Alternative Motor Fuels

September 22, 2006

Hugh Hughson

Doug Shepherd

Alternative Motor Fuels

• The push for alternatives

• A brief overview of fuel types

• Vision for the future

• Tax Implications

• Oregon’s alternative approach

The Push for Alternatives

• Environmental concerns

• Supply, demand and price concerns

• Governments:– Incentives (e.g., tax exemptions, fixed/percentage based blends)

– Directives (e.g., mandated fuel blends)

• Two approaches:– Improved fuel efficiency (e.g., new engine technology,

aerodynamics)

– New fuels

Compressed Natural Gas

• Underground deposits – Pro’s

• Existing distribution network (e.g., pipelines)

– Con’s• Non renewable• High octane but low energy content (44,000 BTU)

• Significant retooling of fuel station infrastructure and vehicles (must be compressed to 3,000 – 3,600psi., therefore larger, heavier and more expensive tanks)

• Existing/competing demand (e.g., home heating)

Ethanol (1 of 2)

• Grain alcohol using a distillation process – Pro’s

• Higher octane therefore cooler engine• Greenhouse gas neutral • Supports a struggling agriculture sector• Most vehicles can use E10 without modification

– Con’s• Lower energy content compared to gas (E85 =

80,000 vs. 124,800 BTU)• Corrosive solvent – need stainless steel or plastic

for fuel injection, pumps, tanks and hoses (vehicle and distribution chain)

Ethanol (2 of 2)

• Less volatile therefore gas blended for cold weather • Environmental impact - intensive farming/feedstock

process (e.g., pesticides, fertilizers, equipment and transport)

• Insufficient feedstock to meet demand– One acre of corn can produce 300 gallons of ethanol

– Need to dedicate 71% of US farmland to meet current fuel consumption

– Notes• US in 2005 produced 4.3 billion gallons (3% of current

consumption) (others say 15 billion)

• Cellulosic ethanol using enzymes to break down waste grasses (not food) into ethanol

Biodiesel (1 of 2)

• Vegetable oils, animal fats and cooking oils– Pro’s

• Similar energy content (4% lower for BCTT) • Reduced CO2 emissions (B100 -75%, B20 -15%) • Vehicles can use without modification (any blend and

diesel engines more tolerant of varying fuel quality)

– Con’s• Blending and clouding issues – therefore additives

or heating required (should be heated to 70C to mix properly with cold diesel)

Biodiesel (2 of 2)

• High cost to produce ($1/gallon more) (80% of final product is feedstock)

• Insufficient feedstock to meet demand – Total agricultural production in Canada could supply B10 to

the entire fuel market

• Petroleum industry/infrastructure reluctant to handle because of quality, contamination and blending concerns

– Notes• Quality of finished product which varies by the type

of feedstock and the manufacturing process • 75 million gallons produced in 2005 (compares to 3

billion litres in Europe)

Electricity• Rechargeable battery packs (pure and hybrid - battery packs

and electrical generation during slowing and stopping)

– Pro’s• Existing distribution network (e.g., power lines) • Inexpensive (2 cents per mile)• Lower emissions (10% of current ic engine)

– Con’s• Pure has limited range (100-120 miles per charge) and slow

charging • Environmental impact – only 2.3% of electricity comes from

renewable resources• Vehicles are expensive and technology breakthrough

required

Methanol• Wood alcohol using steam and catalyst

– Pro’s • Greenhouse gas positive• Higher octane therefore cooler engine

– Con’s• Lower energy content (64,000 BTU)

• Corrosive solvent and invisible flame • Less volatile therefore gas blended for cold weather

– Notes• Most methanol comes from natural gas (i.e., non

renewable) but can be obtained from coal and fermenting organic matter (e.g., sewage, manure)

PuriNOx

• Diesel (80%-92%) plus water and emulsifier – Pro’s

• Reduced PM emissions (50-60%)

• Most vehicles can use without engine modification

– Con’s• Lower energy content (power loss 15%-20%)

• Fuel must be agitated or fuel/water separates• Cold weather problems

Hydrogen• Water and electricity releasing oxygen

– Pro’s • Abundant supply of water• Highest energy per unit of mass of all chemical fuels

(120MJ/kg compared to 42MJ/kg for petroleum)

– Con’s• Expensive (electricity and mostly non-renewable resources)

• Significant retooling of fuel station infrastructure and vehicles (must be compressed 5,000+psi., or must be frozen -423F

therefore larger, heavier and more expensive tanks)

– Notes• Technology breakthrough required• President Bush wants hydrogen powered cars on the market by 2020

Current Environment• Government targets:

– Canada – a 45% E10 and 5% biofuel content by 2010

– USA - a 4% (28 billion) renewable fuel content by 2012

– EU has a 5.7% target by 2010

• There is no clear alternative fuel “winner” (but the days of a single fuel source are gone)

Current Environment

• Petroleum Industry – Focused on ultra low sulphur diesel (USLD) – Reluctant to handle alternative fuels because of:

• Supply and quality concerns• Infrastructure concerns

• Car Industry– Research and development (i.e., more efficient

engines, more flexible fuel vehicles - already 34 models E0 – E85, and fuel cells);

– To make a variety of power trains; and– To extend warrantees to alterative fuels

Tax Implications/Challenges

• Revenue:– If tax incentives are offered (vs. mandated volumes)

– If lower taxed “fuels” are used (e.g., electricity, vegetable oil)

– If fuels are manufactured below the tax radar (e.g., biodiesel)

– If there are difficulties auditing taxpayers

• Administration:– Reporting processes (if tax incentives used)

– Refunds of new fuels (if tax incentives used)

Tax Implication/Challenge

• IFTA:– Licensees required to keep records and report

each fuel type separately– Jurisdictions required to provide tax rates for

each fuel type– Result:

• Infinite number of tax rates• Licensees unable to report correctly• Difficulties auditing fuel records and consumption

rates• Potential tax evasion

Tax Implication/Challenge

• IFTA Board resolution (2005):– Blended fuels should be reported as one fuel

type/tax rate (e.g., diesel) – Use the exempt fuel provisions (R830) to

encourage the use of alternative motor fuels

The Future

• Fuel costs will rise • Fuel demand will rise (i.e., 2 million barrels /day)

• Alternative fuels will not satisfy demand

• We will be forced to change how we live:– More high density housing – Softer real estate in bedroom communities– Choose between renewable fuel and food

• Demand for food is expected to double in 50 years• Demand for transportation fuel is expected to double

in 32 years

The Future

• Variables:– Research and development– Cost competitiveness of petroleum fuels to new

fuels – Cost competitiveness of new fuel vehicles to

existing:• Internal configuration/carrying capacity (e.g., fuel storage) • Life costs

– Purchase/resale prices compared current vehicles– Operating costs per kilometre/mile– Additional maintenance costs

Oregon’s Alternative Approach

Thanks