Biofuels policies to help investment flow in the rush to the Bio-Economy

Biofuels Policies – What works?

Steve Rogers - Licella, IEA Task 39 Rep

Dec 2018

Agenda

➢Where are we at?➢Who are the early winners and why?➢Overview of the good the bad and the

ugly of policies globally➢What policies would help Australia

make the most of the opportunity➢Questions

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➢Where are we at?

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https://newclimateeconomy.report/2018/?utm_source=Facebook&utm_medium=NewClimateEcon&utm_campaign=NewClimateEconomy

“This is the only growth story of the 21st century”

“This is the our use it or lose it moment. Investing the US$90 trillion to build the right infrastructure now will deliver a new era of economic growth”

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Policies drive outcomes

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GHG’s from Transport and Industry have grown significantly – not included in RET

Sources: Australian Government – Department of the Environment and Energy, National Inventory Report 2015, Volume 1:

http://www.environment.gov.au/system/files/resources/97197b1e-07b9-4e6f-a08e-0f6145e681e5/files/national-inventory-report-2015-

vol1.pdf; Quarterly Update of Australia’s National Greenhouse Gas Inventory, September 2017:

http://www.environment.gov.au/system/files/resources/c2a05f9f-b95b-4a0a-b10c-21b5eda91ced/files/nggi-quarterly-update-nggi-

september-2017.pdf

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Current Australia State Biofuels Mandates

Existing mandates

• QLD: - Ethanol: 3% to 4% from 1 July 2018- Biodiesel: 0.5%

• NSW: - Ethanol: 6%2017 Use 2.4% i.e. mandate not enforced

Biodiesel 5%0.1% usedhttps://www.fairtrading.nsw.gov.au/__data/assets/pdf_file/0008/410399/Biofuels_results_2Q_2018.pdf

Delivering 1.1% of Australia’s liquid fuels (<0.5% by Energy)

Source: APAC Biofuels

Situation in other states:

• WA - Ethanol mandate at state level recommended by the Western Australian Biofuels Taskforce (the mandate has yet to be manifested in policy).

• VIC - 2017 renewable energy action plan (VIC Gov): Action 22 – Collaboration with ARENA and CEFC to ensure investments in new energy technologies, including bioenergy.

• SA - 2012 low vehicle emissions strategy introduced by the SA government. Biofuels identified as potential way to reduce vehicle emissions

• TAS - climate change action plan for 2016-2021 aims to promote biomass, in particular wood residues, as renewable energy source.

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Annual Report on Biofuel production in Australia

Australia Fuel Sales by Type 2016-2017

Source: Australian Government – Department of the Environment and Energy, Australian Petroleum Statistics Issue 257, December 2017:

https://www.energy.gov.au/sites/g/files/net3411/f/australian-petroleum-statistics-dec-2017.pdf

Case study: Biogas in DenmarkFour phases of policy and market development

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➢Who are the early winners and why?

Biofuels production on a global scale

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Top ten biofuels producer countries in 2017

CountryBiofuels production

(million tonnes oil equivalent) Share in 2017

US 36,936 43.9%

Brazil 18,465 22.0%

Germany 3,293 3.9%

Argentina 3,131 3.7%

Indonesia 2,326 2.8%

France 2,224 2.6%

China 2,147 2.6%

Thailand 1,846 2.2%

Netherlands 1,658 2.0%

Spain 1,541 1.8%

US Renewable Fuel Standard (RFS)

• Originally implemented to promote energy security

• Popular with farmers

• Production now exceeding blend wall (exporting surplus) discussion alive on increasing blend from E10 to E15

• Sub categories to stimulate new Tech

Source US DOE

• Ethanol blending mandate introduced in 1976 – E10

• Current minimum blend E25

• Blends up to 100% available

• Ethanol accounts for over 50% of fuel previously supplied by Gasoline

• Ethanol needs to be ~ 30% cheaper than Gasoline to account for difference in energy content (E25 blend)

• Excise on Ethanol varies by State

• Brazil committed to reduce greenhouse gas emissions by 37% below 2005 levels by 2025

• Indicative intention to reduce greenhouse gas emissions by 43% below 2005 levels by 2030

• Increasing the share of sustainable biofuels in the Brazilian energy mix to approximately 18% by 2030

Flex Vehicles available from all major brands

Source Data from data from ANFAVEA Brazil

• Over 25 million Flex (capable of running on 0-100% ethanol) light vehicles on the roads in Brazil

• First introduced by the Brazilian car industry in 2003

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➢Overview of the good the bad and the ugly of policies globally

• Main drivers for biofuels policy

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• Biofuels policy

➢ Biofuels blending mandates

➢ Excise duty reductions

➢ Fiscal incentives

➢ Investment subsidies

➢ Other measures stimulating the implementation of

biofuels

• Promotion of advanced biofuels

• Market development and policy effectiveness

• Biofuel blending mandates (still the primary

policy tool)

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➢ Appears to be the most effective in establishing biofuels markets

and in shielding biofuels from low oil prices, but not necessarily so

useful in expanding/maintaining markets

➢ Not necessarily the best way to meet GHG reduction targets

➢ In addition to blending mandates for conventional biofuels, the US

and some EU member states, have developed/are developing

blending mandates for advanced biofuels

Biofuel Mandates in Place in over 60 countries representing more than 2/3rds world’s population and vehicles (Extract from QUT Report)

Note: Countries with no mandates or incentives are in grey.

Source https://www.epa.gov/renewable-fuel-standard-program/final-renewable-fuel-standards-2017-and-biomass-based-diesel-volume

• Fuel/CO2 excise reduction/exemption and

tariff

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➢ Mainly used to make the production of biofuels economically

competitive with fossil fuels in the short and mid-terms

➢ Without supplementary policies such as biofuel mandates, this

policy is not a strong driver to establish biofuels markets

➢ As biofuels production becomes more cost efficient and the price

of oil gradually increases, the fuel excise reduction/exemption

incentive has been either modified or lifted.

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CO2 reduction example– This is the Brazilian model

1) National target Allocated by Fuel Type

2) Target allocated to Fuel Distributors

3) Producers Certified using agreed GHG Calculator

4) Fuels and Certificates sold to Fuel Distributors or the Stock Market – some jurisdictions get multiplier for particular fuel types

5) Fuel Distributor fulfils obligation or pays penalty for non fulfilment – normally the cap e.g. like the RET cap

6) Price of certificates determined by market demand sometimes with a cap – same as RET in Australia

Will the policy deliver the required result?

UK Govt study demonstrated some Biofuels deliver worse (GHG emissions) outcomes than fossil fuels.

Assumes Bioethanol burnt in country of origin and grown on existing cropland i.e. no ILUC.

Netherlands highlighted that Mandate may not deliver the outcome anticipated?

• Assume Mandate of 10% (Ethanol to Gasoline)

• Energy content ~ 62% (assuming 28MJ kg vs 45 MJ kg)

• Assume Gasoline is 31% of Fuel Mix

• So a 10% Ethanol only mandate would deliver a ~1.9% reduction in fossil fuels (10% x 35% x 62%)

CI = Carbon IntensityHighlights need for Life Cycle Analysis (LCA) for each facility

GHG Emissions Assessment Models

➢ Proven to be a successful tool to decarbonize the transportation

sector by encouraging the reduction of carbon intensity of

renewable fuels including biofuels

➢ California at the forefront of the implementation of this policy➢ 10% reduction in carbon intensity by 2020 based on 2010 baseline (2020

maximum carbon intensity reference value for gasoline to 86 grams of carbon dioxide equivalent released per megajoule of energy produced)

➢ Renewable Fuels produced lower than the baseline generate credits that can be sold

➢ GHG reduction determined for each pathway for entire Lifecycle➢ Obligated Party (Refiners/Distributors) offset their Carbon Intensity (CI) by

selling or buying credits for the fuels they sell relative to their baseline➢ Resulted in $1.6bn in investment Source: https://www.ucsusa.org/press/2018/scientists-say-california-can-get-tougher-clean-fuels#.WtVQ3Yhubid

➢ Extended to 20% reduction by 2030➢ British Columbia implemented similar scheme and whole of Canada

looking to follow

• Low Carbon Fuel Standard (LCFS)

Financial schemes, investment subsidies and incentives

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Member countries have various funding programs to further encourage

production and use of biofuels, especially advanced biofuels.

• Grants for the development of conversion technologies at different

readiness levels

• Loan guarantee programs

• Corporate tax breaks

• Guaranteed return on renewable energy assets

• Compensating the depreciation or the acquisition of renewable energy

assets

• For biofuel users: rebate or bonus to car buyers purchasing certain

vehicles such as flex-fuel vehicles. Other rebates such as reduced

license fees and tax credit

• Funding municipalities or companies when buying alternative fuel

vehicles

Biofuels – Need Pioneer Plants

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X

C$35bn

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Positive procurement

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Positive procurement

Investment will go to where there is the highest value

Incentives stack

Source Nawitka Capital Advisors

Development Fuels – Double Certificates – Max GBP 1.60 a litre

• Aviation Fuel

• High Blends >25% of finished fuels

• Biogenic Natural Gas (Non AD)

• Hydrogen

Source UK DFT

2018 law already stimulating investment discussions from

Enerkem, Fulcrum, Velocys

>1 US$ a litre excise rebate

Examples of Renewable Fuel Policy Instruments Around the World

Changes in the biofuels policy landscape

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• EU policy support for advanced biofuels after 2020 has

strengthened, building on an increasing number of quota

policies.

• Shift in North America toward GHG reduction quota

obligation and carbon intensity rather than volume

mandates to meet GHG reduction goals.

• Recognition of co-processing at refineries as a way to award

compliance credit for activities that have a reasonable

chance of increasing the supply of low carbon fuels

• Change in sustainability criteria, limiting the use of food and

feed-based biofuels such as proposed RED II

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Policy certainty required

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Policies drive outcomes

Federal Biofuel History –National Audit Office Report Not Favourable

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Fossil Fuel Subsidies – Hardly a level playing field

Australia

◼ $5bn-$30bn p.a.

◼ $1,259 per head

◼ Fuel excise exemptions

◼ Foregone royalties

◼ Subsidised loans

◼ Rent and land tax relief

◼ Pollution clean up

◼ Impacts of climate change

Fossil Fuel SubsidiesUS 5.4 tn p.a.

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➢What policies would help Australia make the most of the opportunity

5 POINT PLAN

1) Develop a national bio- based strategy

2) Implement a national biofuels program

3) Provide supporting mechanisms (Grants/Loans etc)

4) Policy frameworks for bio-economy5) Support Industry Academic

Partnerships

Flip Flop Partisan

Policies stifling investment

Current Australian

Biofuels Policy

“Soft” State Based

Mandates Not Enforced

EducationMarket Failures:• Higher incentives

overseas• Fossil Fuel Subsidies (Fossil

cheaper)

Lack of Risk Capital for

Pioneer Plants

BARRIERS

Availability of Suitable Vehicles

Bi-Partisan Long Term Policy and

Goals

Future Australian

Biofuels Policy

Regulator:• Obligated

Parties• Producers

RISK CAPITAL for Pioneer

Plants ARENA/CEFC

Integrated State and

Federal policy

Whole of Govt Support includ.:• Govt Fleets• Defence• Agriculture• AENA/CEFC

Australian Biomaterials

Policy

WHAT’s REQUIRED

Australian Climate Policy

Mechanism to overcome market

failures

Vehicle Standards

Understanding of the

Opportunity

• High use of Biofuels certainly possible

• Strong consistent Policy is required

• Investment will flow to those geographies with strongest support

and incentives

• Policies moving to support reductions in Carbon Intensity

• Australia has enormous potential for Biofuels and Bioenergy

more broadly

• Queensland demonstrates it is possible to get on the political

radar

• Up to all of us to support work being done by Bioenergy

Australia in Canberra to:

• Articulate the benefits of the Bio-economy to politicians and

farmers

• Significant risk capital required

• Leverage existing “Bio” assets (Sugar/Paper/Timber mills)

• Use Government buying power

• Fleets

• Defence

• Suppliers

• It will take time but the opportunities are enormous

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Summary

Thanks to work done by my colleagues

on IEA Task 39 that I’ve borrowed from

http://task39.ieabioenergy.com/

Commercializing Conventional and Advanced

Liquid Biofuels from Biomass

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Questions?

Steve.rogers@Licella.com

Additional slides

Commercializing Conventional and Advanced

Liquid Biofuels from Biomass

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GHG Reduction

from baseline by fuel type by

facility

XEnergy Density

AdjustmentX

Volume of Product

Produced =Quantity of CertificatesProduced

Any Multiplier for:

• Market Failure• Reg. incentive• Fuel Type

X

=Quantity of CertificatesAvailable to

Sell

Market

Obligated Party buys Certificates and fulfils

obligation or pays penalty

Regulator

POTENTIAL MODEL

Australian GHG (C02 intensity) Reduction Target

Obligated Party (potentially fuel distributor) GHG (C02 intensity) Reduction Target