofuels has developed a closed process in which algae photosynthesise CO2 directly into ethanol, absorbing

1.5 tons of CO2 in the production of 100 gallons of ethanol. The company expects production to achieve 10,000 gallonsper acre, which compares favourably with 360 gallons per acre from corn and 890 gallons per year from sugar cane.

BlendsGasoline in Brazil contains 25% ethanol and research by the US DOE indicates that E20 is safe for use in engines

originally designed for gasoline only. As a consequence, in October 2010, the US EPA issued a waiver approving

E15 for use in light vehicles manufactured from model year 2007 and in January 2011, extended the waiver to those

manufactured from model year 2001. However, automotive and petroleum industry lobby groups mounted a legal

challenge to both the EPAs mandate to authorise E15 and the research regarding its safety. The industry groups argue

that ethanol proportions greater than 10% are not safe for use in the fuel system and exhaust catalyst components on

most engines originally designed for gasoline.

Interestingly, because the EPA research focussed on post 2000 vehicles, the Renewable Fuels Association commis-sioned Ricardo to evaluate the potential impact of E15 on 1994 to 2000 models, which account for about 25% of the

current in-use light vehicle fleet. The research, which sampled a representative range of vehicles available in the US

during those years, was released in September 2010 with the conclusion that E15 should not adversely affect vehi-

cles in that age group.

In February, 2011, the House of Representatives voted to prevent the EPA from enabling E15 to be supplied but

encountered difficulties progressing the resolution into law. At the time of writing, the EPA had issued a second

waiver authorising E15 for use in designated flex-fuel vehicles but the contest continued.

US OEMs, most notably Ford and GM, produce flex-fuel engines that can operate on E85, and E100 models are

available in Brazil. Renault has a range of E30 and E85 dual-fuel models in France. In 2009, Ricardo announced itsEthanol Boosted Direct Injection (EBDI) engine that can operate on any blend of gasoline and ethanol from E10 to

E100 with thermal efficiency equal to a diesel engine while requiring only half the equivalent displacement.



Figure 11: Switchgrass


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Another ethanol blend in gasoline is ethyl tertiary butyl ether (ETBE), replacing the methyl tertiary butyl ether

(MTBE) that was originally added to substitute for lead, but which was found to contaminate ground water. ETBE

raises the octane rating and improves efficiency without generating additional emissions and because ETBE is

biologically derived, it results in a small reduction in CO2 emissions. Unlike ethanol, it can be transported in

pipelines. The EU permits blends of up to 15% ETBE in gasoline.

Ethanol can be blended with diesel. O2Diesel Europe, for example, produces a 7.7% blend of ethanol with diesel

along with 1% proprietary additive and a cetane improver.

Ethanol-capable vehiclesThe production of ethanol-capable light vehicles is technologically easy and has been estimated to cost only about

US$200, mostly for upgraded fuel system components although the price premium for a flex-fuel Renault Clio was

200 (US$285) in France in 2009. In order to be able to flexibly use either ethanol, gasoline or a range of blends, the

vehicle requires a sensor system to recognise the fuel mixture and a variable engine ignition map, which adapts to

the fuel mixture detected. The engine warm-up system must also be effective because ethanol has inferior cold start-

ing characteristics to gasoline.

In Brazil, around 90% of new vehicles are now flex-fuel and are forecast to exceed 50% of the fleet by 2013.

ButanolButanol is heavier than ethanol, less volatile, less corrosive and does not absorb water. Its energy density is about

29MJ/litre, more than 90% that of gasoline, and its octane rating 96 RON, making it more suitable than ethanol for

blending in either gasoline or diesel. It is used primarily as an industrial solvent and although it is considered toxic,

it is used in cosmetics and perfumes despite its potential to cause irritation to skin and eyes.

Most butanol production is from petroleum but it can be produced from a wide range of food and non-food, cellu-

losic biomass feed-stocks and industrial waste products such as molasses from sugar production and whey from

cheese production. The difference between ethanol and butanol production is primarily in the fermentation processand, according to DuPont, existing ethanol plants can be cost-effectively modified to produce butanol. Butanol can

also be produced via algae.

The fermentation process used to produce butanol from cellulosic feed-stocks is inefficient and produces an unpleas-

ant smell, and the organism used in the process dies when the butanol content reaches 7%, whereas the yeast used

to ferment ethanol dies at 14% - 16% concentration. The Wizemann process, which is named after Chaim Wizemann,

who first isolated the Clostridium acetobutylicum microbe used, produces butanol, acetone and ethanol, along with

isopropanol, hydrogen and acetic, lactic and propionic acids. The proportions of butanol, acetone and ethanol

produced are 6:3:1, with each bushel of corn, for example, producing 1.3 gallons of butanol, 0.7 gallons of acetone

and 0.13 gallons of ethanol with concentrations of only 1% to 2%. It was this fact that led to the decision to opt for

ethanol as the alcohol of choice for fuel. The yeast process for ethanol production yields 2.5 gallons of ethanol per

bushel of corn.

Improving butanol yield is the focus of current research. Energy Environment International has developed a method

in which two separate micro-organisms are used in sequence to almost eliminate the production of acetone and

ethanol. Butalco has developed a method to modify yeasts in order to produce butanol instead of ethanol, and a team

of students at the University of Alberta has been working to genetically modify E. coli to produce butanol by intro-

ducing the genes responsible for butanol production from Clostridium acetobutylicum. The team is also working to

increase E. colis tolerance to butanol.

ButylFuel has developed a process that the company claims can make butanol production from biomass economi-

cally viable to the degree that it can compete with petroleum fuels. ButylFuels process yields 2.5 gallons of butanol

per bushel of corn, almost twice as much as is produced by the Wizemann process and with no acetone of ethanol.The company claims that when the hydrogen produced is also taken into consideration, the process can produce 42%

more energy than corn-to-ethanol, with 25% of the gain resulting from the butanol and 18% from the hydrogen. The




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production cost by volume is similar to that of corn ethanol but the energy return higher and the cost is expected to

reduce significantly with the use of cellulosic waste feed-stock.

Phytonix has developed a photobioreactor system using a genetically modified bacteria that continuously secretes

biobutanol in fresh or salt water and either ambient or industrial-source CO2. The company claims production poten-

tial for about 20,000 gallons per acre per year at a cost of less than US$1.00 per gallon.

During 2010, researchers at Napier University in Edinburgh, Scotland, filed patent for a new process, based on the

Wizemann process, to produce biobutanol from pot ale and draff, which are by-products of whiskey distillation.

Another recent advance has been announced by the US DOEs Bio Energy Science Center at the University of

California, Los Angeles, whereby butanol can be produced directly from cellulose by combining biomass with the

fermentation of sugar and clostridium in a single-step process.

Current research suggests that engines designed for gasoline can run on a blend of up to 85% without modification

and that any vehicle that can use E10 can use pure butanol. A 16% blend in gasoline for use in engines originally

designed for gasoline only provides comparable performance to a 10% blend of ethanol. The US EPA approves the

use of up to 16% butanol in gasoline.

Biodiesel

Biodiesel has typically been produced from vegetable oils or animal fats via a chemical process known as transes-

terification, first patented by G. Chavanne of the University of Brussels, Belgium, in 1937. The oils or fats are

reacted with methanol or ethanol to produce short-chain, mono-alkyl (methyl of ethyl) esters. Higher alcohols such

as isopropanol and butanol can also be used and although the cold flow properties of the resulting ester is good, the

process is less efficient. Transesterification has a positive energy balance, providing 3.24 units of energy for every

unit expended during production.

For every ten parts of biodiesel produced, one part by weight of glycerine is produced and some free fatty acids inthe feed-stock are converted into soap, which is then removed. Glycerine can be used for methanol production or

used in livestock feeds and provides a separate value chain.

PropertiesThe mono-alkyl esters produced by the transesterification process constitute a lower-viscosity fuel than pure

vegetable oil that exhibits similar physical characteristics, such as viscosity, to petrodiesel. Biodiesel provides better

lubricity than petrodiesel and reduces wear in injection pumps and injectors.

Its flash point is higher than 300 degrees Fahrenheit (150 degrees Celsius), which is much higher than that of

petrodiesel (147 degrees Fahrenheit; 64 degrees Celsius) and it has a higher cetane rating than petrodiesel. Its energy

density ranges from about 33 to 36MJ/l depending upon the feed-stock used, whereas the energy density of standard

petrodiesel is 42.3MJ/l.

Unfortunately, biodiesel has different solvent properties to petrodiesel and will degrade natural rubber gaskets and

hoses found in older (pre-1992) fuel systems, and it can break down deposits of residues in the fuel system and clog

fuel filters in vehicles that have previously been run on petrodiesel. It can absorb water from the atmosphere and any

remaining traces of mono- and di-glycerides in it can act as an emulsifier, enabling the water to mix in with the

biodiesel which can cause problems including harder starting, increased smoke emissions, less power, earlier gelling,

failure of fuel filter elements and corrosion of fuel system and engine components. Biodiesel made of rapeseed oil

esterified with methanol has been found to damage diesel inje

alternative fuels and the global auto industry report

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