The Australian government has initiated a review of the country’s fuel quality standards in 2015, with the target to eventually move the current quality up to international standards (Euro 5/6). The initiative has been worked on throughout the last three years. In this In FOCUS story we would like to provide our readers with an update on the situation and our view and recommendation on the technical, commercial and ecological aspects and progress of the programme.
In October 2015, the Australian Government established the Ministerial Forum on Vehicle Emissions to coordinate a whole-of-government approach to reducing motor vehicle emissions that harm health and contribute to greenhouse gas emissions. In January 2018 the Department of the Environment and Energy submitted a revised “Better Fuel for Cleaner Air” draft regulation impact statement (draft RIS). Among other stakeholders, the Asian Clean Fuels Association submitted its response to the draft RIS in March 2018.
Draft RIS “Better Fuels for Cleaner Air”
The paper focuses on Improving Australia’s fuel standards by enabling vehicles and their emission control systems to operate effectively and facilitate the adoption of better engine and emission control technologies. To reduce the impacts of noxious vehicle emissions, Australia has historically adopted increasingly stringent European vehicle emissions standards. This early assessment regulation impact statement will form the basis of consultation with stakeholders about possible changes to legislative instruments made under the Fuel Quality Standards Act 2000. These instruments include the fuel quality standards for petrol, diesel, autogas (LPG), biodiesel and ethanol (E85); information standards for ethanol in petrol and E85; the Fuel Quality Standards Regulations 200; and the guidelines for the Register of Prohibited Fuel Additives.
In addition, a new fuel quality standard is proposed for a B20 diesel-biodiesel blend. Changes are proposed to many parameters in the five fuel standards, most notably, to levels of sulfur, aromatics and possibly octane in petrol, as well as polycyclic aromatic hydrocarbons (PAHs) and cetane in diesel. Underneath the reader will find an extract from the executive summary of the “Better Fuel for Cleaner Air”-draft RIS.
The current set of legislative instruments, including the fuel quality standards, are due to cease to have effect in 2019. Proposed reforms focus on petrol because Australia’s petrol is not as high quality as petrol in other OECD countries. Improvements in petrol quality are expected to provide the greatest health and environmental benefits for Australians. The petrol parameters that most affect vehicle operability and emissions, and which are out of step with European standards, are:
sulfur, which has a regulated maximum limit of 150 parts per million (ppm) for regular unleaded petrol and 50 ppm for premium unleaded petrol in Australia. The maximum limit is 10 ppm in Europe
minimum octane number, which is research octane number (RON) rating of 91 in Australia. The minimum octane number in Europe is 95 RON
aromatic content, which has a maximum limit of 45 per cent in Australia. The European fuel standards specification is 35 per cent.
Other petrol parameters examined in this draft RIS include oxygenates, including ethanol, and olefins. Some options also involve changes to the other fuel standards, namely diesel, autogas (LPG), ethanol E85 and biodiesel. This draft RIS has been developed with options for improving the currently regulated Australian fuel quality for petrol, diesel, autogas (LPG), ethanol E85 and biodiesel, with a primary focus on sulfur and aromatic levels in petrol.
The draft RIS canvasses three policy options (identified as options B and C in earlier consultations, and F as proposed by the refining industry) for updating the fuel standards. The status quo is identified as Option A. Two options (identified as D and E in earlier consultations), will not be progressed based on stakeholder feedback.
Option B. Revisions to the fuel standards to harmonise with European standards. Regular unleaded petrol (91 RON) would be phased out. Changes to broaden the scope of the diesel standard.
Option C. Revisions to the fuel standards to harmonise with European standards as per Option B, with the exception that 91 RON petrol is retained but with a lower sulfur level of 10 ppm. Changes to broaden the scope of the diesel standard.
Option F. Revision to the petrol standard to reduce sulfur to 10 ppm, consistent with European standards. No change to other parameters.
Independent consultants Marsden Jacob Associates undertook a cost-benefit analysis on these policy reform options. Each option was considered against three different implementation dates: 2022, 2025 and 2027. The analysis was predicated on the assumption that all currently operating Australian refineries remain open. The analysis found:
Option B has a negative net present value (NPV), ranging from –$718 million (2022) to –$607 million (2027), meaning that if it is implemented it is unlikely to deliver a net benefit to the community compared with the base case of no changes to fuel standards.
Option C has a positive NPV, ranging from $641 million (in 2022) to $319 million (2027) and, if implemented, will return $1.18 to $1.24 for every $1 of cost.
Option F has a positive NPV, ranging from $628 million (2022) to $317 million (2027).
The cost benefit analysis in the draft Regulation Impact Statement focuses on changes to sulfur, aromatics and octane in petrol and changes to cetane and PAHs in diesel, as these changes are expected to deliver the highest benefits. A range of unquantified, but related, policy options have also been considered. The cost with these unquantified policy option are considered relatively minor and have not been included in the cost benefit analysis. The two tables underneath summarise the results of the cost benefit analysis for the proposed changes to the gasoline specification as well as the proposed impact of the options on fuel prices on motorists:
As outlined above, two of the options—Option C, which harmonises with European standards, and Option F, which only entails reducing sulfur in petrol—provide positive net present values (NPVs) and benefit-cost ratios (BCRs) greater than 1.0, regardless of the implementation date.
Potential non-market benefits of options relative to the base case that have not been valued in the analysis include:
some of the long-term health benefits associated with reducing tailpipe noxious emissions, particularly some cancers associated with ultrafine particulate emissions (
productivity benefits of reduced illness and hospitalisation
health benefits associated with reducing evaporative emissions from vehicles (such as when refilling at petrol stations)
possible benefits of reducing sulfur on fuel consumption and vehicle operability
possible benefits of reducing aromatics on fuel consumption and vehicle operability.
It is likely that if these benefits could be quantified the NPVs of options B, C and F would all be greater than those currently presented in this report. It is also possible that if these benefits could be quantified the ranking of the options might change.
A further assessment of the policy options against the policy assessment criteria used in the draft RIS is presented in the official “Better Fuel for Cleaner Air” document. Implementation of the policy reforms would require capital and operating cost investment by Australia’s petroleum refining industry, fuel supply and energy security implications must also be considered in developing fuel quality standards.
This draft RIS will form the basis of consultation with stakeholders about possible changes to legislative instruments made under the Act. The most significant of the proposed amendments relate to changes to the petrol standards. The options presented in the draft RIS do not represent a government decision nor formal government policy. Stakeholder views will be sought on issues including:
whether the costs and benefits have been adequately captured and assessed
how and when the policy options could be implemented
whether the options are likely to achieve the assessed and desired health, environmental and technological outcomes
Current situation and stakeholder contribution
During the course of this year and as summarized under paragraph 5.7. General Conclusions of the draft RIS, it turned out that Option C appears to be the preferred option by the Australian Government due to cost considerations but there are a few points still to be looked at as option B is the best option for environmental improvements, and is most preferred by stakeholders.
The General Conclusions of the “Better Fuel for Cleaner Air” paper states:
Of the options considered, implementation of Option C is likely to produce the greatest community net value. Option C is also a relatively cost-effective approach to reducing health impacts associated with the use of motor vehicle fuels. In terms of avoided health costs, Option C is likely to provide the best outcomes. Through the retention of 91 RON petrol, this option also retains current fuel choice, which some stakeholders advocated on the basis that continued availability of low-octane petrol might limit any price increases.
Option F has the lowest implementation costs for Australian refineries. This option also provides the most cost-effective approach to avoiding premature deaths associated with the use of motor vehicle fuels; however, health benefits under this option are lower due to the retention of a higher aromatics concentration in petrol. This option would only harmonise the petrol sulfur parameter with European standards.
While there are a number of benefits associated with Option B, the costs associated with the phase-out of 91 RON petrol outweigh the benefits, and it would have a net cost to the community. Bringing forward implementation of either Option C or Option F could significantly increase the net benefits; however, this could increase the costs of implementation.
The Asian Clean Fuels Association pointed out the importance of a RON specification upgrade to 95- and 98-gasoline in their response statement to the draft RIS, highlighting the environmental benefits associated with the quality upgrade. Maintaining a 91RON-gasoline grade would still put Australia behind most international standards.
Beyond this, ACFA also addressed the economic penalties Australia incurs at present by importing large volumes of a non-typical, required to be oxygenate-free gasoline standard. Lightening up the import fuel specification to international standards would increase the supply potential significantly, particularly so if the current max. 1.0-vol% specification restriction on MTBE would be lifted. The estimated saving versus the premium price Australia pays for its boutique fuel currently is believed to compensate almost entirely for the calculated extra cost associated with a RON91 replacement in the draft RIS (option B). ACFA’s response paper to the draft RIS cites findings and data from a Australian petrol assessment report conducted by Stratas Advisors which shows that allowing MTBE in the specifications can reduce the cost of import by as much as USD 3.00/bbl, while improving supply availability by up to threefold.
ACFA also highlighted the various merits MTBE and other ethers have in terms of air quality improvements globally. MTBE has a proven track record in China where the oxygenate contributed to significant air quality improvements, while ETBE is being successfully used in Japan’s gasoline pool for many years. Both ethers represent a technically simple solution, best suited to achieve the highest possible air quality improvement targets, with one of them actually supporting the local agro industry. The often cited groundwater contamination risk associated with ethers use in Australia is now outdated and overhauled, as updates storage tanks and transportation systems are meant to be leakage and spillage-free due to significant technology enhancements.
Another point of concern is the fact that till date the Australian fuel specification does not have any harmful fuel additives, chemical or metallic, entered on the prohibited fuel additives register. A range of metallic and chemical additives have been banned from use in fuels in the Worldwide Fuel Charter, with a range of national standards going even beyond the recommendations in the fuel charter. The Australian Federal Chamber of Automotive Industries supports the inclusion of tetraethyl lead, MMT, ferrocene, NMA and polychlorinated n-alkanes on the Register of Prohibited Fuel Additives. The Federal Chamber of Automotive Industries also notes that MMT was a prohibited additive under the Worldwide Fuel Charter, because of the damage it causes to engines and sensors. The Australian Institute of Petroleum recommends further testing of the operability impacts of NMA-blended petrol and supports the inclusion of NMA on the list of prohibited substances. The Australian Institute of Petroleum also recommends further consultation with original equipment manufacturers and additive suppliers to determine an approach to the use of MMT.
The fuel specification review focuses predominantly on sulfur and aromatics reductions and octane improvements but is also presents a perfect opportunity to address the issue of prohibited fuel additives. Attempting to harmonize Australian standards with European standards, the EU fuel specification could be taken as a useful guideline and reference in terms of prohibiting or permitting fuel additives.
The Australian government appears to be well on their path to move on from current, low-level Euro-3/4 fuel specification standards to implement Euro 5/6-like fuel standards in the country. The submission of the “Better Fuel for Cleaner Air”- paper has raised the public awareness of the matter and generated a lot of feedback from all stakeholders.
As of now the government seems to be leaning towards adapting the above-described “Option C” proposal but efforts are still been taken to push for “Option B” which includes a phase-out of the low 91RON fuel grade which would further contribute to quality and efficiency improvements.
Tackling the poor standards on sulfur and aromatics are surely a step in the right direction but only a full adaption of the min 95RON specification will move up Australian standards to the current norm.
Other issues such as cost and technical feasibility are obviously important factors to be considered but an air quality improvement target which will significantly contribute to a nation’s health enhancements should not be neglected or discounted.
A range of suggestions and solutions for specific issues have been provided by the stakeholders in this process which should help the Australian government to come to the right and best possible conclusions.
In this issue of our “In Conversation with” we talked to Mr. Jeff Hove, acting Vice President and Executive Director at the Fuels Institute. In recent years we have seen some initiatives to consider policies to ban the sale of vehicles equipped with internal combustion engines (ICE), predominantly emerging in Europe, but also spreading out in parts of Asia.
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