Taxation and subsidies for alternative fuels

[Cheap6]

This is from a thread in VT-VX that was getting off topic:

Gas Converted VT

so to continue, I put it here.

The post that prompted the discussion was a suggestion that the price of LPG should be regulated to prevent jumps in price like we have seen recently:

Originally Posted by DND

The price should be regulated.

Originally Posted by Cheap6

Ignoring CO2 for a bit, up until the requirement for type approved conversions, tailpipe emissions were often worse from "workshop engineered" vehicles using LPG than those using petrol with emission control systems developed by the car manufacturer.

I think there are reasons other than emissions as to why LPG needs (or rather has needed) to be given tax (and emission testing) concessions:

Why use it:

There is a substantial local supply, mostly as a byproduct of natural gas production, (that's why the WA state gov't gives an extra subsidy on the conversions - much of the NG comes from that state = a local excess of LPG). Use of LPG helps our balance of trade by substituting a local product for oil.

It's a hedge against variable world oil prices.

Why it needs tax concessions/subsidies:

There would be little or no LPG use by consumers outside of fleets (able to justify a central refueling base) without concessions.

I was leaving aside a Carbon (dioxide) dumping fee as irrelevant until the whole world gets its act together and forms a consensus as to how it should be administered.

What I was suggesting is that if LPG and petrol had been taxed equally on an energy content basis, no one would use it because there are costs associated with conversion and inconveniences associated with its use.

This has a historical aspect in that the economies of scale are such that no supply infrastructure or on vehicle technology for its use would have been developed, without the concessions to create a substantial difference in price. Now that an infrastructure does exist, and there is an established customer base, the incentives can be lessened.

I would have to check the world price but I suspect that, in part, the conversion subsidies have increased value of the fuel and the pump price is representative of that. That suggests that the tax break on LPG over petrol is now excessive. That's what happens when govt's get involved in market systems for political reasons - there's no free lunch. Actually, the (Fed.) govt. may not have been too far wrong had the excise phase in been introduced this year as planned.

Originally Posted by commsirac

Pardon me if I dont understand Cheap 6, you'd tax people for just using energy equally?......no matter where that energy comes from. Doesn't sound like a good idea to encourage use and development of other forms or energy........if I was able to collect all the solar energy that fell on my roof each day and use it to power my car you'd tax me the same as if it were petrol?
Running out of fossil fuels, is that what you are perhaps concerned with, it doesnt appear to be the environmental effects......no problem there........then no one is going to argue about the cost of developing other energy sources if there is no alternative?

Originally Posted by Cheap6

Yes, but I'm not stressing the environmental benefits of different types of fuels. The tax incentive to use LPG has been in place since long (30+ years) before any idea that there was an environmental effect from releasing sequestered CO2. What I am suggesting is there are reasons other than (often dubious) environmental benefits as to why LPG use has been encouraged.

Discouraging the use of any energy source that dumps greenhouse gases into the atmosphere is a good thing but it's p***ing into the wind given Aust. and NZ small global contribution if no one else in the world does the same. Encouraging the early development of technologies that provide alternatives is a different story.

Ethanol is currently (effectively, for domestic production) excise free too, apparently for the same reasons as LPG is, given the previous govt.'s stance on climate change. It will be taxed at a higher rate than LPG on an energy content basis when the excises are introduced in 2011 though. That is because it will be taxed at the same 2.5cpl => 12.5cpl. How wrong is that in terms of greenhouse gas mitigation? Without considering the arguable environmental benefits, given the cost of converting vehicles or establishing a production and supply infrastructure is less, perhaps it is appropriate to tax it more, but that is moving away from a free market price.

"Running out" of fossil fuels is an issue, definitely, but it is a bit more complex than that.

Unless you are China , govt.s can't regulate (down) the cost of a fuel that is sold on a global market but they can discourage their use via taxation +/or encourage the use of some fuels over others.

Originally Posted by commsirac

Not really sure what you are talking about there Cheap 6, you are either looking at the CO2 emissions per energy unit of the fuel or you are looking at?
. Ethanol, its a very suspect alternative.....have you done much reading on it? According to some articles Ive read, even if the entire surface of the usa was an ethanol plantation there wouldnt be enough to meet even their current demands, and currently its approximately a 50% return in terms of the energy in farming/infrastructure needed to produce the fuel. Currently this 50% is being met by the burning of fossil fuels.

[Cheap6]

Originally Posted by commsirac

Not really sure what you are talking about there Cheap 6, you are either looking at the CO2 emissions per energy unit of the fuel or you are looking at?
. Ethanol, its a very suspect alternative.....have you done much reading on it? According to some articles Ive read, even if the entire surface of the usa was an ethanol plantation there wouldnt be enough to meet even their current demands, and currently its approximately a 50% return in terms of the energy in farming/infrastructure needed to produce the fuel. Currently this 50% is being met by the burning of fossil fuels.

The current tax breaks for LPG and ethanol have nothing to do with CO2, that can be treated as a separate issue. The other reasons for encouraging diversity in the types of fuel used are sufficient.

Govt.s use fuel taxation as a revenue stream and if that was the only thing that they were concerned with, taxing on the basis of energy content makes some sense. That they don't is because of other considerations such as those I have already mentioned.

The price of transport energy influences every aspect of an economy and is a big part of the reason why inflation is currently a concern; the recent higher oil prices has increased the cost of doing business everywhere.

Originally Posted by commsirac

Not really sure what you are talking about there Cheap 6, you are either looking at the CO2 emissions per energy unit of the fuel or you are looking at?
. Ethanol, its a very suspect alternative.....have you done much reading on it? According to some articles Ive read, even if the entire surface of the usa was an ethanol plantation there wouldnt be enough to meet even their current demands, and currently its approximately a 50% return in terms of the energy in farming/infrastructure needed to produce the fuel. Currently this 50% is being met by the burning of fossil fuels.

Yeah, I'm reasonably familiar with the debate around ethanol. The fact is nothing is a drop in replacement for the quality and quantity of fuels from oil that we (the world) currently use. Ethanol will only be viable with increases in vehicle and use (ie. less road transport) efficiencies, even if it is derived from more widely available feedstocks.

The net energy return on sugar or starch based ethanol depends on how the sums are done, where you choose to set the boundaries of the system, which feedstock is used and, most critically, which source of energy is used for separating the ethanol from the water. Obviously the big hope is for ethanol (or other biobased fuels) from non-starch or sugar parts of the plant. Methods for that doing currently exist but are more expensive than oil based fuels or sugar/starch (and non food) ethanol, even with subsidies.

The role of govt. in encouraging the use of ethanol through subsidies is one of easing the transition away from oil based fuels. If there wasn't an alternative or alternatives in place, the transition could be nasty. It may well turn out to be so anyway. That they can do so by using money that they are already paying subsidies to agricultural enterprises is a bonus (for the govt.).

[Just_a_stocker]

Industry could start first, for example hydrogen and biodiesel and fuels like that.
they could have there own stuff pipelined in, and have fueling stations on site.

They are already buying recycled water.

our fuel will go up to keep America alive and well.


Its almost like the old saying "only 2 things sure in life, death and taxes"
well now its three things "death ,taxes and fossil fuel price hikes"

cheers

[TTRMC]

Also something most people dont realise that ethanol blended fuel burns faster, I ran some ethanol mixed fuel for a few weeks (branded "boost 98" as it was 98 octane rating) I found I was using almost 1/4 of a tank more than I would on normal 98 octane fuel.... there is a few blogs on the subject, but the savings for ethanol blended fuels are too small compared to the increase in usage.

[J_D]

There will be no major shift away from oil as the worlds predominant transport fuel. The price will just continue to increase until we cut consumption. All the so called "alternative" fuel sources will continue to be bit players for quite a while yet. We currently have no alternative fuel source that is as abundant as oil.

Lets run through the alternatives.

Ethanol: Ethanol is already becoming a problem rather than a solution because most of the worlds ethanol is currently produced using food crops, which means someone goes hungry so you can fill up your SUV. The current demand in the US for corn as a feedstock for ethanol production is already resulting in driving up the price of Mexico's staple food. If the process for turning any biomass into ethanol is perfected and made economical this would alleviate demand on food supplies and increase the potential feedstock available for ethanol production but the world currently uses about 80 million barrels of oil a day so production would have to be on a massive scale to make a major dent in the use of oil. There is also a lot of debate going on at the moment about whether ethanol is actually net energy positive. Generally speaking every barrel of oil we currently extract from the wells in the middle east uses about 5 to 10% of that barrel of oil to extract and refine. The mere fact that there is currently a question mark over the net energy balance of ethanol suggests that it isnt a very good fuel to use and will only make a minor difference to oil use.

Hydrogen: First up hydrogen is NOT a fuel source, it is a battery. Hydrogen isnt abundantly available in nature except when its attached to oxygen, the process of liberating the hydrogen from the oxygen(electrolysis) uses a lot more energy than the resulting hydrogen contains. The laws of physics say you cant get more energy out of the hydrogen than the electrolysis uses in the first place, so the only way hydrogen will become a major fuel source is if the world builds a LOT more power plants, these would have to be nuclear because using coal would produce more pollutants than burning oil, and we all know how much the world loves nuclear power.

Biodiesel: Youve seen the stories on TV "My diesel vehicle costs 20 cents a week to run off used chip fat". Works well when only a few people are doing it but as soon as everyone else jumps on the bandwagon there isnt enough used chip fat to go around and crops have to be planted to produce the biodiesel, using up precious arable land for fuel production and resulting in ever higher food prices and more starving people.

Electric cars: Aside from the fact that you would have to build a massive number of nuclear power plants to run a fleet of electric cars most of the oil a car uses is used before you even drive it off the car lot. All the plastics used in the car and the energy used in its production add up to more oil than the car will use on the road during its lifetime and batteries only add to this hidden oil consumption. As we all know rechargeable batteries have a limited useful life(about 3-5 years). The oil consumed producing a new battery pack for an electric car every 3-5 years would easily use more oil than a petrol car would over the same time period.

Alternative fuel sources and subsidies avoid the real issue which is efficiency in the use of oil. Subsidies would be better placed into creating an efficient and free public transport system to decrease the number of people using private vehicles to drive to and from work.

The good news is the world isnt going to run out of oil. We have an abundance of the stuff, the problem is the oil that is left is getting harder(and thus more expensive)to extract. The world will continue to be run by oil at least for another generation, we just have to use this resource more wisely and efficiently.

[Cheap6]

I agree with most of that and I'll add a few comments:

Originally Posted by J_D

There will be no major shift away from oil as the worlds predominant transport fuel. The price will just continue to increase until we cut consumption. All the so called "alternative" fuel sources will continue to be bit players for quite a while yet. We currently have no alternative fuel source that is as abundant as oil.

Yep.

Lets run through the alternatives.

Ethanol: Ethanol is already becoming a problem rather than a solution because most of the worlds ethanol is currently produced using food crops, which means someone goes hungry so you can fill up your SUV. The current demand in the US for corn as a feedstock for ethanol production is already resulting in driving up the price of Mexico's staple food. If the process for turning any biomass into ethanol is perfected and made economical this would alleviate demand on food supplies and increase the potential feedstock available for ethanol production but the world currently uses about 80 million barrels of oil a day so production would have to be on a massive scale to make a major dent in the use of oil. There is also a lot of debate going on at the moment about whether ethanol is actually net energy positive. Generally speaking every barrel of oil we currently extract from the wells in the middle east uses about 5 to 10% of that barrel of oil to extract and refine. The mere fact that there is currently a question mark over the net energy balance of ethanol suggests that it isnt a very good fuel to use and will only make a minor difference to oil use.

The food issue is real, as is the increased demand for land to grow the feedstock crops. Both of those are alleviated when non-food feedstock is used. That is currently an economic issue rather than technical. Water to grow the crops is also a real issue.

An integrated approach using food "waste" is certainly worth pursuing. That is the primary reason that Manildra produces ethanol in NSW; it is a means of extracting value (or avoiding a disposal cost) from the waste left after starch and sugar products are obtained from wheat.

As it stands now, the total energy balance is less significant than the source of the energy used. If natural gas and coal are used to grow and extract the ethanol, it may be viewed as a way to convert those energy sources into a fuel suitable for use with our current vehicle and infrastructure technologies and investment. Cellulosic ethanol is much more obviously energy +ve and there is scope for improving the plants (legume type N2 fixation for eg.) as well as the fermentation processes.

Ethanol is a safer bet than other alternatives because to some extent, a fermentation vessel (with different micro-organisms) can be used to produce from biomass some of the chemicals that we currently get (cheaply) from oil. If ethanol doesn't play out (and it's better than most alternatives) switching to produce something else may be an option so the investment isn't wasted.

Hydrogen: First up hydrogen is NOT a fuel source, it is a battery. Hydrogen isnt abundantly available in nature except when its attached to oxygen, the process of liberating the hydrogen from the oxygen(electrolysis) uses a lot more energy than the resulting hydrogen contains. The laws of physics say you cant get more energy out of the hydrogen than the electrolysis uses in the first place, so the only way hydrogen will become a major fuel source is if the world builds a LOT more power plants, these would have to be nuclear because using coal would produce more pollutants than burning oil, and we all know how much the world loves nuclear power.

Agreed, Hydrogen just isn't going to happen in any of our lifetimes. There is simply too much infrastructure - new vehicles, production, design, repair and use - required for it to work any time soon, even if it was ready to go now (it's not). There is also going to be significant increase in demand for electrical energy for other uses.

Biodiesel: Youve seen the stories on TV "My diesel vehicle costs 20 cents a week to run off used chip fat". Works well when only a few people are doing it but as soon as everyone else jumps on the bandwagon there isnt enough used chip fat to go around and crops have to be planted to produce the biodiesel, using up precious arable land for fuel production and resulting in ever higher food prices and more starving people.

Worse than ethanol in that a much smaller portion of the plant (or algae?) is used. Maybe if it was integrated with food or ethanol production, it's better than throwing stuff away.

Liquid fuels are going to be necessary for agricultural production (no 4km extension leads or dragging tons of battery packs around) so biodiesel (and ethanol can be used as the short chain alcohol in ester based biodiesel) is worth pursuing on that basis.

Electric cars: Aside from the fact that you would have to build a massive number of nuclear power plants to run a fleet of electric cars most of the oil a car uses is used before you even drive it off the car lot. All the plastics used in the car and the energy used in its production add up to more oil than the car will use on the road during its lifetime and batteries only add to this hidden oil consumption. As we all know rechargeable batteries have a limited useful life(about 3-5 years). The oil consumed producing a new battery pack for an electric car every 3-5 years would easily use more oil than a petrol car would over the same time period.

There are also issues with the materials used to make the batteries as some of them may be difficult to find and in demand for other uses. "Peak Lithium"? Not much use for shipping either.

The electrical demand problem applies here too.

Alternative fuel sources and subsidies avoid the real issue which is efficiency in the use of oil. Subsidies would be better placed into creating an efficient and free public transport system to decrease the number of people using private vehicles to drive to and from work.

Jack the tax up on the oil sourced fuels. If people still want to use it, and pay for it, they can. If they want to use it they will use it more efficiently. The alternatives will also look better economically. With increased efficiency, the alternatives become more viable too; eg. the land/water use issue is lessened.

The good news is the world isnt going to run out of oil. We have an abundance of the stuff, the problem is the oil that is left is getting harder(and thus more expensive)to extract. The world will continue to be run by oil at least for another generation, we just have to use this resource more wisely and efficiently.

Ultimately, it will run out though, so we do need to look at replacement energy sources. And so far, any discussion around CO2 release has (intentionally) been ignored. The role of govt., via subsidies or taxation, needs to be to smooth the transition to the more efficient use and any alternatives.