Exploring policy options to stimulate bio LNG in the Netherlands

Abstract

In the Netherlands the Socio-Economic Council (SER) has signed an Energy Agreement where Dutch parties have laid out a basis for a broadly supported, robust and future proof energy and climate policy. In the joint vision on the future energy mix, LNG and bio LNG are being referred to as important opportunities for the Dutch economy to sustain heavy road transport fuels. A transition from diesel to LNG and bio LNG is capital intensive, because gas trucks are more expensive and there is no infrastructure or bio LNG production capacity yet. If the Netherlands wants to cut heavy road transport emissions, policies have to be developed to stimulate alternative clean fuels. The question arises what the effects of a transition to bio LNG will be for the Dutch economy and society. This thesis is going to answer the following main research question: Which policies and regulations can be used to stimulate bio LNG and what is the value of SCBA in providing more insight in the effects of these policies? The research question is answered by using several methods, firstly a literature review is conducted on current support schemes and regulations towards bio LNG on a national and European level. The next step is to conduct interviews with actors currently involved in (bio) LNG. Meetings of The National Working Group bio LNG in combination with conferences and project visits are used to compose a view on current and possible future measures to stimulate bio LNG. Now the context is well established, the building of a SCBA model can begin. The first step is to compose a “business as usual” (BAU) case. The next step is to define the possible policy alternatives to stimulate bio LNG. The alternatives are composed by combining measures found in the previous phase. The number of trucks of different alternatives are based on sources found in literature. The alternatives go into the SCBA model and effects are calculated. The net present value of the effects is determined by the model and alternatives will be compared to the BAU case. The use of the method SCBA in spatial-infrastructure projects to support ex ante go or no go decisions is well established. In this research the SCBA will be used to explore effects of policy alternatives in a very early stage of policy development. The SER proposed a future energy mix, but how to get there (measures) is not clear yet. The transition to alternative, currently not used fuels inherently imposes more uncertainties to the SCBA than in a more traditional SCBA practice. In this research the introduction of bio LNG is used to elaborate on the value of SCBA in exploring highly uncertain environmental policies. From literature and interviews four measures to stimulate bio LNG are identified: • Fuel tax increase or decrease • Regulations on minimal amount bio LNG blending in LNG for transport • Subsidize mitigated CO2 emissions in transport • Virtually green bio LNG through certificates These measures are combined in four policy alternatives; Gas, FQD, Diesel Tax and CO2 subsidize alternative. The alternatives result in certain shares of (bio) LNG trucks, based on sector forecasts and assumptions. The figure below shows how the effects of the policy alternatives is calculated using the SCBA. The timeframe is according to the SER Energy Agreement set to 2050. After the calculation and discounting, all effects are grouped to get more insight in the distribution of the effects for different actors. Calculating and adding all the effects results in the numbers presented in the table below. Alternative Net Present Value BLN € BAU (reference) 0 Gas 1,4 FQD 0,8 Diesel tax 1,5 CO2 tax reduction 0,4 The model outcomes show that all alternatives score better than the BAU reference, this is mainly caused by the forecasted growing gap between the diesel and LNG fuel prices. LNG and bio LNG shares are strongly connected. The positive external effects of the policy alternatives increase relatively to the number of LNG and mainly bio LNG trucks. The Gas alternative scores high on macro-economic effects, but has the lowest governmental revenue. The figure below shows how the effects are distributed over transporters, the fuel market, government revenue and external effects. From a governmental point of view the “Diesel tax” alternative seems interesting, but this alternative will increase costs for transporters. The by the sector proposed “Gas” alternative brings the least tax revenues for the government. This is mainly caused by a high number of LNG trucks and lower LNG tax than diesel tax. The transport sector faces the lowest costs in the Gas alternative. Figure 20The effects for the “fuel market” are not significant, this can be explained by the way the CBA model is built, in the input variable fuel price profit margins are included. The SCBA method forces the researcher to value all effects and make them comparable. Detailed information about effects is crucial to perform calculations. In this research an “Effect data sheet of different fuels” of a consortium of research institutes is used as input data. Even though detailed information was available, a lot of assumptions have been made to reach the outcomes. The field of bio LNG is in a pilot plant stage, surrounded by many uncertainties. Communication about the uncertain outcomes is important to value the SCBA in the decision process. This SCBA is executed in an ex ante policy development stage, not as a decision support tool (go or no go). The method is used for systematic data gathering and comparison of effects. SCBA increases the insight in the usefulness and feasibility of policy alternatives to stimulate bio LNG. This prevents policies that have a negative effect on the welfare to be developed. SCBA can result in a better understanding of the different effects of policy alternatives for policy makers. Decisions can be made on the basis of a better understanding of all the societal aspects of policy measures. The SCBA gives insight in the distribution and order of magnitude of different effects. The method exposes the real trade-offs. The distribution shows where problems can occur when policy alternatives are implemented. SCBA enhances discussions in the early stage of exploring policy alternatives by providing objective and independent information. The SCBA is used in an undeveloped area of a possible transition to bio LNG where policy alternatives are not developed yet. This setting revealed some weaknesses of the SCBA method. The quality and bandwidth of input data is uncertain. Some variables are more certain than others, so there is a data asymmetry. Accumulation of assumptions and shortcuts can lead to biased results. The presentation of the outcomes is difficult, a generalized table only shows aggregated information. Practically this SCBA is the first to examine the effects of a transition of heavy road transport to (bio) LNG. The outcomes of this research approves further development of (bio) LNG according to the SER fuel mix suggestions. If the policy measures are more crystalized out and the actual production of bio LNG is starting up the advice is to perform a more detailed SCBA in combination with a transport model to support final go or no go decisions about bio LNG stimulation.