Oct-2010

Strategic options for reducing greenhouse gas emissions

Refiners need to develop a roadmap of their future business and technology requirements to address emerging climate change legislation

Bill Keesom, Amalia Pantazidis, Ian Moore and Jon Moretta
Jacobs Consultancy

Article Summary

There are significant uncertainties in both the regulations and technology solutions being considered to reduce greenhouse gas (GHG) emissions. GHG reduction requires a flexible strategic plan that minimises risks while positioning the refinery for compliance with pending regulations. This article discusses developing GHG mitigation strategies that help refiners to invest the right amount in the right places at the right time to achieve their GHG reduction goals.

Regulations aim at reducing GHG emissions either directly or indirectly by reducing the carbon intensity of transportation fuels or by replacing them with renewable sources. Proposed legislation in North America and Europe varies somewhat, but in general includes similar concepts and reduction targets. The EU’s GHG regulations call for a 20% reduction in GHG emissions by 2020 from a 1990 baseline (or a 14% reduction from a 2005 baseline); Canadian regulations call for a 17% reduction by 2020 from a 2005 baseline; and proposed US regulations call for a 20% reduction by 2020 from a 2005 baseline.^_1,2,3 These reduction targets are coupled with a method to measure the life cycle of GHG emissions from all fuels and depend upon an existing facility’s energy efficiency performance.¹

In addition to direct GHG reduction targets, pending legislation in each of these regions includes various directives regarding the use of renewables, biofuels, and alternative energy and the promotion of socio-environmental sustainability criteria for all bioliquids.⁴ Legislation in place in California to promote the decarbonisation of transportation fuels (the Low Carbon Fuel Standard) is being considered in other areas around the world to control GHG emissions from transportation. The Californian regulations call for a 10% reduction in the carbon intensity of gasoline and diesel by 2020.⁵ These Low Carbon Fuel Standards, coupled with mandates promoting increased use of renewable fuels, are indirect routes to reducing GHG emissions and will greatly impact transportation fuels supplied to the market.^5,6,7

In December 2008, EU Member States and the European Parliament agreed on changes to the EU Emissions Trading Scheme (ETS), setting the rules for the third phase of the scheme to come into effect in 2013—2020. These include progressively capping industrial emissions from the power and manufacturing sectors by requiring a reduction of up to 21% from 2005 emission levels by the end of the period. This amount represents two-thirds of the total reduction effort to meet the EU’s obligation for a unilateral 20% emission reduction below 1990 levels by 2020. The revisions also include centralised allocation of emissions by an EU authority, which means the elimination of national allocation plans; a decision to auction a greater share (60+%) of permits rather than allocate them freely; the allocation of free allowances by benchmark; and the inclusion of other GHGs, such as nitrous oxide and perfluorocarbons, in determining total GHG emissions. The EU ETS has recently been extended to the airline industry as well, but these changes will not take effect until 2012.⁸

Further reduction in GHG emissions of 80% below the baseline is the eventual target in the US and the EU.^3,9 A proposed timeline for GHG emissions reduction going out to 2050 is shown in Figure 1.^3,9 Since GHG regulations did not pass in the US Congress this year, the US Environmental Protection Agency (EPA) has undertaken to regulate GHG under its authority to regulate air quality. These regulations are still evolving.¹⁰

Meeting new GHG and fuels regulations in the EU and North America calls for a clear plan that takes into account the timing of the regulations as well as the unique characteristics of each facility. Different strategies are needed to meet the GHG targets at different points along this timeline.

Uncertainty
There is considerable uncertainty regarding long-term GHG reduction. Will there be sufficient CO2 credits available and at what price? What technologies can achieve the required GHG mitigation and how much will they cost? Can CO2 sequestration be practised on a large scale – will there be sufficient safe storage capacity available and can CO2 be safely transported through urban areas? Are GHG reduction targets firm? At this time, the cost for CO2 recovery is high and long-term, safe transportation and storage of large quantities of CO2 is unproven. Further, the regulations remain in flux, with deadlines and targeted sectors of the economy not yet firm. Finally, the availability of large quantities of alternative fuels with low GHG and other environmental impact is uncertain.

Results from a recent study by the US Energy Information Administration (EIA), shown in Figure 2, indicate a wide range in the future price of CO2, depending on assumptions about the ability to trade CO2 credits and the availability of technology for GHG reduction.11 The scenarios depicted cover a number of potential CO2 futures, ranging from the availability of large quantities of CO2 offsets, which leads to low costs for CO2, to a situation where the availability of international GHG offset trading is very limited, as is the technology to achieve the GHG reduction targets.

Note that the price assumed by many refiners for current CO2 capital project planning of $35—$45/ton of CO2 confirms the starting range used by the EIA. However, the range in long-term CO2 costs depicted in Figure 2 presents a daunting future for planning capital projects aimed at CO2 reduction. Confirming that the upper price depicted in Figure 2 is within the bounds of reason, recent work on CO2 mitigation in Canada shows the cost of carbon capture and storage (CCS) from dilute flue gas can exceed $200/ton.12 Although CCS may be part of the solution to reduce GHG emissions, it is generally considered to be a longer-term (10 years-plus) solution. The current timing for ETS implementation, from 2013, necessitates a more immediate focus on practical, proven solutions.

Sources of GHG and cost of
mitigation
Worldwide GHG emissions in 2008 were estimated to be 30 377 million tons. The contribution of the major fuels to worldwide GHG emissions is as follows:¹³
- 21% from natural gas
- 37% from petroleum
- 42% from coal.