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1
Liquid Fuels for Transportation
Worldwide demand for energy has been increasing as a result of continued
population increases and economic growth, particularly in developing countries. Because
fossil fuels continue to dominate the global energy market, rising energy use results in
increased greenhouse-gas emissions from that sector. In fact, emissions from the use of
fossil fuels and emissions of carbon from plants and soil as a result of changes in land use
have been identified as two primary sources of carbon dioxide1 (CO2) emission (Solomon
et al., 2007). Increasing energy supply to support population growth and economic
growth while reducing CO2 emission from the energy sector certainly poses a serious
challenge to the current generation and future generations because our very way of life is
at stake. An option for the energy sector to secure supply and to reduce its greenhouse-
gas emissions is to diversify its energy sources and invest in technological change to
provide energy with low or zero CO2 emission.
The National Research Council initiated a series of studies, America’s Energy
Future, in 2007 to provide authoritative estimates of the current contributions and future
potential of existing and new energy supply technologies, their effects, and their
projected costs. Because of considerable uncertainties and disagreements about
prospective costs and performance of alternative liquid transportation fuels (biofuels and
coal-to-liquid fuels in particular), the Research Council appointed an independently
operating panel to examine those issues in depth. This is the report of the Panel on
Alternative Liquid Transportation Fuels. (See Appendix B for panel membership.)
DEMAND FOR LIQUID TRANSPORTATION FUELS
Transport activity is one of the key components of continued economic growth
and social stability in industrialized societies. Demand for transportation fuels increases
around the world as economies grow. Oil has been the primary source of liquid
transportation fuels since the early 1900s largely because of its favorable energy density,
1
CO2 is one of the most important greenhouse gases. Other greenhouse gases include water vapor, methane
(CH4), nitrous oxide (N2O), halocarbons, and ozone (O3).
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ease of distribution, low cost, and abundance. The world demand for oil has increased
from 11 million barrels/day of oil equivalent (MBDOE) in 1950 to 57 MBDOE in 1970
to about 85 MBDOE in 2009 and is projected to be 116 MBDOE in 2030 (ExxonMobil,
2008; IEA, 2009). From 1985 to 2005, global energy demand for transportation increased
by an average of 2.2 percent per year (ExxonMobil, 2007), and it is expected to increase
by an average of 1.4 percent per year from 2005 to 2030 (Figure 1-1) (ExxonMobil,
2008). As seen in late 2008 and early 2009, oil demand dropped rapidly as the global
economy slowed down into a recession. When the global economy recovers in the long
term and as the economies of developing countries grow with their populations, the
demand for oil will grow again.
The majority of current demand for liquid transportation fuel is met by the
Organization of the Petroleum Exporting Countries (OPEC) crude and non-OPEC crude
and condensate (ExxonMobil, 2007). Other energy sources that contribute a small
fraction of transportation fuels include oil sands, natural gas, and biofuels. Whether and
when global petroleum production will reach its peak (beyond which it will decline) and
be unable to meet global crude-oil demand is uncertain. By the end of 2006, the proven
worldwide reserves of oil—that is, resources that are discovered, recoverable with current
technology, commercially feasible, and remaining in the ground—was reported to be
1,372 billion barrels (BP, 2007).
The primary source of energy for transportation in the United States and
elsewhere is oil. Between 2007 and 2008, when this report was written, the crude-oil
price fluctuated from about $70/bbl when the committee convened its first meeting in
November 2007 to a record high of $147/bbl in July 2008 and then dropped to about
$35/bbl at the end of 2008. Volatile oil prices, oil importation in large quantities and its
associated tremendous shift of U.S. wealth overseas, a tight worldwide supply-demand
balance, and fears that oil production would peak in the next 10-20 yr all motivate a
search for domestic sources of alternative fuels. The United States uses 25 percent of
global oil production for 4.5 percent (U.S. Census Bureau, 2008) of the global
population. The United States imports about 60 percent of its oil and in 2008 spent $10-
38 billion each month (depending on oil price and demand) overseas for oil.
U.S. oil demand stems from four main sectors: transportation, industry, electricity
generation, and residential and commercial use. Transportation is by far the largest
consumer, at nearly 70 percent (EIA, 2009) (Table 1-1). Domestic demand for oil steadily
increased by 1.4 percent from 1980 to 2005 (NPC, 2007), but domestic oil production has
been decreasing (Zittel and Schindler, 2007). Proven oil reserves in the United States at
the end of 2006 were 29.9 billion barrels (2.5 percent of the total world reserves); that is
in stark contrast with the 35.1 billion barrels at the end of 1986 (BP, 2007). Options for
reducing reliance of U.S. transportation on oil are few. The nation could reduce the
amount of oil that it uses by reducing driving and improving vehicle fuel efficiency;
energy efficiency of the transportation sector is discussed in detail in another report in the
America’s Energy Future series, Real Prospects for Energy Efficiency in the United
States (NRC, forthcoming). Or it could diversify its portfolio of fuels.
The U.S. transportation sector contributes the most greenhouse-gas emissions
among all end users of domestic fossil fuel. Transportation activities accounted for one-
third of total greenhouse-gas emissions in the United States in 2006 (Figure 1-2) (EPA,
2008). The strategies for reducing greenhouse-gas emissions from the transportation
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sector are similar to those for reducing oil dependence: reducing driving, improving
vehicle fuel efficiency, and using fuels that have low greenhouse-gas emissions over the
life cycle of their production and use.
TABLE 1-1 Consumption of Liquid Fuel in United States in 2008, by Sector (EIA, 2009)
Sector Liquid Fuel Consumption (millions of
barrels per day)
Residential and commercial use 01.10
Industry 04.94
Transportation 13.66
Electricity generation 00.22
Total 19.54
ALTERNATIVE TRANSPORTATION FUELS
The use of alternative transportation fuels constitutes one of the few options for
reducing U.S. reliance on oil. Alternative fuels include liquid fuels produced from
unconventional oil (such as that from oil sands, heavy oils, and oil shale), natural gas,
hydrogen, biomass-based fuels, and fuels produced from coal. Successful development
and commercialization of those fuels would depend on their cost competitiveness
compared with that of conventional gasoline and on the amount of fuel that could be
supplied annually. In addition to economics, technological status, and potential supply,
sustainable development of alternative transportation fuels would take environmental and
social concerns into consideration. Use of fuels that contribute less greenhouse-gas
emission than gasoline needs to be part of the strategy to reduce greenhouse-gas
emissions while improving energy security. Interest in domestic alternative fuels that
contribute less greenhouse gas than gasoline has led to large increases in U.S. ethanol
production—primarily from corn—and increased use of biodiesel fuel from soybean and
other vegetable oils. Because corn and vegetable oils are sources of food for humans and
feed for animals, their use to increase biofuel production has sparked the debate of “food
vs fuel.” Furthermore, actual greenhouse-gas emission reductions resulting from the
substitution of grain ethanol for gasoline or biodiesel for diesel are small.
In short, for alternative transportation fuels to take hold in the United States, they
have to be price-competitive, environmentally sustainable, and socially acceptable. A
comparison of the economies of various alternative transportation fuels requires
estimation of their total costs of production, from the cost of raw materials for fuel
production to the resources used in the process of distributing the fuel to vehicles. A
lifecycle assessment of greenhouse-gas emissions that takes into account the uptake and
release of greenhouse gases as a result of feedstock production and materials and energy
used in production and consumption of each fuel type would have to be conducted to
assess the environmental effects. An assessment of the potential supply, lifecycle costs,
and environmental effects of different alternative liquid fuels can help to guide policy to
improve America’s energy security and reduce the greenhouse-gas emissions from the
transportation sector.
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As history and many studies—for example, NRC 2004, 2005, 2008—have shown,
it will take decades to transform the U.S. transportation and fuel system to one that uses
primarily domestic sources, has lower CO2 emission, and meets the nation’s
transportation energy demand during the transition. A potential conflict between the need
for more domestic fuel supply and the need to reduce carbon emission from
transportation and transportation fuel can be avoided if high priority is placed on
improving fuel-consumption efficiency and on developing and implementing alternative,
low-carbon, new fuel technologies. The joint challenge of providing transportation fuel
and reducing greenhouse-gas emissions drives the U.S. Department of Energy toward the
vision of producing transportation fuels with low greenhouse-gas life-cycle emissions
from domestic sources.
PURPOSE OF THIS STUDY
The purpose of this study was to examine the technical potential for reducing
reliance on oil for transportation, principally in automobiles and trucks, through the use
of alternatives fuels. (See Appendix B for complete statement of task.) Hydrogen and
natural gas as sources of energy for transportation have been discussed extensively in the
published literature (Ingersoll, 1996; Di Pascoli et al., 2001; NRC, 2004, 2005, 2008) and
are discussed briefly in this report. There is no substantial production of oil from tar
sands and no production of oil from shale in the United States. The potential of those
sources is discussed in a forthcoming report of the Committee on America’s Energy
Future: Technology Opportunities, Risks, and Tradeoffs, mentioned earlier. The panel
recognizes that biomass can be used for power generation and that the electricity
generated could be used to power electric vehicles or plug-in hybrid electric vehicles.
However, those topics are discussed extensively in two other reports in the America’s
Energy Future series. Biomass for electricity is discussed in Electricity from Renewables:
Status, Prospects, and Impediments, and electric and plug-in hybrid electric vehicles are
discussed in Real Prospects for Energy Efficiency in the United States. The focus of this
panel’s study was limited to liquid fuels that can be derived from biomass and coal
feedstocks.
Coal and biomass are abundant in the United States, but as feedstocks for
transportation fuels they have different constraints and environmental effects. Although
the United States has at least 20 yr of coal reserves in active mines and probably has
enough to meet the nation’s needs for more than 100 yr at current rates of consumption
(NRC, 2007), coal is a nonrenewable source of energy. Thus, coal-to-liquid fuels would
not be a sustainable solution to the problem of oil dependence. Combustion of coal also
releases the highest greenhouse-gas emission per unit energy of all fossil fuels. Although
technologies for producing liquid fuels from coal are well developed and are being used
commercially, they have not been integrated with technologies that would capture the
CO2 stream released from the coal facility and store it geologically. In contrast, biomass
is a renewable resource that can also offer net CO2 benefits because living plants take up
CO2 through the process of photosynthesis. Although biomass can be produced
continuously over a long term, the amount that can be produced at a given time is limited
by the availability of the natural resources that support biomass production. Most arable
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land in the United States is already being used for food, feed, and fiber production.
Although the technologies for producing fuels from plant sugar and starch are known and
used commercially, the technologies for producing fuels from lignocellulosic feedstock
have yet to be demonstrated on commercial scale.
To address the statement of task, the panel focused on technologies for converting
biomass and coal to alternative liquid fuels that are commercially deployable by 2020.
Technologies deployable after 2020 were also evaluated but in less depth. For the
purpose of this study, commercially deployable technologies are ones that have been
scaled up from research to development to pilot plant and then have gone through several
commercial-size demonstrations. Thus, the capital and operating costs of a plant using
commercially deployable technologies have been optimized so that the technology can
compete with other options. Commercial deployment of a technology is the rate at which
it penetrates the market. Deployment depends on market forces, capital and human
availability, other competitive technologies, public policies, and other factors. To be
consistent with the other studies in the America’s Energy Future series, the panel
• Evaluated the state of technology development on the basis of estimated times to
initial commercial deployment,
• Evaluated key research, development, and demonstration challenges for
technologies to be ready for commercial deployment,
• Developed current and projected costs and CO2 emissions of technologies
deployable by 2020,
• Evaluated environmental, economic, policy, and social factors that would enhance
or impede development and deployment,
• Estimated the potential supply curve for liquid fuels produced from coal or
biomass with the technologies that could be deployed by 2020, and
• Reviewed other alternative fuels that would compete with coal-based and
biomass-based fuels over the next 15 yr.
The panel was asked not to include recommendations on policy choices.
CONTEXT OF REPORT
The panel’s work began when prices of fossil fuels and of raw materials and
capital for infrastructure were rising rapidly (November 2007). As the study progressed,
those prices reached a peak (for example, crude oil reached $147/bbl on July 11, 2008)
and then fell steeply. Although this report makes no attempt to forecast fuel prices, it is
clear to the panel that the incentives for businesses and individuals to invest in and
deploy technologies for alternative transportation fuels will depend largely on fossil-fuel
and raw-material prices and on public policies and regulations that govern fuel
production, distribution, and use.
The oil crises of the 1970s sparked a number of energy-policy changes at the
federal, state, and local levels. Price controls and rationing were instituted nationally with
a reduced speed limit to save gasoline. The Energy Policy and Conservation Act of 1975
created the strategic petroleum reserve (SPR) and mandated the doubling of fuel
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efficiency in automobiles from 13 to 27.5 miles/gal through the Corporate Average Fuel
Economy (CAFE) standards. Alternative fuels have been promoted in several
government incentives and mandates.
• Synthetic Liquid Fuels Act of 1944—authorized the construction and operation of
demonstration plants to produce synthetic liquid fuels from coal, oil shale, agriculture,
and other substances.
• Energy Security Act of 1980—provided insured loans to small ethanol plants that
produced less than one million gallons per year and established the Synthetic Fuels
Corporation.
• Alternative Motor Fuels Act of 1988—encouraged auto manufacturers to produce
vehicles that operate on E85 (ethanol and gasoline blend that contains 85 percent ethanol)
or other alternative fuels.
• Energy Policy Act of 1992—set a number of alternative-fueled vehicle (AFV)
requirements for government and state motor fleets. It also extended the fuel tax
exemption and the blender’s income tax credit to two blend rates of 5.7 percent and 7.7
percent in addition to the blend rate of 10 percent. The federal government never met the
mandated use of alternative fuels in its own fleet.
• Energy Policy Act of 2005—established a national renewable fuel standard (RFS)
that mandates an increase use of renewable fuels from 4.0 billion gallons per year in 2006
to 7.5 billion gallons per year in 2012.
• Energy Security and Independence Act of 2007—amends RFS to set forth a
phase-in for renewable fuel volumes beginning with 9 billion gallons in 2008 and ending
at 36 billion gallons in 2022.
Other than energy policies, the American Jobs Creation Act of 2004 also
encourages the production of biofuels by providing a $0.51 tax credit per gallon of
ethanol blended to companies that blend gasoline with ethanol and a $0.50-1.00 tax credit
to biodiesel producers. Many U.S. state programs are designed to encourage the growth
in alternative transportation fuel use (NASEO, 2008). Even though there have been many
public policies addressing transportation energy supply and use over the past 60 years,
the use of alternative transportation fuels in the U.S. market is still small as of 2008.
Although many factors contribute to the low market penetration of alternative fuels (for
example, low oil prices), the fact that many of the policies have not been durable and
sustainable over time has played a significant role.
There are many choices of biomass feedstocks and technologies for converting
biomass and coal to liquid fuels. In the time available, the panel could not provide
detailed assessments of every potential biomass feedstock or conversion technology.
Thus, the panel focused on biomass feedstock and technologies that could potentially 1)
be commercially deployable over the next 10-15 years, 2) be cost competitive with
petroleum fuels, and 3) result in significant reductions in U.S. oil use and greenhouse-gas
emissions.
The panel identified what it judged to be “aggressive but achievable” deployment
opportunities for the alternative fuels. Over the course of this study, it became clear that
given the costs of alternative fuels compared to petroleum-based fuels, significant
deployment for alternative fuels into the market will likely not be achieved without some
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realignment of public policies, regulations, and other incentives and by substantial
investments by both the public and private sectors.
There continues to be a great deal of uncertainty about some of the factors that
will directly influence the rate of deployment of new transportation fuel supplies.
Because of these uncertainties, the transportation fuel supply and cost estimates provided
in this report should be considered as important first-step assessments rather than
forecasts.
STRUCTURE OF REPORT
The panel approached the statement of task on three parallel tracks. First, it
estimated the biomass resources that would be available for fuel production without
affecting the cost and supply of food and feed or incurring adverse environmental effects
(Chapter 2). Second, it assessed the cost, energy use, and environmental effects of the
conversion of biomass to liquid transportation fuels by biological processes (Chapter 3).
Third, it assessed the same characteristics for the conversion of biomass, coal, or
combined biomass and coal by thermochemical processes (Chapter 4). The panel
discusses the distribution of ethanol, which is not compatible with the existing petroleum-
distribution infrastructure (Chapter 5). The three sets of assessments were then integrated
to provide a lifecycle assessment of the costs and CO2 emissions of various liquid fuels
produced from biomass and coal with different conversion processes. The cost and CO2
life-cycle emissions estimates of biofuels and coal-to-liquid fuels produced biochemically
or thermochemically were set on a consistent basis for comparison, and the supply of
liquid transportation fuels produced from biomass and coal was estimated at different
price points (Chapter 6). The overarching findings of the study and the panel’s
recommendations for research and development (Chapter 7) and the key challenges to
commercial deployment (Chapter 8) are then presented. Other alternative transportation
fuels are also discussed (Chapter 9).
The chapters on biomass supply, biochemical conversion, and thermochemical
conversion (Chapters 2, 3, and 4, respectively) are structured to address the following
issues in order: the feasibility of biomass supply or the commercial readiness of each
technology, research and development needs, modeling to estimate costs, estimated CO2
emissions and other environmental effects, and challenges for each technical subject.
Although Chapter 2 provides estimates of costs of various biomass feedstocks, one
assumed feedstock cost was used in the model simulations in Chapter 3 to assess whether
biorefinery size or feedstock composition has any effect on the costs of biochemical
conversion. Those trends would not be as apparent if variations in feedstock costs had
been included in the simulations. Similarly, Chapter 4 used an assumed biomass cost and
coal cost. In Chapter 6, the estimated costs of biochemical and thermochemical
conversion are put on a consistent basis and are integrated with the different feedstock
costs to provide life-cycle costs of biomass-based and coal-based fuels. Likewise, the
CO2 uptake and emission estimates in Chapters 2, 3, and 4 are integrated and put on a
consistent basis in Chapter 6 to provide estimates of life-cycle emissions that can be
compared. Quantities are expressed in standard units that are commonly used in the
United States. Greenhouse-gas emissions, however, are expressed in tonnes of CO2
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equivalent (CO2 eq), the common metric used by the Intergovernmental Panel on Climate
Change.
The panel provides estimates of total costs of fuel products that include the
feedstock, technical, engineering, construction, and production costs that were put on a
consistent basis and at one time. However, the price of fuel products is dynamic because
the costs of feedstock, labor, and construction fluctuate and are influenced by multiple
factors, including shortages in labor or construction material, government policies, and
the economic environment; and the cost estimates are sensitive to debt-to-equity ratios,
interest rates, the discount rate, and specific corporate goals (such as return on capital and
risks). Therefore, the cost estimates in this report are not predictions of fuel costs in 2020;
rather, they provide a comparison of technologies on a level playing field. Cost estimates
in this report do not include taxes or subsidies. Gasoline and other potential taxes and
carbon prices could change the relative competitiveness of alternative fuel choices.
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