Memorandum submitted by Lyondell Chemical
Europe
1. LYONDELL AND
BIOFUELS
1.1 Lyondell appreciates the opportunity
to submit evidence to the EAC Inquiry as a follow-up to its submission
made to the committee's "Reducing Carbon Emissions for Transport
Inquiry" in February 2006. Our submission focuses on biofuels
technology, policy and regulation, and responds in particular
to questions 1,2,4,5 and 7. We would be pleased to provide any
further information sought by the inquiry, either as written or
verbal evidence.
1.2 Lyondell Chemical Company is one of
the world's largest chemical companies with approximately $16
billion in assets and 2006 revenues of $20.9 billion. Lyondell
is a major producer of fuel ethers for use as clean burning motor
gasoline (petrol) components. This includes bio-ETBE (ethyl tertiary
butyl ether), a biofuel produced from renewable bioethanol feedstock.
1.3 As a recognised leader in the field
of clean burning transport fuels, Lyondell has advised extensively
on the use of fuel ethers in gasoline to minimise harmful emissions,
thus reducing air pollution. Since the Company's initial production
of fuel ethers in the 1970's, Lyondell technologists have provided
support and consultation to government authorities on transport
fuel emissions and, more recently, on biofuels policy and regulation.
Lyondell is a founding member of the European Fuel Oxygenates
Association (EFOA), a sector group of the European Industry Council
(CEFIC), a member of the U.K. Environmental Industries Association
(EIC), a member of the Renewable Energy Association (REA) and
an associate member of the All Party Parliamentary Renewable Transport
Fuels Group.
2. INTRODUCTION
TO INQUIRY
RESPONSE
2.1 Lyondell has a significant business
interest in the future of biofuels for gasoline (petrol) fuelled
road transport. The company supports and advises on policy and
regulation for the development of an efficient and sustainable
market for biofuels in road transport use, which are designed
to meet over-arching U.K. and EU objectives to lower greenhouse
gas (GHG) emissions, reduce dependence upon rising imports of
fossil fuels, and achieve agricultural growth and prosperity.
2.2 At its Spring Council meeting in March
2007 the EU27 voted unanimously to pursue a 10% (energy basis)
penetration of biofuels across all Member States by 2020. In presenting
its proposal to The Council, the European Commission acknowledged
the requirement for robust standards and regulation of environmental
protection for domestic and imported biofuels, and anticipated
that further advances in technology may be required to sustainably
meet its 10% target.
2.3 The scale and urgency required from
government and industry to meet the above objectives are acknowledged
by Lyondell. The biofuels industry in the U.K. and across many
EU Member States is at an embryonic stage. It currently lacks
the investment in scale and efficiency which will be needed to
contribute significantly to U.K. Government and EU objectives.
In spite of the economic, social and environmental challenges
posed by the prospect of dramatic growth, Lyondell believes that
these challenges are generally well understood, and can be successfully
managed by effective policy and regulation at national level and,
within an internationally agreed and harmonised framework for
environmental and social protection.
2.4 The EAC Inquiry raises a wide range
of important questions relating to economic, social and environmental
consequences of biofuels. All of these issues are of concern to
Lyondell as a major producer of bio-ETBE. Nonetheless, Lyondell's
direct expertise lies principally in the field of biofuel technology,
manufacture and application of fuel ethers within international
gasoline markets. For the purposes of this submission, Lyondell
will focus on these areas of specific, and in some instances unique
expertise. In doing so, the company acknowledges wide ranging
expertise by a number of respondents to this inquiry, including
the Renewable Energy Association (REA) and the Environmental Industries
Commission (EIC). Lyondell is an active member of both these institutions,
and its views on broader considerations of biofuels sustainability
are represented within the consolidated input of REA and EIC members.
3. Q1: What are the possible positive
and negative social, environmental and economic consequences of
biofuels? How might trade-offs between climate benefits and environmental
and social impacts be made? Is there a need to develop a new strategy
for the U.K. or EU, to balance the environmental, social, economic
and climate impacts of biofuels?
3.1 Lyondell refers to its introductory
comments with regard to the broader issues of biofuels sustainability,
and especially to submissions made by the Renewable Energy Association
(REA) and Environment Industries Commission (EIC). U.K. transport
is currently responsible for approximately 25% of U.K. carbon
emissions, and the sector continues to grow. Unlike stationary
power and heat generation, for which a wide range of renewable
technologies are feasible, renewable energy options available
to the transport sector remain limited by technology, economics
and infrastructure. Current biofuels technologies are available
to make a sustainable and economic contribution to the lowering
of GHG emissions from transport within a 10-15 year timeframe—some
way in advance of alternative renewable technologies.
3.2 Within the road transport sector, and
specifically in relation to the gasoline pool, bio-ETBE is especially
effective as a means of lowering GHG emissions. Produced in a
simple, low cost conversion process bio-ETBE contains 47% renewable
bioethanol.
3.3 The specific carbon reduction achieved by
substitution of gasoline by bioethanol depends on a number of
factors including crop selection, agronomy and geographical source.
As a consequence, GHG emission reductions from current bioethanol
technologies typically range between 20 and 60%. However, the
conversion of bioethanol to bio-ETBE improves the carbon balance
of all bioethanol. A recent study by the independent industry
consultancy Hart Energy has confirmed that bio-ETBE delivers additional
savings in carbon emissions. For example, comparing bioethanol
and bio-ETBE blended into gasoline at the equivalent bioethanol
level of 5%, the carbon reduction range of 20-60% delivered by
bioethanol rises to a range between 45 and 85 per cent as a result
of conversion to bio-ETBE.
3.4 The European Commission has set out
a programme to lower substantially the emission of harmful pollutants
from the transport sector. Bio-ETBE can contribute significantly
to such an improvement in urban air quality through benefits arising
from the following key influences on volatile organic component
(VOC) formation:
a) DIRECT: Improvement in combustion efficiency
through the presence of molecular oxygen. Typically, a 1% total
reduction in hydrocarbon (HC) emissions is achieved for each 1-2%
of bio-ETBE blended into gasoline.
b) INDIRECT: Reduction in VOC Ozone Formation
Potential (OFP). Typically, a reduction of 50-90% is achievable
compared with other petrol components.
The improvement in air quality offered by fuel
ethers such as bio-ETBE has been acknowledged by auto and oil
industries as helping to meet the challenges of the increasingly
stringent emissions targets set by the European Commission through
the introduction of Auto Oil 1 and Auto Oil 2 programmes. Fuel
ethers have also made a significant contribution to air quality
improvement in a number of affected urban areas in the United
States.
3.5 The etherification process employed
to upgrade alcohols like bioethanol to ethers such as bio-ETBE
was developed in the early 1970's, and is practised efficiently
and reliably around the world. European capacity of fuel ethers
amounts to almost six million tonnes, of which around one third
has been dedicated to the production of bio-ETBE. It has been
our experience that conversion of the remaining capacity can be
converted at low cost and short lead-time. Further expansion of
bio-ETBE may be achieved initially by an increase in the availability
of efficiently produced renewable bioethanol feedstock, and subsequently
by the re-allocation of refinery feedstock components. Bio-ETBE
currently consumes more than 75% of bioethanol destined for the
EU gasoline pool.
3.6 Lyondell believes that the GHG reduction
and air quality improvements outlined show that bio-ETBE can be
a powerful contributor to environmental policies within the U.K.
and across the EU. Lyondell supports the development of sound
policy and regulation at Member State and EU level, with a supporting
international framework to provide assurance of GHG reduction
and sustainability. The design and administration of this regulation
is complex but achievable and, when at an advanced theoretical
stage, requires the benefit of practical experience to refine
methodology and data integrity. Such principles have been incorporated
in the U.K. Government RTFO Order to be laid before Parliament
in early October. Lyondell believes that the U.K. Government should
resist the temptation to impose prematurely detailed GHG reduction
targets and schedules in the absence of supporting science and
practical application. Over-ambitious targets risk a loss of credibility
with the ultimate obligatee under the RTFO scheme—the general
public.
3.7 It is of paramount importance that the
EU acts effectively to harmonise legislation with regard to GHG
and sustainability standards and their application. Similarly,
biofuels must enjoy unhindered, free movement within EU and international
markets: Both of these principles are essential to avoid market
distortion, and to encourage much needed economic and environmental
efficiencies within the biofuels industry.
3.8 With reference to the Inquiry question
regarding the need for "a new biofuel strategy within the
U.K. or EU", we do not believe that fundamental policy change
is required. Lyondell acknowledges U.K. Government leadership
in the development of biofuel policy and regulation in which essential
standards of carbon assurance and sustainability are incorporated.
As noted above, the Government needs to maintain an initial focus
on the refinement and administration of complex methodology and
data, and should avoid premature imposition of arbitrary targets
lacking the basis of sound science. Lyondell believes that the
transition to a scheme in which life cycle carbon efficiencies
are rewarded by differentiated certificate award should receive
priority, but must also be supported by internationally agreed
carbon standards and methodology. Furthermore, we wish to reiterate
the criticality of an unhindered, free flowing EU and international
biofuels market as a prerequisite to the generation of U.K. growth
and efficiency.
3.9 With further reference to U.K. policy,
Lyondell notes a lack of prominence by the Department for Transport,
and the Government in general, in publicly promoting its role
in the development of biofuels. As a consequence, it has often
appeared "on the back foot" and disengaged with regard
to unbalanced NGO and media coverage during recent months.
4. Q2: Should biofuels be regulated to
minimise the negative environmental and social impacts, and in
what way? How might regulation fit in with international trade
agreements and rules? Should there be regulation of the entire
carbon cycle of biofuels?
4.1 As outlined in its response to Question
1, Lyondell supports the incorporation of standards of social
and environmental protection within biofuels policy and regulation
at both national and EU level, within an international framework
of co-operation. While generally deferring to the broader expertise
within REA and EIC in this respect, Lyondell believes that a rigorous
system of regulation for biofuels needs to be compatible with
standards and administration applied to other fields of international
agronomy and food production, especially if competitive with biofuels
production and land use.
4.2 The division of obligation between government
and industry also needs to be defined and transparent. For example,
the REA and EIC have frequently called for government and EU commitment
on the issue of indirect land use, and its regulation.
4.3 A full and meaningful carbon life cycle
must incorporate the GHG reduction impact of biofuels on conventional
oil refinery operations, which is significant. Principal studies
conducted on behalf of the EU have thus far failed to adequately
address this critical issue (also referred to in paragraph 3.3).
4.4 Lyondell cannot comment substantially
on issues of international trade agreements, but recognises its
importance. Expertise and issue resolution lie principally in
the domain of governments and their legal advisors.
5. Q4: At what stage is biofuel technology?
Is there enough support for the development of biofuel technology?
A UN report found that the climate change benefits of solid biomass
fuels outweigh those of liquid biofuels. Are the current policies
promoting the development and deployment of a range of biofuel
technologies? How successful have EU strategies and Directives
been in stimulating biofuel usage? Will the 2010 biofuel target
be reached? How effective are the Government's fiscal arrangements
for biofuels?
5.1 Lyondell wishes to encourage the development
of advanced technologies for bioethanol production inasmuch as
it achieves cost reduction, and improvement in crop yield and
carbon efficiencies for its principal bio-ETBE feedstock: Bio-ETBE
contains 47% bioethanol. However, we believe that the intervention
of national and EU government in the speculation of future technologies
has at times been inappropriate and has led to inertia in short
to medium term progress. Substantial delivery of U.K. Government
and EU objectives for sustainable GHG reduction from biofuels
can be achieved by existing biofuels technologies, and their further
refinement. Indeed, the nature of the U.K. Government flexible
obligation scheme (RTFO) is specifically designed to reward efficiency
by differentiated certificate award. Lyondell does not oppose
selective R&D support in the search for more advanced and
leveraging technologies, but urges stronger and transparent support
for existing and effective solutions.
5.2 Lyondell further notes that progress
by the U.K. in meeting implementation of EU biofuels penetration
targets is not hampered by the absence of available technology,
but may be impacted by inadequate long term government support
for market growth. Paragraph 3.5 clearly illustrates the potential
for European bio-ETBE capacity growth as a carbon efficient means
to support government objectives.
5.3 In response to the Inquiry reference
to the recent UN report demonstrating superior benefits of solid
biomass over liquid biofuels technologies, Lyondell notes that
the challenges posed by GHG emissions, energy dependence and agricultural
decline are complex, and require solutions to be sought across
the entire fuel chain. However, comments made in paragraph 3.1
highlight the profound GHG emissions contribution made by the
road transport sector, and the unique challenges posed with regard
to technology, economics and infrastructure. Lyondell acknowledges
the need for resource priority between renewable energy options,
but wishes to emphasise the low cost and lead-time associated
with delivering current technologies and available capacity to
the market place. In any event, the EU biofuel target of 5.75%
penetration (energy basis) will be met by few, if any Member States.
At the current rate of development, the U.K. is likely to fall
considerably short of the target, and of other leading member
states such as France and Germany.
5.4 Lyondell believes that the 2003 EU Biofuels
Directive has provided important stimulation to biofuels development
within Member States, but that subsequent policy and regulation
at Member State level has proceeded with variable vigour and co-ordination.
In securing European Council and Parliament support for an ambitious
2020 penetration target across all Member States, the European
Commission now needs to strengthen its role in harmonising essential
standards and procedures relating to GHG reduction and sustainability
and compliance. The Commission will also need to commence debate
on international co-operation on environmental protection and
its alignment with free trade.
5.5 From a U.K. Government perspective,
Lyondell recommends that the anticipated regular review of RTFO
progress should be directed at senior ministerial level, and not
solely delegated to the operational role of the administrator.
The delivery of an effective biofuels policy is a strategic matter
of national priority, and should be an integral part of a U.K.
renewable energy programme.
6. Q5: The Strategy for Biofuels claims
that biofuels "are a direct substitute for fossil fuels in
transport and can readily be integrated into fuel supply systems".
What proportion of U.K. domestic transport and energy generation
could be fuelled by U.K. produced biofuels? Is it possible for
biofuels to entirely replace oil for transport purposes? Is there
a role for public procurement or public transport? Will biofuels
improve fuel security? How secure are biofuel crops from unexpected
events such as drought or disease?
6.1 The reference taken from the Strategy
for Biofuels is not correct for bioethanol which, when in blend
with gasoline, cannot be distributed via conventional multi-product
distribution systems in which water sensitivity and product contamination
represent unacceptable risk in the presence of bioethanol. This
disadvantage can be managed by the development of dedicated distribution
and terminal blending. An alternative, exercised for more than
75% of bioethanol destined for the EU gasoline pool today, is
the conversion to bio-ETBE which can be distributed freely within
conventional fuel distribution systems. Bio-ETBE also provides
bioethanol enhancement with regard to reduced formation of volatile
organic compounds (VOC's) which act as precursors to ozone formation.
6.2 Lyondell is not able to provide a specific
estimate of substitute in energy generation which could be achieved
by biofuels. However, we note the NFU assertion that the 2010
EU biofuels penetration target of 5.75% (energy basis) in transport
fuel could be comfortably achieved from U.K. domestic production
alone, and without negative impact on land use and biodiversity.
The U.K. Government has always anticipated that domestic supply
will be supplemented by imports conforming to common standards
of carbon assurance and sustainability.
6.3 With regard to security of energy supply
biofuels offer the following potential benefits:
— Reduced dependence on imported fossil
fuels sourced from distant and politically unstable regions.
— Diversification of energy between
fossil and renewable sources, and across geography and trading
partners.
— Potential to leverage energy negotiations,
and to dampen price volatility caused by political turmoil and
short term supply fluctuation.
— Capitalisation of development and
export of environmental technologies and agronomy.
7. Q7: How might farm viability in both
developed and developing countries change with an expansion of
biofuels? What implications are there for poverty in developing
countries? Should we be concerned about large monopolies forming
in the biofuels sector?
7.1 The successful development of biofuels
markets within the EU will require deep and effective co-operation
between oil, agricultural and biofuel industries in accordance
with national and international regulation. The avoidance of monopolistic
influence can be most effectively achieved through the establishment
of unhindered product movement and market access, and its essential
association with free competition and efficiency. As a further
assurance of competition and technology development, Lyondell
recommends consideration of legislation introduced by Germany
and The Netherlands in which supplementary minimum obligations
are applied to biofuels penetration within both gasoline and diesel
sectors, as part of an overall obligation for the total fuel pool.
8. SUMMARY AND
CONCLUSIONS
8.1 The challenges posed by rapid development
of the biofuels industry are generally well understood, and can
be met effectively by regulation at U.K. Government and EU levels,
supported by an international framework for co-operation on essential
principles of sustainability and free trade. The design of appropriate
standards and methodology is incorporated in the U.K. Government
RTFO Order to be laid before Parliament in October, and is sufficiently
robust to justify an RTFO launch in early 2008. Nonetheless, its
ultimate success is dependent upon EU harmonisation of policy
and regulation and a rigorous adherence to the principles of free
trade across the EU.
8.2 The pursuit of an aggressive biofuels
policy for use in road transport will lead to lower GHG emissions
and, in some instances, to improve urban air quality from a sector
of persistent growth and substantial GHG emissions. Bio-ETBE is
especially effective in delivering these synergies within the
gasoline (petrol) pool, and offers significant enhancement of
bioethanol, from which it is derived. Around two million tonnes
of European bio-ETBE capacity exists within the EU, and there
is potential to treble this figure at low cost and within short
lead-times.
8.3 The attainment of EU biofuels penetration
targets for 2010 will be met by few, if any, Member States. In
addition to tightening and harmonising regulation within the EU,
governments at both levels need to be more prominent in promoting
biofuels policy, and to provide the stimuli of long term commitment
and transparency to the independent biofuels sector.
September 2007
| 
