GLOBALIZATION AND DEVELOPMENT JOSEPH E. STIGLITZ TOKYO JULY 2007.
Presentation, Tokyo (July 2004)
description
Transcript of Presentation, Tokyo (July 2004)
CAI-Asia – Oil Industry Dialogue for Cleaner Fuels in Asia
July 2004
Tokyo, Japan
Cornie HuizengaMichael WalshJohn CourtisGrant Boyle
Overview of Presentation
• Introduction CAI-Asia and background and objectives of Oil Industry Dialogue
• The impact of fuels on vehicle emissions in Asia
• Producing cleaner fuels in Asia• The role of tax incentives, subsidies, and
pricing in the introduction of cleaner fuels in Asia
• Continuation of the Dialogue
Overview
0
50
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Ban
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Bei
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Bus
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Col
ombo
Dha
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Han
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Kar
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Kat
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Kol
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Man
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Mum
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er c
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Average Air Quality Levels in Asia 2000 – 2003 (*)
SO2
NO2
SPM
PM10
SPM Limit = 90 µg/m3 (WHO, 1979)
PM10 Limit = 50 µg/m3 (USEPA,
1997)
SO2 Limit = 50 µg/m3 (WHO, 1999)
NO2 Limit = 40 µg/m3 (WHO, 1999)
Part 1
(*) averages based on available data,Contact [email protected] for details
- CAI-Asia -
• The Clean Air Initiative promotes and demonstrates innovative ways to improve the air quality of Asian Cities through sharing experiences and building partnership- Sharing knowledge and experiences on air quality
management- Capacity building- Improving policy and regulatory frameworks at the
regional level - Assisting cities in formulating and implementing
integrated air quality management systems - Piloting projects to encourage innovation
“Create an Air Quality Management Community in Asia”
Part 1
CITIESBangkok,ThailandChiang Mai,ThailandChengdu,PRCChittagong,BangladeshChongqing,PRCColombo,Sri LankaDhaka, BangladeshGuangzhou,PRCHaiphong, Viet NamHangzhou,PRCHanoi,Viet NamHarbin,PRCHo Chi Minh City,Viet NamHong Kong, SAR, ChinaHyderabad, IndiaIslamabad,PakistanKathmandu,NepalLahore, PakistanMakati,PhilippinesMetro Manila, PhilippinesMumbai, IndiaNaga,PhilippinesPhnom Penh,CambodiaPune, IndiaSingapore, (NEA)Surabaya,IndonesiaTianjin,PRCUlaanbaatar, MongoliaYogyakarta,Indonesia
NGAsAndhra Pradesh Pollution Control Board, IndiaAustralia Department of Environment and HeritageBalochistan EPA, PakistanCentral Pollution Control Board, IndiaDepartment of Environment, Bangladesh Department of Forests, Ecology and Env’t, Karnataka State, IndiaDepartment of Environment and Natural Resources, PhilippinesDepartment of Energy, PhilippinesDepartment of Transportation and Communications, PhilippinesDhaka Transport Coordination Board, BangladeshEnvironmental Protection Agency Karachi, PakistanMinistry of Environment, CambodiaMinistry of Environment, IndonesiaMinistry of Public Works and Transport, Cambodia Ministry of Road Transport and Highways, IndiaPollution Control Department, ThailandState Environmental Protection Administration (PRC focal point)Viet Nam Register, Viet NamDEVELOPMENT AGENCIESAsian Development BankAustralian Department for Environment and HeritageGerman Agency for Technical CooperationThe William and Flora Hewlett FoundationUnited States-Asia Environmental PartnershipSidaWorld Bank
FULL PRIVATE SECTOR MemberFord Motor ShellCompanyASSOCIATE PRIVATE SECTOR MemberAVL Corning ETIACFA DEKRA ESPCerulean EMITEC IPIECAMAHA SGS
50 NGOs and
Academic Institutions
in the Region
CAI-Asia Membership
Part 1
Overview of 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/1412/articles-58710_singapore.pdf). This was 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
• Process: Dialogue with Vehicle Industry• Results: Presentation of draft results during BAQ 2004• Follow-up: 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
Part 1
Why are we interested in fuels?
• Vehicle emissions are an important contributor to ambient air pollution in Asia (PM, NOx, and Ozone being pollutants of concern)
• To reduce vehicle emissions an integrated approach is required, in which fuels play an important role
• Fuels and vehicles are an integrated system, whereby fuel quality is the main enabler for cleaner vehicle technology and can have an important impact on emissions from existing in-use vehicles
-1.80%-1.60%
-4.80%
-2.80%
-2.40%
-4.20%
-6.00%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
% R
educ
tion
in a
nnua
l tre
nd
age 15 - 64 age 65 +
All causes Cardiovascular Respiratory
Reductions in Deaths after Sulfur Restriction in Hong Kong
Source: The Lancet
Part 1
Motorization Trends in Asia
0
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500
600
1995 2000 2005 2010 2015 2020 2025 2030
U.S. Current Level
Veh
icle
Pop
ula
tion
(m
illi
ons)
0
100
200
300
400
500
600
1995 2000 2005 2010 2015 2020 2025 2030
U.S. Current Level
Veh
icle
Pop
ula
tion
(m
illi
ons)
Vehicle growth scenario China
Source: ADB 2002. Policy Guidelines to Reduce Vehicle EmissionsSource: Dongquan He, Energy Foundation 2004
Part 1
Vehicle Fleet Composition in selected Asian Cities
0
1000000
2000000
3000000
4000000
5000000
6000000
Manila Gasoline Manila Diesel Bangkok Gasoline Bangkok Diesel Bangalore Gasoline Bangalore Diesel
1995
2000
2005
2010
Source: Camarsa, 2004
Part 1
(5,000,000)
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Bangladesh 2&3 wheelers Cambodia Hongkong, China
India Indonesia Japan
Korea, Republic of Malaysia Pakistan 2&3 wheelers
PRC Sri Lanka 2&3 wheelers Thailand 2&3 wheelers
Viet Nam
Increase in 2 & 3 wheelers in Asia
The Global Market for New Motorcycles and Mopeds
Annual Production motorcycles China (in millions)
Part 1
New Vehicle Emissions Standards (light duty
vehicles)Country 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10
European Union
Euro 1 Euro 2 Euro 3 Euro 4 Euro 5
Bangladesh Euro 2 (under discussion)
Hong Kong, China
Euro 1 Euro 2 Euro 3 Euro 4
Indiaa Euro 1 Euro 2 E3
Indiab E1 Euro 2 Euro 3
Indonesia Euro 2
Malaysia Euro 1 Euro 2
Nepal Euro 1
Philippines Euro 1
PRCa Euro 1 Euro 2 Euro 3
PRCc Euro 1 Euro 2 Euro 3
Singaporee Euro 1 Euro 2
Singaporeg Euro 1 Euro 2 Euro 4
Sri Lanka Euro 1
Taipei,China US Tier 1 US Tier 2 for dieseld
Thailand Euro 1 Euro 2 Euro 3 Euro4
Viet Name Euro 1
Viet Namf Euro 1
a Entire country
b Delhi and other cities; Euro 2 introduced in Mumbai, Kolkata and Chennai in 2001; Euro 2 in Bangalore, Hyderabad, Khampur, Pune and Ahmedabad in 2003, Euro 3 to be introduced in Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad and Ahmedabad in 2005
c Beijing and Shanghai
d Gasoline vehicles under consideration
e for gasoline vehicles
f for diesel vehicles
g for all types of diesel vehicles
Part 1
In-use Standards for Diesel Vehicles in Asia Effectivity
Smoke HSU
Test
Bangladesh - 65 -
Cambodia Current 50 -
60
Free acceleration
Hong Kong, China Current
50 Loaded lug down test on a chassis dynamometera
India Current 65 Free acceleration
Indonesia Current 50 Free acceleration
Malaysia Current 50 -
Nepalb Current 65 -
Pakistan Current 40 Free acceleration
Philippines Current 2.5 m-1 Free accelerationc
Philippines 2003 1.2 m-1 Free accelerationd
PRC Current 4.5 Rb Free acceleration
Singapore Current 50 -
Effectivity Smoke HSU
Test
Sri Lanka Current 65 Idle
Sri Lanka Current 75 Free acceleration
Thailand Current 45 Free acceleration
Thailand Current 35% Loaded
Thailand Current 50 Filter test – free acceleration
Thailand Current 40% Filter test - loaded
Viet Name Current 72 Idle
Viet Namf Current 85 Idle
Viet Namg 2005 72 Idle
a for vehicles apprehended under the Smoky Vehicle Control Program
b for vehicles manufactured in 1995 and beyond
c For naturally aspirated engines; limit is 2.5 m-1 for turbo-charged engine and 4.5 m-1 for a 1,000 m increase in elevation
d For naturally aspirated engines; limit is 2.2 m-1 for turbo-charged engine and 3.2 m-1 for a 1,000 m increase in elevation
Part 1
Diesel Sulfur Levels in Asia, EU and the US
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Bangladesh 5000
Cambodia 2000
Hong Kong, China 500 50
India 5000 2500 500 350
Indonesia 5000
Japan 500 100 50 10 Malaysia 5000 3000 500 marketed
Pakistan 10000 5000
Philippines 5000 2000 500
PRC 5000 2000
Republic of Korea 500 430 30 10
Singapore 3000 500
Sri Lanka 10000 3000
Taipei,China 3000 500 350 50
Thailand 2500 500 350
Vietnam 10000 2000 500
European Union 350 50 10
United States 500 15
> 500 ppm 51 – 500 ppm < 50 ppm
Part 1
Gasoline Specifications in Asia and EU
Lead Sulfur ppm
Benzene % v/v, max
Aromatics %
Olefins %
Oxygen % m/m, max
RVP summer kPa, max
Linked to Euro 3 Vehicle Standards Effective 2000
Lead free 150 1.0 42 18 2.7 60
Linked to Euro 4 Vehicle Standards Effective 2005
Lead free 50 1.0 35 18 2.7 60
Bangladesh Lead free 1000 - - - - 0.7 kg/m2 Cambodia 0.15 g/l - 3.5 - - - - Hong Kong, China
Lead free 150 1 42 18 2.7 60
India Lead free 1000a 5b - - 2.7 35-60 Indonesia 0.30 g/l 2000 - - - 2.0 (premix) 62 Japan Lead free 100 1 - - - 78 Malaysia Lead free 1500 5 40 18 - 70 Pakistan Lead free 10000 5 40 - - 9-10 psi Philippines Lead free 1000 2 35 - - 9 psi PRC Lead free 1000 2.5 40 35 - 74 Singapore Lead free - - - - - - Sri Lanka Lead free 1000 4 45 - 2.7 35-60 Taipei,China Lead free 180 1 - - 2.0 8.9 psi Thailand Lead free 500 3% 35 - 1-2% -
Viet Nam Lead free 5000-10000
5 - - - -
aIn Delhi, Mumbai, Kolkata and Chennai sulfur levels are 500 ppm bBenzene – 3% in metros and 1% in National Capital Region
Part 1
Context Summary• Asia as a region has the fastest vehicle growth
rates in the world. Variable growth rates by country and by technology
• Characteristics of the vehicle fleet in Asia are unique: high percentage of 2-3 wheelers; modified vehicles; and high average lifetime of vehicles
• Considering existing and currently planned emission standards majority of vehicles in Asia in 2010 will still be less than Euro 2 equivalent.
• Cleaner fuels will have direct impact on emissions from both new vehicles and existing in-use vehicles
Part 1
Part 2
The Impact of Fuels On Vehicle Emissions
Part 2
What are the Air Quality Concerns?
Human Health Concerns
GLOBAL Global WarmingAcid RainOzone Depletion
Industrial EmissionsEnergy ConsumptionVehicle EmissionsAgriculture
AIR
QUALITY
URBANPollutants
Pollutants
Part 2
Different Fuels = Different Emissions
ÖL
+ Additives
+ Additives
Blending with5 - 12
differentComponents
DifferentCrude Oils
and Refineries
OlefinsAromaticsParaff./ Naptha
Sulfur
SulfurOlefinsParaff. /NaphtaAromatics
~300 HC
~200 HC
+ Air Different Combustion NOx
HC
SO2
C6H6
PAH
PM
CO
CO2
Gasoline
Diesel
Formulation ?
Formulation ?
Part 2
Emission Control Reduction Requires a Systems Approach
Advanced Engine Designs
Advanced Emission ControlsHigh Quality Fuel and Lubricants
Low (er) Emissions
New
ca
rs
Retrofits
High Quality Fuel and Lubricants
Low (er) Emissions
In-u
se
cars I & M
Part 2
Auto Oil Programs• Europe• Auto Oil Program I (Air quality driven) 1993 - 1996
Gasoline / Diesel vehicles/engines (LD, HD), gasoline / diesel fuel
• EPEFE (European Program Emissions on Fuels and Engine Technology)
• Auto Oil Program II (1997 - 1999 / Conciliation / --> 2001• Clean Air for Europe Program (“CAFE”, from 2001 on)
• USA• AQIRP (Air Quality Improvement Research Program)
Gasoline vehicles, gasoline / alternative fuels• Phase I, II -1989 - 1996 (published 1993 and 1997)
• Japan• JCAP (Japan Clean Air Program)
Gasoline / Diesel vehicles/ engines (LD, HD), gasoline/diesel fuel Phase1 1996 - 1999; Phase II 1999 - 2001 These programs provide much of the data used to determine the effects
of different fuels parameters on emissions in Europe, USA and Japan
Part 2
Gasoline Effects on Emissions
+ ++
+++
- --
---
2-10 %10-20 %> 20 %
Improvementor
Deterioration}0 2 %
Fuel-
Reduction of :
Benzene
Aromatics
Olefins
Vapor pressure
DistillationCharacteristics
Addition Oxygenates
Regulated
CO
Toxics (Unregulated )
Sulphur
HC NOx Benzene Aldehydechange
Emissions
o o o
o o o
--
+++++ ++ +++
+ + +
+ +++ ++ ?
++ +
-
o ooo
o
o/+
o-
-
o
o
o
Butadiene
o
---++
o
o
?
o
---
oo
Part 2
Diesel-Fuel Effects on Emissions
Diesel fuel-change
Reduction of:
Aromatics
Back End Distillation (T95)
Increase of ...
CO
Sulphur
HC NOx Particulates
+/++
++/o
+++/++ +++/+
Vehicle - Emissions LDV / HDV
Density ++/- ++/
Cetane Number
o o ? / o
o/o- /
++- / o +
o+/o- //- -o/-
o o- /
+/--
-
Part 2
+ ++
+++
- --
---
2-10 %10-20 %> 20 %
Improvementor
Deterioration}0 2 %
Zeolite or refractory oxide support
Precious Metal
SO3
SOSO44
Transition Metal
H2SO4
O2
Sulfate make
Sulfur inhibition
Sulfate Poisoning
SO2
Sulfur Effects
All Vehicular Catalysts Are Impaired By Sulfur Through Inhibition, Poisoning and Make Sulfate
Part 2
Control Devices, Emission reduction potential and effects of sulfur on catalyst
performance (*)ControlDevice
Required Sulfur level
Potential For emission
reduction
Impact ofPermanent High
Sulfurppm
Impact of temporaryHigh sulfur
ppm
TWC 500 ppm max.10-15 ppm optimal
CO, HC, NOx, certain Toxics95%+
Sulfur InhibitionSulfation
Depends On How Long, How Much
Oxidation Catalyst 500 ppm max.10-15 ppm optimal
CO, HC, certain Toxics90%+
Sulfur Inhibition, Sulfation
Depends On How Long, How Much
Lean NOx Catalyst
10-15 ppm max. NOx90%+ (?)
Sulfur Inhibition, Sulfation
Rapid Permanent Deterioration
SCR with Urea Not Sulfur sensitive except for oxidation catalyst
NOx90%+
Sulfur Inhibition, Sulfation
(Oxidation Catalyst Only)
Depends On How Long, How Much
Catalytic Filters 50 ppm max. PM, HC, CO, 95%+ Sulfur Inhibition, Sulfation
Rapid Permanent Deterioration
NOx Adsorbers 10-15 ppm max. NOx90%+ (?)
Extreme Sulfur Inhibition
Rapid Permanent Deterioration
Part 2
* CAI-Asia, a work in progress (not to be quoted)
Ultra Low Sulfur Diesel Fuel Is Spreading
050
100150200250300350400450500
PPM
US
US 20
06
EU 200
0
EU 200
5
EU 200
5-9
Denmar
k
Swed
en Class
1
German
y 20
03
Japa
n
Japa
n 20
04
Japa
n 20
05-7
Hong Ko
ng
Sout
h Ko
rea 20
06
Taipei, C
hina
...
Austra
lia 200
6
Thailand
201
0
Sant
iago
200
4
Sing
apor
e 20
06
Part 2
EURO II Vehicles & Fuels with I/M
EURO III Vehicles & Fuels with I/M
EURO IV Vehicles & Fuels with I/M
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Percent Reduction in Emissions
NOx 2005
NOx 2020
PM10 2005
PM10 2020
Source: Camarsa, BAQ 2003
Impact of Clean Vehicles and Fuels On Diesel Vehicle Emissions
Part 2
Worldwide Motorcycle Emission Regulations
Japan
III Stage (2008)HC+NOx:1.0~1.25CO: 1.0~1.25
ChinaII Stage (2004)ECE40HC: 1.2NOx:0.3CO: 5.510,000 km
EuropeEU II (2003)ECE40Cold StartHC: 1.0NOx:0.3CO: 3.0
EU III (2006)HC: 0.8NOx:0.15CO: 2.030,000 km
(2006/2007)ECE40Cold StartHC: 0.3/0.5NOx:0.15CO: 2.012,000/24,000 km
IV Stage (2004)ECE40Cold StartHC+NOx:2.0CO: 7.015,000 km
Taiwan
II Stage (2005)IDC Cold StartHC+NOx:1.5CO: 1.530,000 km
India
What are the important Fuel/Lube constituents for current motorcycles and future technology?
Lead, Sulfur, Benzene?
Part 2
MMT Becoming Serious ConcernIn Asia As Octane Enhancer
• Canada– Expert Panel Under Royal Society
Soon– Most Oil Companies Suspending Use
• EU– Not Widely Used– Accession Members Forcing Issue– Will Likely Set Up Testing Protocol
• US– Not Widely Used– Health Studies Underway– EPA Being Very Cautious
• CARB – Ban in Effect• HEI Health Effects Study A Red Flag
– Potential For Accumulation in Brain– Parkinsonian Symptoms?
• Under consideration or already used in China, Thailand, Indonesia, Vietnam, Others(?)
Concerns RegardingCatalysts With HighCell Density Substrates
Part 2
•International experience has shown that ultra low sulfur diesel (50 ppm or less) with a catalyzed diesel particulate filter offers the following potential benefits:
- > 90 - 98% PM reduction- > 70 - 90% CO reduction– > 90% HC reduction– > 90% air toxics & ozone precursor reduction– 0 – 35% NOx reduction
• Retrofits for gasoline vehicles in Asia not likely
Dealing With Existing Vehicles
Part 2
Impact of ULSD on in-use busses, Mumbai India (TERI)
• With a Bharat Stage 2 (Euro 2) Bus, reducing sulfur from 500 to 350 ppm, reduces PM10 by 26%
• Reducing sulfur further to 50 ppm, reduces PM by another 19%
• Combining 50 ppm fuel with a particulate filter, reduces PM by 97%
• PM Emissions of a CNG bus equipped with a TWC and a diesel bus operating with 50 ppm sulfur fuel and a CRT were roughly equivalent
Part 2
Impact on Vehicles Meeting EURO 3 Standards
Impact of sulfur in gasoline on emissions in-use vehicles in
Bangkok
Part 2
Impact on Vehicles Meeting EURO 3 Standards
Impact of sulfur in diesel on emissions in-use vehicles in
Bangkok
Part 2
Issues and Questions
• Many Asian countries have vehicle fleets with unique characteristics:– High proportion of 2-3 wheeled vehicles– High proportion of older vehicles with
modest if any pollution controls
• Are data available regarding fuels effects on these vehicles?
• Are data available from Japan which would give different conclusions than those presented?
Part 2
Part 3
Producing Cleaner Fuels
Part 3
Selective EU Fuel Quality Requirements
Part 3
What Fuel Changes Are Needed?
• Some changes are required for emissions performance of MVs Gasoline Diesel
Zero lead: Catalytic vehicles Very Low S: After-treatmentLow sulfur: Catalyst performance
• Some changes are required for emission improvements Gasoline DieselSulfur: SO2, HC, Nox, CO, Toxics Sulfur: SO2, Nox,PMRVP: HC, Toxics Cetane: HC, CO, NOxBenzene: Toxics Density: PM, NOxAromatics: Toxics, Nox, HCOxygenates: CO (older vehicles)Olefins: Reactivity, toxicsDistillation: HC, NOx
Part 3
Investment Process Options and Impacts on Gasoline Properties
Blendstock Processing
Octane RVP Olefins Aromatics Benzene Sulfur T50 T90
Alkylation + _ _ _ _ _ + +
Isomerization + + _ _ _ _ _ _
Reformer + _ _ + + + + +
Aromatics Saturation
_ + NE _ _ _ NE NE
BTX _ _ NE _ _ _ _ _
Oxygenates + NE/+ _ _ _ _ _ _
FCC Hydrotreating
_ NE _ _ _ _ NE NE
Note:
+ = increase
- = decrease
-NE = no effect
Part 3
Comparison of Refinery Complexity
0%
10%
20%
30%
40%
Perc
en
t of
Cru
de
Th
rou
gh
pu
t
Th
erm
al
Cra
ckin
g
Cokin
g
Vis
bre
akin
g
Cat
Cra
ckin
g
Hyd
roC
rackin
g
Japan
Germany
California
Singapore
Indonesia
India
China
Part 3
Comparison of Average Hydrotreating, Hydrocracking Capacity
0%
10%
20%
30%
40%
50%
Perc
en
t of
Cru
de
Th
rou
gp
ut
Jap
an
Germ
an
y
Califo
rnia
Sin
gap
ore
Ind
ia
Ch
ina
Hydro-treatingHydro-cracking
Part 3
Characterization of refinery sector by country (*)
Country Ownership Number and Complexity
Demand Forecast
Transportation Sector
Key Issues
Singapore Private 3 Complex
+ -Merchant refineries -Net Exporter -Large inv. needed
Thailand Private+ Public
4 Complex
+++ -Inv. needed -RVP, S, Aro., octane -Use of Ethanol
Malaysia Private+ Public
6 Complex/
Small
+++ -Importer -Cap. Inv. needed -RVP, S, Aro., benzene -Gov. price controls
Philippines Private+ Public
3 Complex
+++ -Growth in demand/importer -RVP, S, Octane -Cap. Inv. needed
Indonesia Public 8 Complex/
Small
+++ -Growth in demand/Importer -Large Cap. Inv. -Octane, RVP, S, Aro., Olefins -Gov. price controls
Part 3
* CAI-Asia, a work in progress (not to be quoted)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
kb
pd
ca
pa
cit
y
BLD.RDS
BLD.HDF
BLD.H2
BLD.HDA
BLD.HDS
BLD.HDC
Example: Refinery investment Chinese Sulfur-Related Refinery
Investment by Scenario, Model Results
Source:Trans-Energy Research Associates
Part 3
Factors to Consider in Refinery Upgrading (1)
• Refinery complexity and size– Small topping, hydro-skimming refiners will require
radical modifications to produce clean fuels; may go out of the fuels market
– Complex-conversion refineries may have more flexibility
• 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
Part 3
Factors to Consider in Refinery Upgrading (2)
• Future demand for fuels– Significant increases in future demand for fuels will require
additional capital investments for increased production– Changes in future consumption patterns (gasoline vs.
diesel) will require additional changes
• Importation/exchange of products– Availability of imports or exchange products will be
become a critical issue• If imports of critical blendstocks or products are available less
refinery investments may be needed• Prices and security of imports is a critical long term issue• Governments want to rely less on imports and that promotes
inefficiency
Part 3
Costs of Production(preliminary-more work to follow)
STUDIES COUNTRY/ REGION
STUDY’S OBJECTIVES
GASOLINE DIESEL
Enstrat Intl. All Asia Sulfur Reductions -50ppm -10ppm
- - - 8.1-12.4
Australia Gov. Australia Fuel Reformulation EURO 4 (S, benzene)
2.5 4.2
Trans-Energy China Fuel Reformulation
(EURO 4)
1.5 3.2
Daedalus LLC Thailand Fuel Reformulation
(EURO 4)
6.1-25.3 2.3
California (Many Studies)
California More severe than EURO 4
15.0-19.0 8.2-8.7
ADL Europe EURO 4 (Gasoline) 10.4-11.3 ----
COSTS OF PRODUCTION (cents/gallon)
Part 3
Preliminary Review of the Cost Analyses Data
• Some variability in the cost results because:– Differences in methodologies
• different LP models and optimization methods• some models countrywide, others region-wide, others for
individual refineries• some models rely on built processes vs. others rely on
imports
– Differences in baselines, i.e• Sulfur in gasoline: 50ppm-4,000ppm• Sulfur in diesel: 150ppm-3000ppm
– Differences in capital investments• different years for capital investment, different interest
rates• capital costs for equipment is different; for example: capital
HDS of 16 kb/d of gas oil is shown from 23 M$ to 38 M$• Operating costs vary from 0 to 85% of capital costs
Part 3
• To what extent do in-house cost-estimates from oil companies differ from these cost results
• To what extent can the results of the existing cost analysis can be applied to other Asian countries?
• Time schedule for implementation of fuel standards depends upon: – air quality needs- time for implementation of M.V. standards– financing, engineering, permitting – construction time varies – availability of equipment and personnel
Is there a need for a new & more detailed cost analysis on fuel
improvement in Asia?
Part 3
Issues to be addressed on a cost analysis for fuel improvement in Asia
(1)• Choices on the optimization approach:
– individual refinery model Vs. composite model– selection of LP model, calibration criteria
• Choices on technology – selection of new process technology vs. older technology
(differences in costs)
• Synergies – multiple refining system
• Supply-demand-octane effects; – changes in properties would affect production volumes
and octane; various options– growth in future would affect investments
Part 3
• Ability to raise capital required for refinery modifications– small, inefficient refineries will face difficulties raising
capital – governmental run refineries need to compete with other
capital needs; external financing– privately run companies: internal or external financing– cost of capital may vary
• Ability to recover capital and operating expenditures– depends on the ability to increase prices to recover the
costs– different issues on free market vs. government controlled
price environment– price adjustments in controlled markets will be needed
Issues to be addressed on a cost analysis for fuel improvement in Asia
(2)
Part 3
• Feedstocks options, importation of products or blendstocks– crude oils (high or low S, light or heavy)– reliance on the availability of quality feedstocks or products
in the regional fuel markets– availability of imports/exchanges will affect capital
investments
• Integration of gasoline and diesel standards – investments for gasoline improvements would affect diesel
production and properties and vise versa– optimum approach is by integrating gasoline and diesel
fuel standards– impacts on other fuels must also be considered
Issues to be addressed on a cost analysis for fuel improvement in Asia
(3)
Part 3
Part 4
Cleaner Fuels in Asia: The Role of Pricing,
Taxation and Incentives
Part 4
OverviewMain QuestionsHow can government taxes and incentives (for
fuels and vehicles) be used in policy to encourage lower harmful emissions from urban transport systems in Asia and which countries in the region can take advantage of these instruments?
Focus of presentationFuel Tax Differentials1. Factors Influencing Use of Tax Differentials in
Asia for Cleaner Fuels2. Supportive other (vehicle related) incentives
Part 4
Implementation Strategies for Fuel Quality Improvements
Market Based RegulatoryRemoval of subsidies for polluting fuel
Differential fuel taxation (to industry, retailer or final consumer)
Earmarked charges
Direct subsidies
Ecological taxes (carbon tax)
Fuel specifications
Phasing out of high polluting fuels
Education and Public Outreach Stakeholder Consensus Building
Part 4
Where Do Fuel Taxes Differentials Fit In to Energy and Air Quality?
Energy consumptionVehicle emissionsIndustrialAgriculture
Urban ScaleHuman health
Regional/Global ScaleClimate ChangeAcid RainOzone Depletion
Vehicle Emissions Strategy (Fuel)
Policy Implementation Strategy (Tax & incentives)
Part 4
Total changes in emissions
Total changes in emissions
External costs of
emissions
External Costs of
Emissions (health + environment)
Tax
differences
Tax
differences
Improved
fuel qualities
enter the
market
Improved
fuel enter the
market
Reduced
emissions
Reduced
emissions
Reducedenvironmental
costs
Reducedenvironmental
costs
Changes
in fuel
consumption
patterns
Changes
in fuel
consumption
patterns
Source: Little, Arthur 1998
Reduced Environmental Cost
Part 4
Fuel Tax Differentials
• Definition: A fuel tax differential creates a cost advantage for a higher quality fuel through an increased tax on the un-improved 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
Part 4
Market Conditions and Rationale for Tax Differentials on Fuel
Actor Market Characteristics Rationale for Tax Policy
Consumers The majority of consumers do not switch to cleaner grade if it carries a higher price
To eliminate the cost advantage of lower quality fuel in consumer pricing
Refiners Without anticipated demand, the refining sector does not invest in quality better than legal requirements
To catalyze refinery investments to produce fuel
Refiners Improved fuels cost
more to produce
To offset increased refinery costs for improved fuels
Source: Adapted from Arthur D. Little, 1998
Part 4
Example: Sweden introduced a tax differential for lower sulfur diesels
Taxation in 1990
127 ECU/ m3
148ECU/
m3131
ECU/ m 3
MK1 diesel• Tax decreased by 20 ECU/ m3
MK2 diesel• Tax increased by 4 ECU/m3
• Tax differential of 24 ECU/m 3 compared to MK1
MK3 diesel (standard diesel) • Tax increased by 21 ECU/m3
• Tax differential of 41 ECU/m3
compared to MK1
Taxation in 1991
MK3 diesel
MK3diesel
MK2diesel
107ECU/
m 3
MK1 diesel
148
ECU/
m 3
119
ECU/
m 395
ECU/m 3
Taxation in 1992
MK3diesel
MK2diesel
MK1diesel
MK1 diesel
• Tax decreased by 12 ECU/ m3
MK2 diesel
• Tax decreased by 12 ECU/ m3
• Tax differential of 24 ECU/m3
compared to MK1
MK3 diesel
• Tax differential of 53 ECU/mcompared to MK1
Source: Arthur D. Little, 1998
MK 110 ppm
MK 250 ppm
MK 3350 ppm
Part 4
0%
20%
40%
60%
80%
100%
1992 1993 1994 1995 1996 1997 1998 1999 2000
350 ppm
50 ppm
10 ppm
Source: ECMT, 2001, in CAI-Asia -IFQC, 2003
Market for Lower Sulfur Diesel in Sweden 1992-2000
Part 4
• 1991 unleaded gasoline introduced.
• Tax set unleaded at B1 per liter less than leaded on excise tax for both locally produced and imported fuel.
• Financed by Thai “Oil Fund”.
• Price set at B0.3 less for unleaded.
• Lack of consumer awareness was an obstacle ( safety of unleaded for car).
• Catalytic converters mandated for cars.
• Price differential was periodical revised to ensure that it was budget neutral
• 1995 ban announced in 1993.
Unleaded Gasoline in Thailand
Part 4
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Pb C
onte
nt in
Gas
olin
e (g
/l)
0
0.5
1
1.5
2
2.5
Aver
age P
b Ai
r Con
cent
ratio
n (
g/m
3 )
Pb C on tent in G aso line Pb A ir Co ncentratio n
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Pb C
onte
nt in
Gas
olin
e (g
/l)
0
0.5
1
1.5
2
2.5
Aver
age P
b Ai
r Con
cent
ratio
n (
g/m
3 )
Pb C on tent in G aso line Pb A ir Co ncentratio n
Removal of lead from gasoline has drastically reduced lead being emitted per vehicle
Source: Wangwongwatana, BAQ 2002
ULSD in Hong Kong
• Lower tax and lower pump price for ULSD in July 2000.
• In 2002, ULSD was made mandatory.
• The ULSD enabled the introduction of stricter new vehicle standards and the retrofit of existing vehicles.
500 PPM Sulfur Diesel
50 PPM Sulfur Diesel
Fuel Duty 1.04 0.56
Pump Price
3.32 3.24
Part 4
Supplemental Vehicle Tax Incentives
• Japan will extend its 2001 green vehicle program (25% of NOx emissions granted 50% reduction in taxes)
• Singapore 2004: 'Additional Registration'; exemption for Euro4 buses and commercial vehicles; full rebate for Euro4 taxis.
• China has offered tax reduction to vehicle manufacturers for Euro2 vehicles.
• Philippines less excise tax on Euro3 vehicles
Regulations and tax & price incentives for higher standard vehicles act as indirect market signals to encourage fuel improvements.
Part 4
Why consider tax differentials for improving fuel quality in Asia?
• Tax policy has been effective in accelerating investment and higher quality fuel uptake in a number of cases.
• Tax instruments can help to accelerate regulatory compliance and encourage local technological innovation and sector efficiency.
• Help implement “polluter pays principle”.• Can be designed to be revenue neutral.• Emergent liberalized industry structures and oil pricing
systems in Asia offer new opportunity. ( for example India ended its Administrative Pricing Mechanism in 2002, China opening to foreign investment).
• However, there may be other fuel tax priorities concerning environment.– Remove damaging subsidies: (petroleum consumption
subsidies)– Removing environmentally damaging taxes or exemptions
( low taxed diesel).
Part 4
Factors Influencing Use of Tax Differentials in Fuel Quality Strategies
• Market Orientation
• Institutional Capacity
• Political Feasibility
Part 4
Market OrientationCountry Regulation Pricing
Dominant ownership structure
Oil companies/refiners
Bangladesh Petrobangla Controlled/transitional public Petrobangla
India Ministry of Petroleum and Natural Gas
transitional public/private Indian Oil Corporation/Reliance
Indonesia BP Migas controlled/subsidized public 1 Pertamina(7 major refineries)
Malaysia Petronas controlled/subsidized public/private Petronas ( 6 refineries)
Pakistan Petroleum Regulatory Board
transitional public/private Pakistan State Oil, BP
Philippines DOE market public/private Petron, Pilipinas Shell, Caltex ( 2 refineries)
PRC State Energy Administration
controlled/transitional public CNPC/ Sinopec/ CNOOC (16 refiners) (BP, Exxon, Shell)
Singapore EMA market private Shell, Exxon, SRC
Taipei, China transition to market/ market
public/private Chinese Petroleum Corporation,Formosa Petrochemical
Thailand PTT transition to market/market public/private PTT ( 3 refiners: Shell, ESSO)
Vietnam Petro Vietnam controlled public No refineries
(Sources: APEC, ASEAN, EIA DOE Country Analysis Briefs)
Part 4
Asia is different from OECD in terms of ownership structure and pricing
Institutional Capacity
• Modes of coordination, policy-making capacity, which in many Asian countries are weak.
• Fuel monitoring capabilities must be sufficient: authority designated, industry cooperation, staffing, equipment, testing, compliance and reporting. These are also weak in Asian countries.
Part 4
Political Feasibility
• Strengths of the air quality movement and the level of knowledge on the issues • public priority on inexpensive transport,• fuel tax is seen as ‘revenue tax’ not an environmental instrument, • perceptions that higher standard vehicles (wealthy motorists) will benefit.
Part 4
Towards Three ScenariosFuel and vehicle emissions regulations are the most effective means to reduce emissions. Taxes and incentives offer the opportunity to accelerate the introduction of cleaner fuels.
1. Sufficient market orientation: can use tax differentials to supplement cleaner fuels regulations provided adequate institutions. (eg. Hong Kong)
2. Emerging market orientation: can explore the use of tax differentials to supplement cleaner fuels regulations provided adequate institutions. ( eg. Thailand)
3. Insufficient market orientation: may not be able to rely on tax differentials, but on regulations and direct pricing, possibly imports, or direct subsidies for technological upgrading. (eg. Vietnam)
Part 4
Part 5
Continuation of the CAI-Asia – Oil Industry
Dialogue
Part 5
S h e ll G lo b a l S o lu tio n s
‘ W e l l t o W h e e l s ’C o s t / B e n e f i t a n a l y s i s
‘ W e l l t o W h e e l s ’C o s t / B e n e f i t a n a l y s i s
V e h i c l e E m i s s i o n sV e h i c l e E m i s s i o n s
A i r Q u a l i t y T a r g e tA i r Q u a l i t y T a r g e tG l o b a lG l o b a l L o c a lL o c a l
C o s t E f f e c t i v e S o l u t i o n sC o s t E f f e c t i v e S o l u t i o n sC o s t E f f e c t i v e S o l u t i o n sC o s t E f f e c t i v e S o l u t i o n s
I n d u s t r i a l E m i s s i o n s O p e n b u r n i n g , e t c .
F u e l Q u a l i t y / S u p p l yV e h i c l e T e c h n o l o g y
T r a n s p o r t M a n a g e m e n t
V e h i c l e I & M
A Balanced Approach to AQM in Asia is Necessary
Part 5
Continuation of CAI-Asia Dialogue
- vehicles and fuels-• Additional data on vehicle fleet in Asia and its
development over next 10 years (by type of technology)
• Impact of clean(er) fuels on in-use vehicles (pre-Euro1, and unique Asian vehicles)
• Impact of clean(er) fuels on 2T and 4T new 2-3 wheelers as well as on in-use 2T and 4T 2-3 wheelers
• Expected impact and feasibility of combination of cleaner fuels and retrofits on different in-use vehicle types in Asia
Part 5
• To be able to formulate realistic recommendations on fuel improvement strategies it is important to know the automotive industry’s needs:– Properties that are absolutely needed
• Gasoline: Sulfur, deposit additives• Diesel: Sulfur, lubricity• Others ?
– Properties of concern?• Gasoline: RVP, olefins, distillation• Diesel: Cetane, distillation?• Others
Continuation of CAI-Asia Oil-Industry Dialogue- fuels-
Part 5
Continuation of CAI-Asia Oil Industry Dialogue
- incentives -• What has been the experience with the
use of vehicle incentives in the introduction of cleaner vehicles?
• Do similar incentives for cleaner fuels help in any way in introducing cleaner vehicles?
Part 5
Possible Strategies for Fuel Quality Improvement
Case A: Some fuel quality improvements first and later followed with additional standards– can enable comprehensive regional fuel quality harmonization for
selected properties– depends upon the time for implementation of vehicle standards– requires less capital investments in the short term– sub-optimum strategy; more costly in the long term– lose some air quality benefits
Case B: Follow an integrated strategy for all fuel properties at the same time at country level– can enable comprehensive regional fuel quality harmonization– requires larger capital investment – optimum strategy; takes full advantage of refinery integration– all air quality benefits materialized
Part 5
Coordination with other efforts to improve and harmonize fuel quality in Asia
• Other main initiative on harmonizing fuel standards is undertaken by JAMA/AAF with a focus on ASEAN plus 3. This in support of the development of vehicle industry as a strategic industry in Asia (with backing from METI)
• CAI-Asia would like to develop closer coordination with the JAMA/AAF efforts to harmonize fuel quality standards in ASEAN plus 3 (and possibly also South Asia)
• JAMA/AAF have developed Dialogue involving the Automotive Federations. CAI-Asia can contribute by supportive technical studies focusing on air quality impacts.
• CAI-Asia has well established structure with local networks which can help to increase support for the efforts and results of the JAMA/AAF efforts.
Part 5