Overview of Presentation

Transcription

1 Overview Overview of Presentation CAI-Asia Oil Industry Dialogue for Cleaner Fuels in Asia Cornie Huizenga Michael Walsh John Courtis Grant Boyle July 2004 Tokyo, Japan 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 and Role of Vehicle Industry Average Air Quality Levels in Asia (*) -CAI-Asia - microgram per cubic meter Bangkok Beijing Busan Colombo Dhaka Hanoi Ho Chi Minh Hong Kong Jakarta Karachi Kathmandu Kolkata Manila Mumbai New Delhi Osaka Seoul Singapore Shanghai Surabaya Taipei,China Tokyo Yogyakarta 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 SPM Limit = 90 µg/m 3 (WHO, 1979) SPM SO 2 Limit = 50 µg/m 3 (WHO, 1999) SO2 PM 10 Limit = 50 µg/m 3 (USEPA, 1997) PM10 NO 2 Limit = 40 µg/m 3 (WHO, 1999) NO2 (*) averages based on available data, Contact hfabian@adb.org for details Create an Air Quality Management Community in Asia 1

2 CITIES Bangkok,Thailand Chiang Mai,Thailand Chengdu,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 Hong Kong, SAR, China 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 NGAs 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 Env t, 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 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 DEVELOPMENT AGENCIES Asian Development Bank Australian Department for Environment and Heritage German Agency for Technical Cooperation The William and Flora Hewlett Foundation United States-Asia Environmental Partnership Sida World Bank CAI-Asia Membership 50 NGOs and Academic Institutions in the Region FULL PRIVATE SECTOR Member Ford Motor Shell Company ASSOCIATE PRIVATE SECTOR Member AVL Corning ETI ACFA DEKRA ESP Cerulean EMITEC IPIECA MAHA SGS Background and Objectives of the meeting 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 ( 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 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 % Reduction in annual trend 0.00% -1.00% -2.00% -3.00% -4.00% -5.00% -6.00% -1.80% -2.80% age age 65 + Reductions in Deaths after Sulfur Restriction in Hong Kong -1.60% -2.40% -4.80% -4.20% All causes Cardiovascular Respiratory Source: The Lancet 2

3 Motorization Trends in Asia Vehicle Fleet Composition in selected Asian Cities Vehicle Population (millions) U.S. Current Level Vehicle growth scenario China Source: Dongquan He, Energy Foundation 2004 Source: ADB Policy Guidelines to Reduce Vehicle Emissions 0 Manila Gasoline Manila Diesel Bangkok Gasoline Bangkok Diesel Bangalore Gasoline Bangalore Diesel Source: Camarsa, ,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 - (5,000,000) 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 (in millions) Total: North America 3.1% Middle East Oceania 0.4% 0.3% Latin America Africa 3.5% 0.4% Europe 7.9% Asia 84.4% Source: Honda Facts & Figu Annual Production motorcycles China New Vehicle Emissions Standards (light duty vehicles) Country European Euro 2 Euro 3 Euro 4 Euro 5 Euro 1 Union Bangladesh Euro 2 (under discussion) Hong Kong, Euro 1 Euro 2 Euro 3 Euro 4 China India a Euro 1 Euro 2 E3 India b E1 Euro 2 Euro 3 Indonesia Euro 2 Malaysia Euro 1 Euro 2 Nepal Euro 1 Philippines Euro 1 PRC a Euro 1 Euro 2 Euro 3 PRC c Euro 1 Euro 2 Euro 3 Singapore e Euro 1 Euro 2 Singapore g Euro 1 Euro 2 Euro 4 Sri Lanka Euro 1 Taipei,China US Tier 1 US Tier 2 for diesel d Thailand Euro 1 Euro 2 Euro 3 Euro4 Viet Nam e Euro 1 Viet Nam f 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 3

4 In-use Standards for Diesel Vehicles in Asia Effectivity Smoke HSU Bangladesh Cambodia Current 50 - Hong Kong, China Current Test 60 Free acceleration 50 Loaded lug down test on a chassis dynamometer a India Current 65 Free acceleration Indonesia Current 50 Free acceleration Malaysia Current 50 - Nepal b Current 65 - Pakistan Current 40 Free acceleration Philippines Current 2.5 m -1 Free acceleration c Philippines m -1 Free acceleration d PRC Current 4.5 Rb Free acceleration Singapore Current 50 - 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 Effectivity Smoke HSU Sri Lanka Current 65 Idle Test 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 Nam e Current 72 Idle Viet Nam f Current 85 Idle Viet Nam g Idle Diesel Sulfur Levels in Asia, EU and the US Bangladesh 5000 Cambodia Hong Kong, China 500 India Indonesia 5000 Japan Malaysia marketed Pakistan Philippines PRC Republic of Korea Singapore Sri Lanka Taipei,China Thailand Vietnam European Union United States > 500 ppm ppm < 50 ppm 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 Lead free Effective 2000 Linked to Euro 4 Vehicle Standards Lead free Effective 2005 Bangladesh Lead free kg/m 2 Cambodia 0.15 g/l Hong Kong, Lead free China India Lead free 1000 a 5 b Indonesia 0.30 g/l (premix) 62 Japan Lead free Malaysia Lead free Pakistan Lead free psi Philippines Lead free psi PRC Lead free Singapore Lead free Sri Lanka Lead free Taipei,China Lead free psi Thailand Lead free 500 3% % - Viet Nam Lead free ain Delhi, Mumbai, Kolkata and Chennai sulfur levels are 500 ppm 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 bbenzene 3% in metros and 1% in National Capital Region 4

5 What are the Air Quality Concerns? The Impact of Fuels On Vehicle Emissions Industrial Emissions Energy Consumption Vehicle Emissions Agriculture Pollutants Pollutants AIR QUALITY URBAN Human Health Concerns GLOBAL Global Warming Acid Rain Ozone Depletion ÖL Different Fuels = Different Emissions Blending with Additives different Components Sulfur Olefins Paraff. /Naphta Aromatics Gasoline ~200 HC Formulation? HC Emission Control Reduction Requires a Systems Approach New cars Advanced Engine Designs Advanced Emission Controls High Quality Fuel and Lubricants Low (er) Emissions + Air Different Combustion NO x CO CO 2 PAH Different Crude Oils and Refineries + Additives Olefins Aromatics Paraff./ Naptha Sulfur ~300 HC Diesel Formulation? C 6H 6 SO 2 PM In-use cars Retrofits I & M High Quality Fuel and Lubricants Low (er) Emissions 5

6 Auto Oil Programs Europe Auto Oil Program I (Air quality driven) Gasoline / Diesel vehicles/engines (LD, HD), gasoline / diesel fuel EPEFE (European Program Emissions on Fuels and Engine Technology) Auto Oil Program II ( / 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 (published 1993 and 1997) Japan JCAP (Japan Clean Air Program) Gasoline / Diesel vehicles/ engines (LD, HD), gasoline/diesel fuel Phase ; Phase II These programs provide much of the data used to determine the effects of different fuels parameters on emissions in Europe, USA and Japan Reduction of : Benzene Aromatics Olefins Sulphur Gasoline Effects on Emissions Vapor pressure Distillation Characteristics Emissions Addition Oxygenates 0 ± 2 % Regulated Toxics (Unregulated ) CO HC NOx Benzene Butadiene Aldehyde o o o % % > 20 % } o --- o o o o ++ o o o o o o/+ o o o o ?? o o o Improvement or Deterioration o Diesel-Fuel Effects on Emissions Diesel fuel-change Reduction of: Sulphur Aromatics Back End Distillation (T95) Increase of... Cetane Number Vehicle - Emissions LDV / HDV CO HC NOx Particulates Fuelchange o o? / o +/++ Density ++/- ++/ -- o/ + ++/o -/o -/ + +/ o + o/- - /- - -/o +/o +++/++ +++/+ o - / o O 2 Precious Metal SO 2 Sulfur Effects SO 3 Zeolite or refractory oxide support Sulfur inhibition H 2 SO 4 SO 4 Sulfate make Sulfate Poisoning Transition Metal 0 ± 2 % % % > 20 % } Improvement or Deterioration All Vehicular Catalysts Are Impaired By Sulfur Through Inhibition, Poisoning and Make Sulfate 6

7 TWC Control Devices, Emission reduction potential and effects of sulfur on catalyst performance (*) Control Device Oxidation Catalyst Lean NOx Catalyst SCR with Urea Catalytic Filters NOx Adsorbers Required Sulfur level 500 ppm max ppm optimal 500 ppm max ppm optimal ppm max. Not Sulfur sensitive except for oxidation catalyst 50 ppm max ppm max. Note: CAI-Asia, a work in progress (not to be quoted) Potential For emission reduction CO, HC, NOx, certain Toxics 95%+ CO, HC, certain Toxics 90%+ NOx 90%+ (?) NOx 90%+ PM, HC, CO, 95%+ NOx 90%+ (?) Impact of Permanent High Sulfur ppm Sulfur Inhibition Sulfation Sulfur Inhibition, Sulfation Sulfur Inhibition, Sulfation Sulfur Inhibition, Sulfation (Oxidation Catalyst Only) Sulfur Inhibition, Sulfation Extreme Sulfur Inhibition Impact of temporary High sulfur ppm Depends On How Long, How Much Depends On How Long, How Much Rapid Permanent Deterioration Depends On How Long, How Much Rapid Permanent Deterioration Rapid Permanent Deterioration Ultra Low Sulfur Diesel Fuel Is Spreading PPM US US 2006 EU 2000 EU 2005 EU Denmark Sweden Class 1 Germany 2003 Japan Japan 2004 Japan Hong Kong South Korea 2006 Taipei, China... Australia 2006 Thailand 2010 Santiago 2004 Singapore 2006 Impact of Clean Vehicles and Fuels On Diesel Vehicle Emissions 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% EURO II Vehicles & Fuels with I/M Percent Reduction in Emissions EURO III Vehicles & Fuels with I/M EURO IV Vehicles & Fuels with I/M Source: Camarsa, BAQ 2003 PM PM NOx 2020 NOx 2005 Worldwide Motorcycle Emission Regulations Europe EU II (2003) ECE40 Cold Start HC: 1.0 NOx:0.3 CO: 3.0 EU III (2006) HC: 0.8 NOx:0.15 CO: ,000 km China II Stage (2004) ECE40 HC: 1.2 NOx:0.3 CO: ,000 km India II Stage (2005) IDC Cold Start HC+NOx:1.5 CO: ,000 km III Stage (2008) HC+NOx:1.0~1.25 CO: 1.0~1.25 Japan (2006/2007) ECE40 Cold Start HC: 0.3/0.5 NOx:0.15 CO: ,000/24,000 km Taiwan IV Stage (2004) ECE40 Cold Start HC+NOx:2.0 CO: ,000 km What are the important Fuel/Lube constituents for current motorcycles and future technology? Lead, Sulfur, Benzene? 7

8 MMT Becoming Serious Concern In 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 Regarding Catalysts With High Cell Density Substrates Dealing With Existing Vehicles 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 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 Impact of sulfur in gasoline on emissions in-use vehicles in Bangkok Percent Increase Compared to 150 PPM Sulfur 60% 50% 40% 30% 20% 10% 0% 33% 67% 26% 74% 500 ppm 800 ppm 30% CO/10 HC NOx 70% Impact on Vehicles Meeting EURO 3 Standards 8

9 Impact of sulfur in diesel on emissions in-use vehicles in Bangkok Issues and Questions Percent Increase Compared to 150 PPM Sulfur 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 45% 94% 0% 5% 350 ppm 500 ppm 16% HC NOx PM Impact on Vehicles Meeting EURO 3 Standards 33% 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? Selective EU Fuel Quality Requirements y q Requirement 1996 (Euro 2) 2000 (Euro 3) 2005 (Euro 4) 2009 (Euro 5) Producing Cleaner Fuels Gasoline Vapour Pressure (Summer) 60 60? max kpa Benzene max Vol % 1 1? Aromatics max Vol % 42 35? Sulphur max ppm /10 10 Diesel Cetane Number min ? Density max kg/m ? Polycyclic Aromatics max Mass % 11 11? Sulphur max ppm /

10 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 Blendstock Processing Investment Process Options and Impacts on Gasoline Properties Octane RVP Olefins Aromatics Benzene Sulfur T50 T90 Alkylation + _ + + Isomerization + + Reformer Aromatics _ + NE _ NE NE Saturation BTX NE _ Oxygenates + NE/+ FCC Hydrotreating Note: + = increase -= decrease -NE = no effect _ NE NE NE Comparison of Refinery Complexity Comparison of Average Hydrotreating, Hydrocracking Capacity 40% 50% Percent of Crude Throughput 30% 20% 10% 0% Thermal Cracking Coking Visbreaking Cat Cracking Hydro Cracking Japan Germany California Singapore Indonesia India China Percent of Crude Througput 40% 30% 20% 10% 0% Japan Germany California Singapore India China Hydro-treating Hydro-cracking 10

11 Characterization of refinery sector by country Country Ownership Number and Complexity Singapore Private 3 Complex Thailand Malaysia Philippines Private+ Public Private+ Public Private+ Public 4 Complex 6 Complex/ Small 3 Complex Indonesia Public 8 Complex/ Small Demand Key Issues Forecast Transportation Sector + -Merchant refineries -Net Exporter -Large inv. needed +++ -Inv. needed -RVP, S, Aro., octane -Use of Ethanol +++ -Importer -Cap. Inv. needed -RVP, S, Aro., benzene -Gov. price controls +++ -Growth in demand/importer -RVP, S, Octane -Cap. Inv. needed +++ -Growth in demand/importer -Large Cap. Inv. -Octane, RVP, S, Aro., Olefins -Gov. price controls kbpd capacity Example: Refinery investment Chinese Sulfur-Related Refinery Investment by Scenario, Model Results 4,000 3,500 3,000 2,500 2,000 1,500 1, Euro2 BLD.RDS BLD.HDF BLD.H2 BLD.HDA BLD.HDS BLD.HDC 05-3 Euro2& Euro Euro2& Euro3& Euro Euro3& Euro3& Euro3& Euro Euro5 Source:Trans-Energy Research Associates 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 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 11

12 Costs of Production (preliminary-more work to follow) STUDIES COUNTRY/ REGION STUDY S OBJECTIVES GASOLINE DIESEL Enstrat Intl. All Asia Sulfur Reductions ppm -10ppm Australia Gov. Australia Fuel Reformulation EURO 4 (S, benzene) Trans-Energy China Fuel Reformulation (EURO 4) Daedalus LLC Thailand Fuel Reformulation (EURO 4) California (Many California Studies) More severe than EURO 4 COSTS OF PRODUCTION (cents/gallon) ADL Europe EURO 4 (Gasoline) 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 Is there a need for a new & more detailed cost analysis on fuel improvement in Asia? 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 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 12

13 Issues to be addressed on a cost analysis for fuel improvement in Asia (2) 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 (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 Overview Cleaner Fuels in Asia: The Role of Pricing, Taxation and Incentives Main Questions How 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 presentation Fuel Tax Differentials 1. Factors Influencing Use of Tax Differentials in Asia for Cleaner Fuels 2. Supportive other (vehicle related) incentives 13

14 Implementation Strategies for Fuel Quality Improvements Where Do Fuel Taxes Differentials Fit In to Energy and Air Quality? Market Based Removal of subsidies for polluting fuel Differential fuel taxation (to industry, retailer or final consumer) Regulatory Fuel specifications Phasing out of high polluting fuels Energy consumption Vehicle emissions Industrial Agriculture Urban Scale Human health Regional/Global Scale Climate Change Acid Rain Ozone Depletion Earmarked charges Direct subsidies Ecological taxes (carbon tax) Education and Public Outreach Stakeholder Consensus Building Vehicle Emissions Strategy (Fuel) Policy Implementation Strategy (Tax & incentives) Reduced Environmental Cost Fuel Tax Differentials Tax differences Improved fuel qualities enter the the market Changes in in fuel consumption patterns Reduced emissions Reduced environmental costs Total changes in in emissions External Costs costs of of Emissions emissions (health + environment) 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 Source: Little, Arthur

15 Actor Market Conditions and Rationale for Tax Differentials on Fuel Market Characteristics Rationale for Tax Policy Example: Sweden introduced a tax differential for lower sulfur diesels Taxation in 1990 Taxation in 1991 Taxation in 1992 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 127 ECU/ m ECU/ m ECU/ m ECU/ m 3 95 ECU/m ECU/ m ECU/ m 3 Refiners Refiners Without anticipated demand, the refining sector does not invest in quality better than legal requirements Improved fuels cost more to produce To catalyze refinery investments to produce fuel To offset increased refinery costs for improved fuels Source: Adapted from Little, Arthur, 1998 MK3 diesel MK 1 10 ppm MK 2 50 ppm MK ppm Source: Little, Arthur 1998 MK1 diesel MK2 diesel MK3 diesel MK1 diesel Tax decreased by 20 ECU/ m 3 MK2 diesel Tax increased by 4 ECU/m 3 Tax differential of 24 ECU/m 3 compared to MK1 MK3 diesel (standard diesel) Tax increased by 21 ECU/m 3 Tax differential of 41 ECU/m 3 compared to MK1 MK1 MK2 MK3 diesel diesel diesel MK1 diesel Tax decreased by 12 ECU/ m 3 MK2 diesel Tax decreased by 12 ECU/ m 3 Tax differential of 24 ECU/m 3 compared to MK1 MK3 diesel Tax differential of 53 ECU/m compared to MK1 Market for Lower Sulfur Diesel in Sweden % 80% 60% 350 ppm 50 ppm 40% 10 ppm 20% 0% Source: ECMT, 2001, in CAI-Asia -IFQC, 2003 Unleaded Gasoline in Thailand 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 Pb Content in Gasoline (g/l) Pb Content in Gasoline Pb Air Concentration Removal of lead from gasoline has drastically reduced lead being emitted per vehicle Source: Wangwongwatana, BAQ Average Pb Air Concentration ( g/m 3) 15

16 ULSD in Hong Kong Supplemental Vehicle Tax Incentives Lower tax and lower pump price for ULSD in July In 2002, ULSD was made mandatory. The ULSD enabled the introduction of stricter new vehicle standards and the retrofit of existing vehicles. Fuel Duty Pump Price 500 PPM Sulfur Diesel PPM Sulfur Diesel 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. 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). Factors Influencing Use of Tax Differentials in Fuel Quality Strategies Market Orientation Institutional Capacity Political Feasibility 16

17 Country Bangladesh India Indonesia Malaysia Pakistan Philippines PRC Singapore Taipei, China Thailand Market Orientation Dominant Oil companies/ Regulation Pricing ownership refiners structure Petrobangla Controlled/transitional public Petrobangla Ministry of Petroleum transitional public/private Indian Oil Corporation/Reliance and Natural Gas BP Migas controlled/subsidized public 1 Pertamina (7 major refineries) Petronas controlled/subsidized public/private Petronas ( 6 refineries) Petroleum transitional public/private Pakistan State Oil, BP Regulatory Board DOE market public/private Petron, Pilipinas Shell, Caltex ( 2 refineries) State Energy controlled/transitional public CNPC/ Sinopec/ CNOOC (16 Administration refiners) (BP, Exxon, Shell) EMA market private Shell, Exxon, SRC transition to market/ public/private Chinese Petroleum Corporation, market Formosa Petrochemical PTT transition to market/market public/private PTT ( 3 refiners: Shell, ESSO) 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. Vietnam Petro Vietnam controlled public No refineries Asia is different from OECD in terms of ownership structure and pricing (Sources: APEC, ASEAN, EIA DOE Country Analysis Briefs) 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. Towards Three Scenarios Fuel 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) 17

18 Part 5 Part 5 A Balanced Approach to AQM in Asia is Necessary Part 5 Global Industrial Emissions Air Quality Target Vehicle Emissions Local Open burning,etc. Role of Vehicle Industry in Oil Dialogue Vehicle Technology Vehicle I&M Transport Management Well to to Wheels Cost/Benefit analysis Fuel Quality/Supply Cost Effective Solutions Shell Global Solutions 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 Continuation of CAI-Asia Oil-Industry Dialogue -fuels- 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 18

19 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 Continuation of Oil Dialogue - inputs vehicle industry- Japanese vehicle industry is important stakeholder because: (1) large part of the vehicles sold in Asia are produced in Japan or on mainland Asia; (2) large part of second hand engines (about 1 million per year) used in Asia are from Japan Make relevant data available that are of nonproprietary character Provide direct support by taking part in additional data gathering and evaluation in support of Oil Dialogue Participate in the next phase of the dialogue together with oil industry and the government. Join CAI-Asia as a member to support CAI-Asia s activities to promote better air quality management in Asia 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. 19