VTT TECHNICAL RESEARCH CENTRE OF FINLAND LTD

How to Reach 40% Reduction in Carbon Dioxide Emissions from Road Transport by 2030: Propulsion Options and their Impacts on the Economy Strategisk innovationsagenda: Förgasning och pyrolys, termisk konvertering av biomassa till energibärare Stockholm 24.9.2015 Nils-Olof Nylund & Kai Sipilä

Picture: UPM

2 01/10/2015 2

Outline

Policy of the Finnish government Means of promoting biofuels in Finland Study on the cost effectiveness of various measures to reduce

CO2 emissions in road transport What is needed to make advanced biofuels happen

Ten-year objective: Finland is a pioneer in the bioeconomy, circular economy and

cleantech. By developing, introducing and exporting sustainable solutions we have improved the balance of current accounts, increased our self-sufficiency, created new jobs, and achieved our climate objectives and a good ecological status for the Baltic Sea.

Transport: The use of imported oil will be cut in half during the 2020s The share of renewable transport fuels will be raised to 40 per cent

by 2030

http://valtioneuvosto.fi/en/sipila/government-programme

Policies to promote biorefineries and biofuels

• The main measures to promote biorefinery and biofuel development in Finland have been:

• Enhancing the development of biofuels market by • Biofuel obligation • Structural changes to energy taxes on transport

• Funding on R&D in the area of biorefining and biofuels

• Investment aid to demonstration of biorefinery concepts

• Finland bypassed 1. generation biofuels, and has a strong focus on

advanced, drop-in type biofuels

Jukka Saarinen/Ministry of Employment and the Economy

Biofuel obligation • Came into force in January 2008 and was revised in 2010 • Outcome 2014: actual share 12.6 %, calculatory share 23,5 %

Energy share of biofuels [%] in road transport fuels

2,0 4,0 4,0

6,0 6,0 6,0 6,0 8,0

10,0

12,0

15,0

18,0 20,0

0,0

5,0

10,0

15,0

20,0

25,0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

6 01/10/2015 6

Biofuel obligation (Law 1420/2010)

The Finnish obligation is flexible in the sense that the only requirement concerns annual average biofuel content It leaves the following decisions up to the actors or fuel suppliers:

split between petrol and diesel where and when to implement biofuels (winter conditions in northern Finland are

rather severe) cooperation between fuel suppliers “banking” of biofuel deliveries

The background document of the obligation law states that the expectation is that biofuels eligible for double counting according to 2009/28/EC will constitute the major part of biofuels used in Finland in 2020

7 01/10/2015 7

Fuel taxation As a general rule, Finland has opted to use obligations for biofuels, not general tax exemptions A completely reworked fuel taxation system has been in place

since 2011 (law 1399/2010) Fair and objective system with:

Energy content tax CO2 emission tax (well-to-wheel approach)

Biofuels eligible for double counting: no CO2 tax

Tax deduction for clean burning fuels (e.g. paraffinic fuels)

All calculation parameters based on EU data (Directive

2009/28/EC, Directive 2009/33/EC, JRC/JEC WTW data)

0,0

0,1

0,2

0,3

0,4

0,5

0,6

Diesel FAME baseline Renewableparaffinic diesel

baseline

Renewableparaffinic dieseldouble counting

Fuel taxes (€/l)

CO2

Energy

VTT TECHNICAL RESEARCH CENTRE OF FINLAND LTD

40% Reduction of Carbon Dioxide Emissions from Transport by 2030: Propulsion Options and Their Impacts on National Economy

A joint study by VTT and VATT, the Government Institute for Economic Research

9 01/10/2015 9

Objective and methodology

Main financer: Ministry of Employment and the Economy Objective: To evaluate which measures could deliver a 30 or 40

% reduction in CO2 emissions in road transport by 2030 (reference year 2005)

Execution: Modelling the effects of biofuels and other alternative

technologies on emissions and costs, costs also from the viewpoint of the national economy

Main partners: VTT Technical Research Centre of Finland Ltd

and the Government Institute for Economic Research VATT

10 01/10/2015 10

Optimum pathway

VATTAGE (VATT)

ALIISA (VTT)

Methodology

Base assumptions: Transport work

Energy efficiency Vehicle sales

Baseline bio share Additional costs

Vehicle sales for alternative

scenarios

Added vehicle costs

Fuel

volumes

in different categories

(per scenario)

Investments in fuel production,

costs for production or fuel imports

Costs of refuelling

infrastructure

GDP

Employment

Private consumption

CO2-emissions

Technology and vehicle fleet National economy

11 01/10/2015 11

Success in the market

The potential of any new propulsion solution depends on many factors. The most important include:

1. Availability (= production); 2. Distribution system; 3. Compatibility with existing vehicle fleet; and 4. Price and consumer interest in the technology in question.

12 01/10/2015 12

Principle of assessment (CO2 emissions)

0 Incr

ease

in

mile

age

+20%

Improvem

ent of energy efficiency + baseline biofuel share

-20%

-30%

+ BTL

-40%

+ BTL

Optimum pathway

+ FFV

+ CB

G

+ BEV

+ PHEV

+ FCEV

Maximum scenarios

? ? ? ? ?

€ € € € € ”DROP-IN”

13 01/10/2015 13

Principle of assessment

Alternative technologies were initially assessed one by one without consideration to possible restrictions

In the assessment, vehicle numbers were forced

to a level by 2030 that would allow achieving a 40% reduction in emissions with that technology I.e. an additional reduction of 20% in comparison

to the baseline scenario

In the case of drop-in biofuels, the additional reduction is achievable without the introduction of new types of vehicles However, it does require domestically produced or imported

biofuels that are compatible with the existing vehicle fleet While drop-in biofuels are already widely used in Finland, they are

less popular in Europe

Mixing board

14 01/10/2015 14

The technology scenarios

Scenarios 2 & 4 would require investments in fuel production

15 01/10/2015 15

The difficult choice

FCV

S. Schmerbeck/VW 2014

16 01/10/2015 16

Electric timber truck (just joking!)

17 01/10/2015 17

Advanced biofuel producers in Finland ~400 000 toe/a ~100 000 toe/a

~ 10 000 – 15 000 toe/a

18 01/10/2015 18

Advanced biofuels assessments in the study VTT/Ilkka Hannula: Assessment of production cost of forest residues based SNG, MeOH,

FT-diesel and MTG (methanol to gasoline) Estimates for proven technology, plant number ”n” Hannula also reported cost estimates of P2G- power to gas and P2G

boosted biomass gasification value chains

Pöyry/Esa Sipilä: Status of advanced biofuels and wood based production globally

Pöyry estimated OPEX and CAPEX for 10 new plants in Finland Most of the units would be ”first of its kind”, and investment grant for

innovative technology was estimated at 30 %, 25 % and 15 % for the first three plants Total investment grant needed from national/EU sources was estimated

at up to 800 M€.

19 19

Assessment of solid wood based transportation fuels and production costs in Finland 2030 - Ilkka Hannula, VTT

€/MWh €/GJ €/toe €/t-g-ekv €/Lg-ekv

Biomethane forest residues 64 18 792 901 0.57

Biomethanol 74 21 924 418 0.66

Bio-FT/MTG 81 23 1012 1012 0.73

Biohydrogen 58 16 669 1919 0.52

P2G methane 133 37 1628 1851 1.19

P2G methanol 144 40 1760 796 1.29

P2G FT/MTG 173 48 2112 2112 1.55

P2G hydrogen 96 27 1129 3239 0.86

Hybridmethane 82 23 1012 1151 0.73

Hybridmethanol 88 24 1056 477 0.79

Hybrid-FT/MTG 99 28 1232 1232 0.89

Based on assumption; Fuel production output 200 MW (~140 000 toe/a), biomass price 18 €/MWh, electricity 50 €/MWh, CO2 40 €/t. g-ekv = gasoline equivalent

Ilkka Hannula, Co-production of synthetic fuels and district heat from biomass residues, carbon dioxide and electricity: Performance and cost analysis, Biomass and Bioenergy, Volume 74, March 2015, Pages 26-46, ISSN 0961-9534,

http://dx.doi.org/10.1016/j.biombioe.2015.01.006.

Methane, Diesel Gasoline

COPYRIGHT©PÖYRY

OVERVIEW OF WOOD BASED BIOFUELS

• Wood based biofuels have been developed for decades and the first commercial projects are in verge of commercialisation

• Main technology pathways for wood based biofuels are: – Gasification and synthesis (FT for diesel, methanol synthesis, methanol-to-gasoline) – Gasification and fermentation to alcohols – Hydrolysis and fermentation to alcohols (mainly ethanol, also butanol) – Fast pyrolysis and upgrading (blend of diesel and naptha) – Catalytic fast pyrolysis and hydrodeoxygenation (blend of diesel and naptha) – Black liquor or kraft lignin gasification and synthesis (methanol and DME synthesis, other synthesis also possible) – Tall oil and HVO and tall oil pitch co-feed in oil refinery in production. Black liquor hydrotreatment on RTD level – Hydrothermal liquefaction with supercritical water or high pressure followed by fermentation or hydrotreatment

• There are no full scale transport fuel production from solid wood despite of multiple demonstration plants and flagship projects – Wood based ethanol pilot/demonstration plant in Örnsköldsvik, Sweden and new BALI demonstration unit by

Borregaard – St1 sawdust based ethanol plant investment decision in 2014 for 10 000 m3 per year to Kajaani – INEOS Bio commercial demonstration plant for gasification and fermentation in U.S. for waste and biomass – Ajos BtL and UPM Stracel gasification and FT diesel projects have not proceeded to implementation, NER300 – Black liquor gasification and DME synthesis demonstration plant in Piteå, Sweden but no full scale project

announced – KiOR catalytic pyrolysis flagship project in serious troubles due to low technological performance and financial

problems

20

COPYRIGHT©PÖYRY WOOD BASED BIOFUELS 2030 21

Technology Start Capacity, 1000 toe/a

Investment, MEUR

OPEX, EUR/toe

CAPEX, EUR/toe

Investment grant, MEUR

Total Costs, EUR/toe

Tall oil HVO/Pitch co-feed 2017 100 000 175 932 196 15 % 1100

Wood gasification FT 2018 100 000 450 640 385 35 % 1000

Wood pyrolysis co-feed 2019 50 000 235 700 402 35 % 1100

Gasification FT/SNG/MTG 2022 100 000 420 640 359 35 % 1000

Wood pyrolysis co-feed 2023 100 000 334 700 285 35 % 1000

Black liquor FT/gasoline 2024 100 000 190 932 162 35 % 1100

Wood gasification FT/SNG/MTG 2025 100 000 350 640 368 20 % 1000

Wood pyrolysis co-feed 2026 100 000 290 700 305 20 % 1000

Black liquor FT/co-feed 2027 100 000 200 800 171 35 % 1000

For the 2030 scenario domestic advanced biofuels production in new investments will be 850 000 toe/a, total investments 2,6 billion euro. Additional annual wood demand will be 4-5 million solid-m3 , depending on the amount of black liquor and tall oil and pitch volumes. Risk funding from national or EU sources like NER300/400 will be about 800 MEUR cumulatively to 2030.

Advanced biofuels production plan investments in Finland 2030 scenario (PÖYRY) Scenario 2, max – 40 % GHG reduction

COPYRIGHT©PÖYRY 22

INDICATIVE PRODUCTION COSTS OF WOOD BASED BIOFUELS

-500

0

500

1000

1500

2000

FT diesel Pyrolysis routes Straw ethanol in EU

Capital costsEnergyOtherFeedstockTotal production costs

Production costs of advanced biofuels will be 1200-1500 EUR/toe for the first units, i.e. significantly above the price of fossil fuels and current biofuels

Diesel Ethanol Co-feed

EUR/toe

COPYRIGHT©PÖYRY 23

FINNISH WOOD BALANCE

Wood balance in Finland is expected to be tight when approaching 2030

0

20

40

60

80

100

120

2012 2020 2030

Energy wood

Hardwoodpulpwood

Softwoodpulpwood

Hardwood logs

Softwood logs

Harvest potential

Harvest demand

CrossCluster 2030 scenario

100% 90%

<50%

Territorial waters Other land use

Forest chips potential utilization rate (%) 2020

24 24

Summary of the advanced biofuels market prices in the Finland 2030 scenario report. Domestic production from wood industry residues and side streams, (straw, fats, MSW)

Import price Domestic production cost

Renewable diesel 1200 EUR/toe 1000 EUR/toe

Ethanol wood (2G) 1500 EUR/toe 1500 EUR/toe

Biogas, mainly SNG from forest residues

No import 1000 EUR/toe

Hydrogen from wood No import about 5 EUR/kg

Advanced biofuels market prices excluding tax and other delivery cost. (including investment grant 35-25-15 % for three first units of innovative technology)

25 25

Reducing CO2 emissions in road transport by 40 % for the year 2030: Impacts on the national economy

Saara Tamminen, Ph.D Econ. Government Institute for Economic Research (VATT)

26 01/10/2015 26

Economic modelling set-up (1/2)

What are the economic impacts of the different options for reducing transport sector’s emissions? Long run economic impact analyses with VATTAGE computable

general equilibrium (CGE) model: 1. Identification of most important changes in direct costs and

economic structures in the entire value chain 2. Modelling of these changes with VATTEGE, 9 different

”technology scenarios” 3. Sensitivity analyses for the technology scenarios 4. Development –scenario, realistic in terms of technical

expectations 5. Policy recommendations

27 01/10/2015 27

Economic modelling set-up (2/2)

Baseline scenario (the comparison point of the results): use of biofuels and improvement of energy efficiency cut emissions already by some 20% Reporting:

Based on the whole economy’s point of view GDP, consumption, investment and employment changes in

comparison to the baseline scenario Costs per additional CO2 ton reductions (C02 emissions decrease

also in baseline scenario) All scenarios neutral with respect to public debt

28 01/10/2015 28

Please note!

GDP = Private consumption + Investments + Public consumption + Exports – Imports

The results are valid for Finland only, with the industrial structure and the natural resources we have

The methodology as such is, however, universal and valid for any country

For binding CO2 emission reductions, we will need energy efficiency and carbon neutral energy Whatever the price of oil will be in 2030 (30…300 USD/barrel?),

the competition will not be oil vs. renewables, but rather competition within the carbon neutral energy options

29 01/10/2015 29

Impact on GDP

Please observe: general increase in GDP from 2005 to 2030 predicted at 30 %

Summary and conclusions

31 01/10/2015 31

Conclusions of the 2030 study

Most cost efficient way for reducing transport sector’s CO2 emissions in Finland is investment in domestic drop-in biofuels production Biogas and domestic ethanol have also relatively low cost, but

would require major change in car fleet The assumption on the average future price of EVs has a major

impact on their GDP effect Large scale use of EVs in Finland is not very cost efficient

(relatively to other options) before the price of EVs is significantly lower than currently

Extended abstract in English at: http://www.transsmart.fi/files/248/Tutkimusraportti_VTT-R-00752-15_liitteineen.pdf Contacts at VATT: saara.tamminen&vatt.fi, juha.honkatukia@vatt.fi

32 01/10/2015 32

Prerequisites for success in biofuels

Cle

arly

def

ined

set

of r

ules

and

pol

icie

s

Sus

tain

able

feed

stoc

k

Effi

cien

t pro

cess

Ade

quat

e fu

el q

ualit

y

Ade

quat

e bi

ofue

l sin

ks (v

ehic

les)

Fair

taxa

tion

Suf

ficie

nt p

ublic

sta

rt-up

sup

port

Sou

nd b

usin

ess

oppo

rtuni

ties

Coo

pera

tion

amon

g ke

y st

akeh

olde

rs

TECHNOLOGY FOR BUSINESS