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.
The Question
• How do biofuel policies influence the
product mix from the petroleum
industry, and what are the resulting
GHG implications if this occurs?
2
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.
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%
https://www.eia.gov/energyexplained/index.cfm/%20data/index.cfm?page=oil_home
Refineries are
beautiful for a
“pipe junky”
like me!
Large flexibility in the petroleum
industry (historic data)
There are configurations where the yields
can each range from below 10% to around
50%
Other Yield (%)
Circles represent country-year data
6
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
7
are defined by ASTM specs)
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.
What we did
• Elasticity of gasoline and diesel yields
Regression Analysis of EIA data • Shifts within other products yields
• Relative yields wrt to gasoline and
distillate prices
Partial Equilibrium Model
System GHG emissions
9
• Predict Product Slate for each policy
evaluated
• 2 Case [US and Global flexible refinery]
• Life Cycle System Emissions
factors
Petroleum product mix change (PPMC)
Policy induced
emissions decrease
Policy induced
emissions increase
Share
mandate
(15%)
Legend
Fixed refinery yields
Emission
Standard
(10%)
Flexible refinery yields
Min
Carbon
Tax
($20/tonne
)
No Policy
Change in Global GHG Emissions (Mt CO2e per year)
10
25%
75%
Media
n
Max
Market mediated effects overturn
greenhouse gas benefits from biofuel
policies
11
Conclusions
• Results
– 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 noncombusted 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
12
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.
13
14
Refiner flexibility increases GHG
emissions from biofuel policies: U.S. only
15
Responsiveness of the refining sector to
product prices: regression model
Gasoline
yield
Elasticity with
respect to
distillate price
log(𝛽𝑔 ) = 𝑎0 + 𝑎1 ∗ log 𝑝𝑔 + 𝑎2 ∗ log 𝑝𝑑 + 𝑎3 ∗ 𝑡 + 𝑎4 ∗ 𝑀
log(𝛽𝑑 ) = 𝑏0 + 𝑏1 ∗ log 𝑝𝑔 + 𝑏2 ∗ log 𝑝𝑑 + 𝑏3 ∗ 𝑡 + 𝑏4 ∗ 𝑀
Distillate
Gasoline
yield
price
Elasticity with
respect to
gasoline price
Distillate
price
Time trend
and month
dummies
16
How do other products respond to
gasoline and distillate yields?
Dependent variable
Jet fuel (%)
Petroleum coke (%)
Still gas (%)
Residual fuel oil (%)
Liquefied refinery gases (%)
Asphalt (%)
Petrochemical Naphtha (%)
Petrochemical oils (%)
Lubricants (%)
Special Naphthas (%)
Kerosene (%)
Aviation gasoline (%)
Waxes (%)
Miscellaneous (%)
SUM
Gasoline (%)
-0.028
+0.045
-0.041
-0.063
-0.75
-0.15
+0.015
-0.047
-0.020
-0.0027
+0.052
-0.0066
-0.010
+0.0049
-1
Distillate (%)
-0.086
+0.12
-0.034
-0.29
-0.31
-0.20
-0.0049
-0.13
-0.024
-0.020
-0.030
-0.01
-0.014
+0.027
-1
17
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)
Partial
adjustment
AR(1)
Adaptive
Expectations
AR(1)
***p<0.001
Elasticity with
Elasticity with
respect to distillate respect to gasoline
price
price
≈ 0.4-0.5
0.420***
≈-0.345***
–0.4
≈-0.229***
–0.2
≈
0.2
0.176***
(0.0561)
(0.0438)
(0.0307)
(0.0236)
0.500***
(0.0649)
-0.418***
(0.0504)
-0.245***
(0.0316)
0.203***
(0.0246)
0.467***
(0.0647)
-0.387***
(0.0514)
-0.226***
(0.0319)
0.192***
(0.0255)
18
Biofuel policies induce non-trivial yield
changes
19
Biofuel policies induce non-trivial
price changes
20