An Emerging Consensus on Cleaner Fuels for Asia

1
An Emerging Consensus on Cleaner Fuels for Asia
Cornie Huizenga, Herbert Fabian Grant Boyle, John
Courtis and Michael Walsh Clean Air Initiative
for Asian Cities 3rd Asian Petroleum Technology
Symposium Palace of the Golden Horses, Kuala
Lumpur, Malaysia 24 March 2005
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Outline of Presentation

• What is CAI-Asia?
• Background and Overview of Oil Industry Dialogue
  for Cleaner Fuels in Asia
• Impact of Fuels on Vehicle Emissions in Asia
• Producing Cleaner Fuels in Asia
• Role of Tax Incentives, Subsidies, and Pricing in
  the Introduction of Cleaner Fuels in Asia
• Approach and Timing towards Adopting Cleaner
  Fuels in Asia

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Clean Air Initiative for Asian Cities (CAI-Asia)
Part 1
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CAI-Asia Membership
CITIES Bangkok,Thailand Chiang Mai,Thailand Chengd
u,PRC Chittagong,Bangladesh Chongqing,PRC Colombo,
Sri Lanka Dhaka, Bangladesh Guangzhou,PRC Haiphong
, Viet Nam Hangzhou,PRC Hanoi,Viet
Nam Harbin,PRC Ho Chi Minh City,Viet
Nam Hyderabad, India Islamabad,Pakistan Kathmandu,
Nepal Lahore, Pakistan Makati,Philippines Metro
Manila, Philippines Mumbai, India Naga,Philippines
Phnom Penh,Cambodia Pune, India Singapore,
(NEA) Surabaya,Indonesia Tianjin,PRC Ulaanbaatar,
Mongolia Yogyakarta,Indonesia
GAs Andhra Pradesh Pollution Control Board,
India Australia Department of Environment and
Heritage Balochistan EPA, Pakistan Central
Pollution Control Board, India Department of
Environment, Bangladesh Department of Forests,
Ecology and Envt, Karnataka State,
India Department of Environment and Natural
Resources, Philippines Department of Energy,
Philippines Department of Transportation and
Communications, Philippines Dhaka Transport
Coordination Board, Bangladesh Environmental
Management Bureau, Ministry of Environment,
Japan Environment Protection Department, Hong
Kong, SAR Environmental Protection Agency
Karachi, Pakistan Ministry of Environment,
Cambodia Ministry of Environment,
Indonesia Ministry of Public Works and Transport,
Cambodia Ministry of Road Transport and
Highways, India Pollution Control Department,
Thailand State Environmental Protection
Administration (PRC focal point) Viet Nam
Register, Viet Nam

• 53 NGOs and Academic Institutions in the Region

DEVELOPMENT AGENCIES Asian Development
Bank German Agency for Technical
Cooperation The William and Flora Hewlett
Foundation United States-Asia Environmental
Partnership Sida World Bank
FULL PRIVATE SECTOR Member Ford Motor Co.
Shell Clean Diesel Tech. Inc. ASSOCIATE
PRIVATE SECTOR Member ACFA IPIECA Johnson
Cerulean MAHA Matthey Corning SGS DEKRA

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Background and Overview of the Oil Dialogue
Part 2
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Average Annual Air Pollution Concentration
in selected Asian Cities (2000 -
2003)
SO2 Guideline 50 µg/m3 (WHO, 1999)
SPM
SO2
SPM Guidelines 60-90 µg/m3 (WHO, 1979)
NO2
PM10
NO2 Guideline 40 µg/m3 (WHO, 1999)
PM10 Limit 50 µg/m3 (USEPA, 1997)
Source CAI-Asia, 2004
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Overview of the Oil Dialogue

• Goal To contribute to better air quality
  management in Asia by following a structured and
  scientific approach in the identification of fuel
  quality improvement and associated improvement in
  vehicle technology and other directly related
  measures
• Participants Launch meeting in Singapore on 21
  July 2003 included Bangchak Petroleum Public
  Company, BP, ChevronTexaco, ExxonMobil, Indian
  Oil Corporation, Pakistan State Oil, Petron
  Corporation, PTT Public Company Ltd, Shell, Showa
  Shell Sekiyu K. K., Singapore Petroleum Company,
  Thai Oil Company Limited
• ToR Adoption of Singapore statement kicked of
  the Dialogue (http//www.cleanairnet.org/caiasia/1
  412/articles-58710_singapore.pdf), followed by
  the formulation of the detailed ToR
• Components Three background papers under
  preparation
• Relationship Fuels and Vehicles
• Costs of Producing Cleaner Fuels
• Incentives for the adoption of Cleaner Fuels

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The Impact of Fuels On Vehicle Emissions
Part 3
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Gasoline Effects on Emissions
Emissions
Toxics (Unregulated )
Regulated
Fuel-
change
CO
HC
NOx
Benzene
Aldehyde
Butadiene
Reduction of

o
o
o
o
o
Benzene
---
---
-
-



Aromatics

o
o
o
o
o
Olefins



o
o
o
Sulphur
/
o
o
Vapor pressure
o
o
o
o
-



Distillation Characteristics
?
?
--


o
o
o
Addition Oxygenates
2-10 10-20 gt 20
Improvement or Deterioration

0

- -- ---
?
2
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Diesel-Fuel Effects on Emissions
Vehicle - Emissions LDV / HDV
Diesel fuel-change
CO
HC
NOx
Particulates
Reduction of
/
o
o
? / o
Sulphur
--
/
/-
/

/o
o
Density
-
-

/
/
/


o
o
Aromatics
-
- -
-
-
/
/

o
o
/
o
/
Back End Distillation (T95)
Increase of ...
-
/
/
/
o
o
Cetane Number
2-10 10-20 gt 20
Improvement or Deterioration

0

- -- ---
?
2
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Emission Control Devices Reduction Potential and
Effects of Sulfur on Catalyst Performance ()
CAI-Asia, a work in progress (not to be quoted)
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Part 3

• Producing Cleaner Fuels

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What Fuel Changes Are Needed?

• Some changes are required for emissions
  performance of MVs
• Gasoline Diesel
• Zero lead Catalytic vehicles Very Low S
  After-treatment
• Low sulfur Catalyst performance
• Some changes are required for emission
  improvements
• Gasoline Diesel
• Sulfur SO2, HC, Nox, CO, Toxics Sulfur SO2,
  Nox,PM
• RVP HC, Toxics Cetane HC, CO, NOx
• Benzene Toxics Density PM, NOx
• Aromatics Toxics, Nox, HC
• Oxygenates CO (older vehicles)
• Olefins Reactivity, toxics
• Distillation HC, NOx

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The Asian Refining Industry

• Most crude is refined by large, complex
  refineries, however a significant number of small
  refineries produce only 10 of the refined
  products
• Many complex refineries in the Asian region are
  not well equipped to produce clean fuels but
  significant capital investments in several
  countries are currently underway to upgrade
  production quantity at these refineries

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Investment Process Options and Impacts on
Gasoline Properties
Note increase
- decrease NE no effect
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Factors to Consider in Refinery Upgrading (1)

• Future demand for fuels
• Significant increases in future demand for fuels
  is causing significant capital investments for
  increased production
• Changes in future consumption patterns (gasoline
  vs. diesel) will require additional changes
• Demand growth not equal across the region
• Refinery complexity and size
• Small topping, hydro-skimming refiners will
  require radical modifications to produce clean
  fuels may go out of the on road fuels market
• Complex-conversion refineries will have more
  flexibility

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Factors to Consider in Refinery Upgrading (2)

• Importation/exchange of products
• Availability of imports or exchange products will
  become a critical issue. Currently only sketchy
  overview of future outlook, especially of
  surpluses of clean fuels, in the region and the
  world
• Secured access to critical blendstocks or
  products will reduce refinery investments
  required in individual countries
• Prices and security of imports is a critical
  medium and long term issue
• Governments in some case give preference to local
  refining even if there is evidence of higher
  costs and lower efficiency
• Capital availability
• For governmental refineries capital improvements
  may need to compete with other social
  expenditures
• Private refineries may need to be financed from
  the capital markets
• Some projects may be considered to be not
  financially viable
• Capital may not be available or be available at
  higher interest rates-different costs

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Costs of Production(preliminary-more work to
follow)
Current studies indicate wide range in costs. The
increasing production of ULSD both in Asia and
elsewhere should make it possible to arrive as a
more narrow range.
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Part 4

• Cleaner Fuels in Asia
• The Role of Pricing, Taxation and Incentives

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Governance Issues Relating to Cleaner Fuel
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Market Conditions and Rationale for Market
Instruments
Source Adapted from Little, Arthur, 1998
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Pricing, taxation and incentives
Tax and Pricing Differentials for cleaner fuels
e.g. Philippines 1999 ULG 1 Peso/ liter less
excise than LG PRC 2000 LG tax raised to
maintain same price as ULG HKG 2000
differential of HK 0.86 for 50ppm diesel
relative to the 500ppm diesel
e.g. Japan 1990-1992 Tax Scheme for Promoting
Investment in the Reform of the Energy
Supply-Demand Structure, to lower sulfur content
in diesel fuel below 2000ppm Japan 2004 5.2
billion yen cash subsidy for refiners to produce
10ppm sulfur diesel, which has been mandated for
Jan 2007
Direct Subsidies/ Incentives
Vehicle Incentives
Tax benefits and rebates for cleaner vehicles
that require cleaner fuels e.g. Singapore 2004
market incentives for cleaner vehicles that
require ULSD (Euro 4) fuel
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Fuel Tax Differentials

• Definition A fuel tax differential creates a
  cost advantage for a higher quality fuel through
  an increased tax on the lower quality lower
  quality fuel, a lower tax on the improved fuel or
  both.
• Application Used in Finland, Germany, Sweden,
  Denmark, the UK and Hong Kong to introduce ultra
  low sulfur diesel and in many countries to
  introduce unleaded gasoline including Singapore,
  Hong Kong, the Philippines and Thailand.
• Remarks Fuel tax is more commonly used to
  generate general revenue and road financing.
  Potential to make use of tax differentials to
  promote adoption of cleaner fuels in Asia is
  until now not widely utilized.

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Approach and Timing in the Introduction of
Cleaner Fuels in Asia
Part 5
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Approach (1)

• In developing the roadmap for cleaner fuels
  decision makers need to consider vehicle emission
  standards for LDVs, HDVs, and 2-3 wheelers.
• Fuel specifications
• Maintain linkage with Euro specifications, but
  consider some flexibility for specific parameters
  (RVP, olefins)
• Governments in the Asian region should issue
  roadmaps with sufficient lead-time for vehicle
  and fuel industry to make required investments
  and preparations

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Approach (2)

• Governments in the Asian region should develop
  clear plans for regulations as the primary means
  of improving fuel quality in the region as well
  as supportive taxation, pricing and public
  outreach.
• Temporary fuel tax modifications/differentials
  have the potential to accelerate fuel quality
  improvements in Asian countries.
• The specific feasibility and nature of such
  policies will depend on factors in each country
  such as current pricing regime, financing, and
  political feasibility-these need to be understood
  in different national contexts.
• Ultimately, the most effective approach over the
  short run will make use of the pricing, taxation
  and market structures already in place in
  different countries to create price differentials
  and financing.

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Timing What are countries doing?
gt 500 ppm
51 500 ppm
lt 50 ppm
Emerging trend for high and middle income
countries to move aggressively towards sulfur
levels of 50ppm and below.
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Regional approaches

• ASEAN METI (Japan) Economic and Industrial
  Cooperation Committee (AMEICC) are in the process
  to discuss a roadmap to move to Euro 2 by 2005
  and Euro 4 by 2010.
• ASEAN Council on Petroleum (ASCOPE) in its
  internal planning also assumes Euro 4 by 2010 as
  benchmark
• International Council for Clean Transportation
  (ICCT) actively promotes leapfrogging to ULSD and
  Euro 4 emission standards for Asian countries
  with poor air quality with poor air quality
• Partnership for Clean Fuels and Vehicles (PCFV)
  implements activities to encourage governments in
  Asia to actively lower sulfur levels
• International Petroleum Industry Environmental
  Conservation Association (IPIECA) in the process
  of developing of developing position paper to
  guide policy makers in decision making on cleaner
  fuels
• Asian Clean Fuels Association (ACFA) undertakes
  stakeholder consultations with the aim to develop
  fuel quality roadmaps in Asia

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Timing

• European implementation up to Euro 4 in 4-6 years
• USA implementation up to Tier 2 in 6-7 years
  although some countries
• As experience in producing cleaner fuels is
  growing countries start to shorten the lead-time
  e.g. Taipei,China, Hong Kong and Singapore
  (diesel)
• Taking into account realities on the ground and
  efforts by different regional programs and
  initiatives it is to be expected that Euro 4 and
  50 ppm sulfur will be the benchmark in the
  discussion
• Not all countries will move with the same speed,
  and even within countries there are expected to
  be different speeds based on current trends.

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CAI-Asia Oil Industry Dialogue

• Inform governments on the potential ability and
  associated efforts to produce cleaner fuels, this
  in support of development of medium term fuel
  quality strategies by Asian governments
• Plan is to bring all stakeholders together in
  November 2005 in Manila to develop consensus on
  roadmap for cleaner fuels in Asia (in conjunction
  with ASCOPE 2005)