Renewable transport fuels and innovation policy Presentation for IPPR workshop: driving innovation and long term investment in low carbon vehicles Robert Gross and Ausilio Bauen, Imperial College London 14 April 2003

Overview RTF report – brief overview and some conclusions Work on innovation systems – ditto Implications for fiscal and other policy measures to support low carbon vehicles

DTI funded project: Technology Status and Carbon Abatement Potential of Renewable Transport Fuels Page no./ref status and potential evolution of world markets for renewable transport fuels (RTFs). Identify and define key RTF chains. potential for renewable energy for transport fuel in the UK. status, prospects and characteristics of key production and processing technologies, fuel logistics and end-uses. Provide detailed economic and carbon analysis of key RTF chains. Discuss RTF markets, carbon abatement potentials and the influence of policy and regulatory measures. © Imperial College London

Alternative vehicles and fuels debate Page no./ref© Imperial College London ACEA voluntary target to reduce average CO2 emissions from new vehicles by 25% to 140gCO2/km by 2008 Advanced IC engine vehicles on petrol and diesel should be able to reach about 110gCO2/km advanced IC hybrid engines on petrol and diesel could reduce emissions to about 90gCO2/km Fuel cell vehicles fuelled with natural gas-derived hydrogen could provide some further improvement ….. Significant reductions in CO2 emissions can only be achieved through renewable transport fuels

Options Page no./ref© Imperial College London Biodiesel from oil crops and bioethanol from sugar and starch crops: the only commercially available biofuels Bioethanol and Fischer-Tropsh (FT) biodiesel from lignocellulosic biomass Renewable hydrogen from electrolysis using renewable electricity and from biomass gasification are attracting increasing interest Other renewable transport fuels such as biomethanol, DME, biomethane and direct use of renewable electricity attract limited interest.

Costs Page no./ref© Imperial College London

GHG emissions Page no./ref© Imperial College London

Conclusions Page no./ref© Imperial College London The UK renewable resource base could contribute a substantial amount of transport fuels (40-80%?) State-of-the-art commercial biodiesel and bioethanol chains can reduce emissions. But, low environmental benefits, and a limited potential for fossil fuel substitution They could be complemented or displaced in the medium term by FT biodiesel and ethanol from lignocellulose lower costs, greater CO2 reductions, and larger markets. could provide a low carbon option that would co-exist with petrol and diesel… while a gradual transition to hydrogen fuel cell vehicles happens (from biomass or by electrolysis, zero carbon but unlikely before 2020)

ICCEPT work on innovation Report on innovation and environment (2001) Work for PIU Resource Productivity report New ESRC project on policy instruments Current DTI study on innovation system for renewables Context is long history of work in the area, and greater attention to it on the continent…. Early work: –Freeman - UK/Japan (1987), Lundvall - Denmark (1992), Nelson - US (1993) OECD ( ): –empirical, analytic and policy work across 24 countries

Interactive model of innovation process market transactions and knowledge flows among firms, institutions and human resources in innovation system

Key theoretical ideas Systemic interactions between many players Uncertainty and bounded rationality –Learning-by-doing, learning-by-using Importance of knowledge and skills –Role of expectations Institutional set up matters –market rules, policy and regulatory incentives and barriers

General thoughts on innovation policy UK environmental policy ignores innovation, whilst innovation policy ignores the environment. –This is being remedied but… Innovation support means more than just R&D plus market pull that only acts on near commercial options A whole chain approach is needed… –R&D, early demonstrations, niche markets for learning by doing, pre-commercial incentives, regulatory framework that gives new commercial options a fair go –Includes expectations and long term strategy (the picking winners problem…)

Pulling it all together: innovation policy for RTF and vehicles 3 aspects: vehicles, fuel sources, infrastructure Fiscal measures can only act directly on state-of-the-art commercial biodiesel and bioethanol chains (not great) Medium term fuels are better; FT diesel and lignocellusic ethanol –Costs are above the places where simple fuel tax breaks can reach, & further technology development needed –Do not need infrastructural change, but do need learning by doing – role for niche markets, and hence regulation?

Policy for vehicle improvement at the same time, these biofuels do not need step change to new infrastructure –Fiscal measures yes (but vehicle excise, not just fuels) –Role of regulation, VAs and targets – to level up (ACEA) and raise the game (ZEV) Longer term, hydrogen still the best bet –Infrastructural change suggests role for experiments based on depot fuelled fleets –These should be increasingly large in scale and scope –Also, regulatory standards, work on perceptions and continued R&D –Can we set expectations and avoid picking winners?