Századvég Economic Research Institute 14th SG MEETING OF PA2 INSTITUTE FOR FOREIGN AFFAIRS AND TRADE Budapest, 13 July 2017 Assessment of the alternative road fuels infrastructure and the development pathway to interoperability Szabolcs Vágvölgyi Energy Advisor Századvég Economic Research Institute

Reliance on fossil fuels Congestion mitigation International best practices for promoting the development of alternative fuels infrastructure Why and how to support? Alternative fuels relate to the three major challenges in the transport sector 1 GHG emissions Reliance on fossil fuels Congestion mitigation Some branches of the alternative transportation sector are already fully competitive 2 Industrial applications of electric vehicles CNG public transport LPG in personal transport 3 Other sectors are hindered by obstacles that are either real or perceived Actual cost differences - ICEs vs AFVs Cost perceptions Technological conservatism Technological performance Unfamiliarity, lack of knowledge Perceived risk of investments 4 In order for policy to overcome the above stated challenges, the following goals should be pursued Facilitate socio-technical transitions Overcome cost barriers Increase competitiveness of AFVs and infr. 2

Comparative advantage International best practices for promoting the development of alternative fuels infrastructure Preferred alternative fuels in various non-EU states Country Goals Preferred technology Policies Incentives Comparative advantage Brazil Mitigate emission levels, utilization of inland production factors Biofuels, primarily bioethanol Stations obligated to sell ethanol Setting blending mandate (18 -25 %), Fuel price control, tax reduction, credits High supply of domestic raw materials Japan Reduce oil dependency, improve efficiency EVs and Fuel Cell R&D programmes on batteries and HFVs Incentives for FCVs and infrastructure development Need for compact solutions USA Lower emission levels All, except LPG Loans for EV development, pilot projects for next generation EVs PHEV tax credit, rebates for ZEVs Technological comparative advantage Iran Decrease dependency on oil (sanctions) Natural gas Ban imports on natural gas vehicle technologies Price of natural gas significantly below that of gasoline Availability of domestic resource Iran commenced natural gas fuel for transportation in 2000 and developed the industry with phenomenal speed. From nothing, the natural gas vehicle population grew to more than 3 million by end 2012 and Khaki reports the national fleet has now exceeded 3.5 million. 3

International best practices for promoting the development of alternative fuels infrastructure Cross-analysis of different alternative fuel technologies and technological scope of study 1 Certain alternative technologies may compete with each other. Support schemes often target to mitigate GHG emissions and therefore are technology neutral, further suggesting that competition across alternative technologies will be prevalent. E-mobility offers significant potential in terms of its climate change mitigation potential Large opportunity for European industry Shows strong coherence with European mobility requirements and infrastructure Natural gas is promoted to be used on the road and in the shipping sector The benefit for emission reduction remains low In the short-term it is the only cost-effective solution for the transportation sector Biofuels are 100% compatible with the current transport paradigm Biofuel feedstocks are grown in the Danube region in large quantities However, the EU-wide support of liquid first generation biofuels is questionable especially after 2020 Hydrogen is still rather a long-term option There is not a satisfactory amount of business cases for hydrogen vehicles Strong financial commitment is required 4

Challenges for e-mobility: Variances in emission intensities of electricity generation The ’climate competitiveness’ of e-mobility differs greatly across the region. Countries that have a large share of imports or coal fired generation in their portfolio have excessive carbon emissions per MJ. Based on our initial results, the well-to-wheel emissions of e-mobility of some countries are inferior to conventional gasoline and diesel. 5

Challenges for CNG: Lack of gas infrastructure in certain countries and the likely direction of alternative transport policy CNG is performing well on both „sides” of the region, lacking infrastructure in the middle As a result, it could be a promising fuel for the region, from the perspective of interoperability One of the challenges is the lack of gas infrastructure in some countries, which can be overcome by SSLNG Also, many countries in the region seem to be committed to e-mobility, large scale investment into CNG could be questionable 6

Initial recommendations From a climate policy perspective, e-mobility is superior to all technologies in almost all Danube region countries 1 However, the age structure of the vehicles in Eastern-European and non-EU member Danube region states suggests that alternative fuels are a long way 2 Depending on the objectives, various scenarios could be envisaged, how cooperation should unfold If the goal is interoperability, then e-mobility infrastructure should be promoted, though the generation portfolio is not always appropriate A If climate policy objectives are the priority, then even first generation liquid biofuels are on the table for non-EU Danube Region states. B If costs and climate policy objectives are equally important, then CNG should be developed, however, some countries lack gas infrastructure. C Regardless of objectives, the LNG sector should be developed as there are not other alternatives in freight transport, both on road and water. D 7

Distance from LNG truck loading terminals capable of truck loading With the current infrastructure in place, it is indeed the Danube Region that is the most inaccessible (or expensive) to transport LNG to be used in long-haul goods transport

Distance from LNG truck loading terminals capable of truck loading – with planned truck loading facilities With the Krk terminal, a large part of the Danube region enjoys favourable transport costs Considering the planned annual deliveries (2 bcm), only the to be built road SSLNG infrastructure in HU, HR, SI would present a 0,9% demand increase Most importantly though, this demand would translate to EUR 300,000 additional income only through truck loading (500 EUR/loading)

Thank you for your attention! Szabolcs Vágvölgyi vagvolgyi@szazadveg.hu