1. Can changes in refinery production defeat GHG emissions “savings” from biofuels policies?1
W. Michael Griffin
Engineering and Public Policy
CEDM Annual Meeting
May 24, 2017
1Posen, I. D.; Plevin, R. J.; Azevedo, I. L.; Jaramillo P.; Griffin, W. M., Flexibility in Petroleum Product Mix Undermines Greenhouse Gas Benefits from Biofuel Policies. In Prep.

2. The Question
How do biofuel policies influence the product mix from the petroleum industry, and what are the resulting GHG implications if this occurs?

3. Why do we care?
EPA’s RIA of the RFS2 says “corn ethanol has 21% less emissions than gasoline.”
Although legislatively required, it’s a false comparison. It implicitly assumes 1gge of EtOH always displaces 1gal of gasoline.
Any additional GHG impacts (excluded at this point) would disqualify corn ethanol from the RFS.
This in my view is a false comparison. It assumes that the metric is 1 gge of Ethanol will displace a gallon of gasoline

4. The 1:1 displacement means that nothing changes except:
Basis is a 42 gallon barrel
Numbers represent gals of the barrel produced in the US in 2016
Gasoline – 45%
Distillates – 31%
Other – 24%
This is assumed to be constant. Small changes can lead to large energy use changes and overall carbon intensities of the fuels and other products. Most of the time its doesn’t matter.
A decrease here

5. Refineries are beautiful for a “pipe junky” like me!
Refineries are very flexible. There summer/winter gasoline; Home heating oil for winter.

6. Large flexibility in the petroleum industry (historic data)
Gasoline Yield (%)
Distillate Yield (%)
Other Yield (%)
There are configurations where the yields can each range from below 10% to around 50%
Country year (base year for the model)
Circles represent country-year data

7. Refiners do have levers to pull in response to the market:
Refineries profit maximize and produce an optimal product mix depending on market conditions and predictions:
Blend different crude oils
Not use a unit operation (I only know this happening as an emergency response)
The refinery can be reconfigure totally (but this is long term)
Change “cut” throughput (change the temperature on the distillation tower)
Mix the final products differently (gasoline and diesel are defined by ASTM specs)
Distillation oil comes in a about 400C

8. Why do we care? (2)
Some market responses of biofuel use have been considered:
iLUC (included in CA-LCFS, EPA’s RIA)
Others are known but not considered policy-wise, like iFUE (Rajagopal 2013),
And to this point, the iFUE analyses the oil industry is assumed static.
This in my view is a false comparison. It assumes that the metric is 1 gge of Ethanol will displace a gallon of gasoline

9. Regression Analysis of EIA data Partial Equilibrium Model
What we did
Regression Analysis of EIA data
Elasticity of gasoline and diesel yields
Shifts within other products yields
Relative yields wrt to gasoline and distillate prices
Partial Equilibrium Model
Predict Product Slate for each policy evaluated
2 Case [US and Global flexible refinery]
System GHG emissions
Life Cycle System Emissions factors

10. Petroleum product mix change (PPMC)
Policy induced emissions decrease
Policy induced emissions increase
Share mandate
(15%)
Legend
Max
Min
25%
Median
75%
Flexible refinery yields
Fixed refinery yields
Red vs Green (50% share, 25% for emissions)
Carbon tax vs all else
SCALE
Emission Standard
(10%)
Carbon
Tax
($20/tonne)
No Policy
Change in Global GHG Emissions (Mt CO2e per year)

11. Market mediated effects overturn greenhouse gas benefits from biofuel policies
Why with the emissions standard do you get muck lower mandate (simply fuel use?) but a far higher emissions
Even if biofuels were carbon neutral (zero emissions) the result would still be positve.
US 50% for share and

12. Conclusions Results Refiners increase diesel production
You dump biofuels into the market to displace gasoline
Refiners increase diesel production
Increase refining emissions
Heavier oil use/ Complex refineries (70%)
Increasing yield comes from originally non-combusted products (30%)
Any policies that apply equally across petroleum products are less vulnerable to this effect
Policies that induce a price wedge between producers and consumers (e.g. carbon tax) are more likely to result in emission reductions
Consumers and producers don’t see the same price (consumer pays more that the refiners see).

13. A caution
These results, while compelling, should only be taken as an indication of the potential impact of refinery flexibility on the success of different fuel policies.

15. Refiner flexibility increases GHG emissions from biofuel policies: U.S. only

16. Responsiveness of the refining sector to product prices: regression model
Elasticity with respect to distillate price
Gasoline yield
log⁡(𝛽 𝑔 )= 𝑎 0 + 𝑎 1 ∗ log 𝑝 𝑔 + 𝑎 2 ∗ log 𝑝 𝑑 + 𝑎 3 ∗𝑡+ 𝑎 4 ∗𝑀
log⁡(𝛽 𝑑 )= 𝑏 0 + 𝑏 1 ∗ log 𝑝 𝑔 + 𝑏 2 ∗ log 𝑝 𝑑 + 𝑏 3 ∗𝑡+ 𝑏 4 ∗𝑀
Distillate yield
Gasoline price
Time trend and month dummies
Distillate price
Elasticity with respect to gasoline price

17. How do other products respond to gasoline and distillate yields?

18. Responsiveness of the refining sector to product prices: results
Distillate yield
Gasoline yield
Model
Elasticity with respect to distillate price
Elasticity with respect to gasoline price
Lagged prices
(3 lags)
0.401***
(0.0315)
-0.341***
(0.0230)
-0.218***
(0.0178)
0.170***
(0.0130)
Partial adjustment
0.485***
(0.0614)
-0.404***
(0.0471)
-0.243***
(0.0305)
0.201***
(0.0233)
Adaptive Expectations
0.459***
(0.0403)
-0.410***
(0.0344)
-0.222***
(0.0185)
0.179***
(0.0143)
Lagged prices AR(1)
0.420***
(0.0561)
-0.345***
(0.0438)
-0.229***
(0.0307)
0.176***
(0.0236)
Partial adjustment AR(1)
0.500***
(0.0649)
-0.418***
(0.0504)
-0.245***
(0.0316)
0.203***
(0.0246)
Adaptive Expectations AR(1)
0.467***
(0.0647)
-0.387***
(0.0514)
-0.226***
(0.0319)
0.192***
(0.0255)
SKIP? ≈
≈ –0.4
≈ –0.2
≈ 0.2
***p<0.001

19. Biofuel policies induce non-trivial yield changes
Globally flexible yields

20. Biofuel policies induce non-trivial price changes