Alternative Fuels and the Public Good: Trends, Options, and Strategies

Hal Harvey, The Hewlett Foundation, Palo Alto, U.S.A. Katherine Blumberg, University of California, Berkeley, U.S.A.

Abstract
Among the principal customers energy companies must please are the public officials charged with protecting the public health and the environment. The traditional dynamic between fuels companies and regulators has been characterized by incremental clean-up of traditional fuels, often in adversarial processes that drag on for years. This approach can sacrifice whole-system optimization, produce sub-optimal results, and generate unnecessary costs. One example is the near-universal dichotomy between air quality and fuel efficiency regulations, making them often at odds with one another even within national jurisdictions. Whole-system, life-cycle analysis could produce a very different technology path. Todays requirements of near-zero pollution together with drastic reductions in CO2 emissions make a host of other fuels look attractive. Some of the most efficient, clean technologies, such as near-zero emission hybrids and fuel cells, want similarly clean fuels, with hydrogen as the ideal end-point. At the same time, petroleum politics are causing many countries to look to natural gas as a feedstock for the transportation sector. This paper will discuss the fuel requirements of the public as customer, and look at clean, available alternative fuel technologies, especially gas-to-liquids, in this light.

Introduction
Oil and energy companies operate in a context driven first and foremost by market competition, but their other principal context is that of government regulation. Government agencies charged with protecting the public good set standards for drilling, transporting, refining, and the ultimate distribution and use of energy. There are few aspects of the petroleum business that are not profoundly shaped by governmental regulations. In defense of the public interest, government regulations have required unleaded fuels and tighter restrictions on vehicle emissions. At the same time, government regulations and programs are shaped by politics, which often support national or highly local goals, including for example price-supports for petroleum aimed at protecting the local producer. Energy company executives must try to divine the political forces of dozens of key governments as they build their business strategies. A march toward more stringent air pollution standards will force changes in fuel specifications. Increased pressure to reduce greenhouse gases will force process and feedstock changes. National security and price volatility concerns will continue to drive the promotion of alternatives to petroleum-based fuels. These and other concerns will strongly influence patterns of investment, choices of feedstock, refinery design, and indeed set the business course for entire companies. This paper explores the public interest in fuels, trends in regulations, and how these trends will affect fuel choice. It will focus on alternative gas-to-liquids (GTL) fuels, especially the natural gas-based Fischer-Tropsch diesel. It will review analysis of the potential contribution of GTL fuels to environmental amenity and will discuss the likely regulatory structures alternative fuels will face.

Public Interest in Fuels

Motor vehicle production has grown dramatically over the past several decades, from 5 million annually just after the Second World War to nearly 55 million today. Continued strong growth is expected, especially in rapidly industrializing countries, as a result of rising worldwide population and gross domestic product.

Numbers of passenger cars are growing five times more rapidly in developing countries, where emissions controls have not been as stringent. Assuming the same population growth modeled by the United Nations and continued exponential increase in vehicle numbers, numbers of passenger cars in the developing world will surpass the developed world by 2020 (World Bank, 1999; UN, 1999). Even with increasing emissions controls, global emissions of all pollutants from on-road vehicles are in danger of increasing substantially as total numbers of vehicles grow. Vehicle sources have been a primary target as industrialized countries have struggled to combat urban air pollution over the past several decades. Stricter regulations and the use of new technologies to control vehicle emissions have reduced emissions per distance traveled. Despite these efforts, motor vehicle emissions continue to be the largest single source of air pollution in the United States and other industrialized countries. Vehicle emissions are of great concern to governments as they strive to protect public health and welfare. Mobile source emissions have both global and local impacts. There is increasing recognition of the local health impacts associated with urban vehicle emissions. In addition, the transportation sector is responsible for approximately 26 percent of global carbon emissions, the primary greenhouse gas responsible for global warming.

Human Health Concerns

There has been a significant advance in the epidemiology of health impacts of air pollution from auto and truck exhaust in recent years. The harmful effects of conventional pollutants from motor vehicleshydrocarbons, oxides of nitrogen, carbon monoxide, and particulateson human health and ecosystems are well documented, and scientific evidence continues to grow. Evidence of the serious health impacts of toxic air emissions from motor vehicles also is increasingly compelling. A recent study in the medical journal, The Lancet, found that in Austria, France, and Switzerland, vehicle pollution is responsible for some three percent of all deathsor about 30,000 per year (the same total of annual deaths as from traffic accidents). Health costs from vehicular pollution are some 1.7 percent of GDP (Lancet, 2001). Air pollution in these countries, roughly half of which comes from vehicles, causes over 25,000 new cases of chronic bronchitis, 800,000 episodes of asthma and bronchitis, and 16 million lost person days of activity per year. Because of this pollution, people in cities die about 18 months earlier than they otherwise would. Vehicle pollution is distinguished from other sources of pollution in that the emissions are released in close proximity to the exposed population. For example, emissions from vehicles are 300 times more effective in contributing to human exposure than from a 200 meter high smokestack (Colvile et al., 2001). In the United States, mobile sources are responsible for around 50 percent of total air pollution, including 80 percent of carbon monoxide (CO), half of the nitrogen oxides (NOX), 80 percent of the known human carcinogen benzene, and significant levels of other toxic contaminants and carcinogens (EPA, 2000a). Almost all of these emissions result from the burning of petroleum, which accounts for 97

percent of transportation energy use. The transportation sector accounts for approximately 66 percent of total petroleum use in the U.S (Wang and Huang, 1999). In a recent study to determine the economic costs and benefits associated with new heavy duty vehicle and diesel regulations, the U.S. Environmental Protection Agency (EPA) found that the new emissions limits would result in over $70 billion in annual benefits, primarily resulting from reducing premature mortality. The costs of reducing CO, NOX, sulfur dioxide (SO2), hydrocarbons (HC), and direct diesel particulate matter (PM) emissions were less than 1/20th of the total benefits (EPA, 2000b). In fact it appears that the avoided environmental damage costs would exceed even the total consumer expenditures for diesel fuel, which were approximately $40 billion in 1997. A study to determine the benefits of meeting new U.S. air quality standards for fine PM estimated the annual benefit to be $14 to $55 billion (Ostro and Chestnut, 1998). Even stricter standards appeared to substantially increase the total benefit. U.S. EPA considers inhaled diesel exhaust to be a likely human carcinogen, and diesel PM has been linked with lung cancer. There are also growing concerns regarding noncancer health effects of diesel exhaust. Over 90 percent of PM found in diesel exhaust is less than 1 m in diameter: these ultrafine particles penetrate deep into the lungs, causing more damage than larger particles. Fine particulate matter has been associated with chronic bronchitis, cardiovascular and pulmonary diseases, and asthma (Lloyd and Cackette, 2001).

Environmental Concerns
Regulations for control of vehicle emissions were initially driven by urban air quality concerns. Photochemical smog, first identified in Los Angeles, is caused by the interaction of sunlight with NOX and hydrocarbons. Aside from reducing visibility, photochemical smog contains many ingredients that harm human health and the environment. Ground level ozone, a major ingredient in photochemical smog, causes damage to crops and forests downwind of the precursor emissions. Acid deposition, caused primarily by SOX and NOX emissions, tends to have a wide regional impact. Acid deposition can do irreversible damage to susceptible lakes and forests, killing the plants and animals that live there. Crops, materials and buildings are also harmed by acid deposition. NOX emissions can also contribute to nitrification, over-fertilization of estuaries and wetlands. The nations of the world have banded together to address global warming through the Kyoto Protocol. Global warming is caused by greenhouse gas accumulation in the atmosphere. In the U.S., the transportation sector is currently responsible for over one quarter of CO2 emissions, the primary greenhouse gas. Mobile sources are also responsible for 15 percent of U.S. emissions of nitrous oxide (N2O), a powerful greenhouse gas. Although poorly understood, it appears that N2O is formed by pollution control devices such as catalytic converters. While in general global warming and air pollution goals coincide, N2O highlights the tradeoffs that continue to be made.

Trends in Regulation
The European Union, the U.S. and other industrialized countries have struggled to keep pace with increasing vehicle numbers through stricter controls on emissions. Emissions have been continually ratcheted down for conventional pollutants, such as PM, NOX, CO, and HC, approaching a goal of zero emissions. Figures 3 and 4 demonstrate the trend towards stricter emissions standards for heavy

duty diesel vehicles in the U.S. and European Union. In the past, regulations have focused primarily on light duty and passenger vehicles, allowing heavy duty and equipment applications to meet less stringent requirements. Recent regulations in the U.S., Europe and Japan have demonstrated that heavy duty diesel vehicles also face increasingly strict emissions requirements, approaching zero emissions, and control requirements are beginning to be extended to off-road engines as well. Initially catalytic converters in gasoline vehicles and engine improvements in diesel vehicles provided the primary emissions controls. Increasingly control technology and further emissions reductions, especially in diesel engines, are limited by impurities in fuels, resulting in current regulations focusing on cleaner fuels. California has taken the lead in the U.S., requiring gas sold in the state to meet stricter refinery standards. Cleaner diesel fuels have lagged behind gasoline but new standards, already underway in California, will be required throughout the U.S. beginning in 2006. The German government plans to push for earlier implementation and even stricter limits for sulfur than the new European Auto Oil II diesel standards set for 2005. Sulfur is one of the primary targets of new standards. Reducing sulfur content in diesel fuels contributes directly to the reduction of SOX and PM emissions but also indirectly to the reduction of NOX, CO and HC emissions. To operate effectively, new high-efficiency after-treatment devices for NOX and PM require fuels with sulfur contents of less than 15 ppm, possibly as low as 5 ppm (Lloyd and Cackette, 2001). Diesel engines use only 70 percent of the fuel that a comparable gasoline engine consumes. In response initially to oil price spikes and then to growing concern about climate change, diesel has gained popularity in Europe. At the same time, poor performance in early models, lower gasoline prices, and concern regarding human health impacts has caused a decline in diesel passenger cars in the United States. Tier 2 standards, the new regulatory emissions standards in the U.S., Chart 1. U.S. Passenger Vehicle & Fuel Standards will force diesel manufacturers to reduce the Tier 2 Standards Gasoline Diesel tradeoff between global warming and human NOX Standard 0.07 g/m 0.20 g/m health by reducing the emissions of PM Standard n/a 0.02 g/m conventional pollutants, but these Sulfur 30 ppm 15 ppm regulations continue to allow higher particulate and NOX emissions than standards for gasoline cars. While CO2 emissions continue to be unregulated, nations party to the Kyoto Protocol will be required to make substantial reductions in CO2 emissions. Greater fuel efficiency, alternative fuels and new vehicle technologies are all cost-effective measures for reducing greenhouse gas emissions and mobile sources are expected to be a primary target for emissions controls. In fact, mobile source controls appear to be one of the most cost-effective means of CO2 mitigation, with potentially negative costs, less than or equal to predicted costs of sequestration of CO2 from a U.S. coal-burning power plant (Borgwardt, 1998). The U.S. has not agreed to participate in the Kyoto Protocol but is responsible for around 25 percent of the worlds CO2 emissions and is under increasing pressure to reduce GHG emissions. Although environmental objectives were considered secondary to the primary goal of reducing U.S. reliance on imported oil and vulnerability to price shocks, the Energy Policy Act (EPACT) of 1992 established the goal of 30 percent displacement of petroleum by 2010, which has the potential to dramatically reduce emissions of all sorts.

GTL Technologies
Several recent studies have evaluated the potential for alternative fuels to meet the multiple policy goals that come to play: reducing greenhouse gas (GHG) emissions; protecting human health; increasing air quality; and achieving greater diversity in fuels and sources. There are many promising fuels and technologies, such as hydrogen gas powered fuel cells, that have the potential to dramatically reduce the environmental impacts of transportation in the future. However, in order to do so, many of these alternatives require a major commitment to refueling and vehicle infrastructure changes.

Current gas-to-liquids (GTL) technology could begin to meet many of the stated policy goals now, without necessitating drastic infrastructure changes and turnover in vehicle stock. Natural gas is abundant and offers both environmental and energy advantages, leading to its promotion as an alternative to traditional petroleum based transportation fuels. The low price of petroleum and the extensive infrastructure in place to support it leads to difficult entry for alternative fuels. Requiring infrastructure investment only in natural gas extraction and processing, GTL technology can be used to transform low value natural gas in remote regions to high value, high quality transportation fuels for immediate use. As hybrid technologies develop and are optimized for GTL fuels, even greater emissions and carbon reductions will result. In addition, GTL fuel production will provide invaluable industrial experience with syngas, leading the way towards an even cleaner hydrogen future. The following discussion focuses on natural gas-based GTL fuels that can provide immediate emissions benefits with the vehicle stock and end-use infrastructure in place and will provide even greater benefits as new vehicle technologies gain market share. Methanol, Dimethyl Ether (DME) and Fischer-Tropsch Diesel (FTD) are all liquid fuels produced from synthesis gas (syngas). A variety of feedstocks can be used to produce syngas, including coal and biomass, but natural gas is currently the most economically viable option. The focus for GTL technology has been on stranded gas, remote gas reserves that can not currently be economically exploited due to the extensive infrastructure required for natural gas transportation (Wilhelm et al, 2001). Methanol is used in the production of a variety of products, including paints, refrigerants, plastics, and methyl tertiary butyl ether (MTBE) a reformulated gasoline additive. There are serious toxicity concerns associated with methanol; it is lethal in humans at non-detectable low doses of 2-6 teaspoons (McNicol et al., 2001). In the U.S. MTBE use has declined due to water contamination concerns (Lloyd and Cackette, 2001). Direct methanol use in alternative fuel fleets has also declined since the early 1990s, due primarily to durability and maintenance issues. As a result, no U.S. manufacturer currently produces heavy-duty methanol-fueled engines as an alternative to diesel products (Lloyd and Cackette, 2001). Mature technologies exist for production of methanol, with process efficiencies ranging from 62-72 percent, and there is a declining yet significant production capacity in place. Although easily transported, methanol would require new refueling infrastructure, which would increase in cost with increased use, eventually becoming more costly than hydrogen infrastructure due to lower efficiencies. While on-board reformers appear to cancel much of the advantages associated with fuel cells, current research on methanol as an alternative fuel tends to focus on use as an on-board reformer feedstock for fuel cell vehicles (McNicol et al., 2001). DME production is a more recent technology and use of DME as a transportation fuel is relatively untested. It has high cetane ratings, around 60, compared to diesel ratings in the low to mid 50s, which suggests that it can be readily used in diesel engines, with higher thermal efficiencies and thus better fuel economy than petroleum-based diesel (Lloyd and Cackette, 2001). Initial studies suggest that DME use could result in substantial emissions reductions. DME is currently produced primarily from a two-step process, which includes initial production of methanol. A recently developed singlestep production process results in efficiencies as high as 70 percent, significantly improving the economics of large-scale DME plants (Wang and Huang, 1999). DME has additional advantages in developing countries where it could be easily substituted for liquid petroleum gas, using the infrastructure in place, as a clean cooking and emerging transportation fuel. Because FTD is a more mature, well-tested and easily integrated GTL fuel it will provide the primary focus for this analysis. The Fischer-Tropsch process provides a very clean-burning fuel that can be substituted for use in current diesel engines. FTD production involves a three-step production with overall efficiencies of 55 to 66 percent, depending on process choices (Wang and Huang, 1999). The lower efficiency Fischer-Tropsch process generates steam that can be used to displace energy uses in nearby industrial processes or to generate electricity for export. There is also a net production of water from the final processing step that is suitable for crop irrigation. Even in remote regions, there is a potential market for both water and electricity, which are easier to export and, as byproducts, do not require premium prices. The Fischer-Tropsch process for the synthesis of petroleum using metal catalysts at low pressure was patented in 1926 (CARB, 2000). It was used widely in Germany during the Second World War and in South Africa during the 1980s. FTD is currently being produced by Sasol Ltd. and Shell International

Oil Products; three other companies also have the technology to do so. FTD is produced in three steps: production of syngas, syngas conversion, and hydroprocessing or upgrading to middle distillates. In the first step, the natural gas is desulfurized and then converted into syngas, a mixture of H2 and CO. There are several known technologies for its production. The second step is Fischer-Tropsch synthesis, in which cobalt- or iron-based catalysts are used at specific operating temperatures. This is the proprietary step, and each company uses a different process, each producing a different product yield. The final stage takes the primarily waxy products of the second stage and converts them to a variety of liquid products, including middle distillates, which are used as FTD, and high quality naphtha (Wang and Huang, 1999; Eilers et al., 1991). Each of the processing steps in the Fischer-Tropsch GTL technology are commercially proven and optimized for individual uses. Some recent developments in the area of syngas generation that have the potential to reduce capital costs and increase the thermal efficiency of a FTD plant. Room for additional improvement lies in use of the catalyst and optimization of the three stages in combination (Vosloo, 2001). Economies of scale and eventual benefits of repetitive plant design will help this GTL technology achieve greater economic viability (Wilhelm at el., 2001). The high quality FTD fuel produced can be used directly in diesel engines or as a blendstock to upgrade petroleum-based refined diesel. Diesel fuel studies have shown that higher cetane numbers (a measure of how readily the fuel ignites) and lower aromatic, PAH and sulfur content result in lower emissions of NOX, SOX, HC, CO, Chart 2. Diesel Comparison and PM, without impacting fuel Diesel Current Emissions efficiency. Reducing the fuel FTD Properties CARB Diesel Control Diesel density also helps to reduce PM Sulfur (ppm) ~120 10 0 emissions. Chart 2 demonstrates Nitrogen (ppm) ~100 1 0 FTDs properties compared to the Aromatic (v%) 10-22.5% 8.8% 0 current average diesel fuel PAH (wt%) 1-5% 0.5% 0 properties in California, which is Density (kg/m3) ~845 818 780 cleaner than diesel in the rest of Cetane number ~54 61.7 75 the U.S, and the Emissions Control Diesel also being sold in the California market. Reducing the sulfur content is particularly important to the effectiveness of after-treatment PM controls. More highly active catalysts can be used in after-treatment controls with very low or no-sulfur fuels, allowing for effective operation at lower temperatures and a broader range of applications (CARB, 2000). Maximum sulfur content has been ratcheted down in the U.S., from 3,000 ppm before 1993 to a current 500 ppm and 15 ppm beginning in 2006. According to some analysis, FTD offer slight efficiency gains over reformulated diesel, along with significant human health and environmental benefits. Figure 5 shows results of testing by Californias Air Resources Board (CARB) and analysis by PricewaterhouseCoopers (PwC). In testing FTD against reformulated diesel in light duty and heavy duty diesel vehicles, both found emissions benefits associated with FTD. Along with eliminating sulfur emissions, FTD provides a slight benefit over reformulated diesel in terms of NOX emissions and offers more substantial reductions in PM,

HC, and CO emissions (PwC, 2001; Lloyd and Cackette, 2001). In heavy-duty vehicles, the benefits are more modest. The National Renewable Energy Lab (NREL) tested FTD in a modified diesel engine equipped with state-of-the-art emissions control devices and a redesigned combustion system, and achieved 97 percent lower NOX and 94 percent lower particulate emissions, without sacrificing fuel economy (NREL, 2001). CARB also found significant benefits for CO and HC emissions with use of catalyzed particulate filters (Lloyd and Cackette, 2001). CARB and NREL testing with advanced emissions controls (the highest bars in figure 5) represent the future potential for new vehicle designs in combination with clean diesel fuels. Reduced emissions during fuel use would primarily benefit visibility and human health in urban regions. A life cycle assessment approach takes into account emissions and waste products over the full fuel cycle, from extraction to processing to distribution and use. In a life cycle assessment commissioned by Shell, PricewaterhouseCoopers (PwC) compared FTDs emissions over the entire lifecycle to those of reformulated diesel required under stricter upcoming diesel fuel regulations. PwC compared the environmental impacts of the complex refinery process required to produce reformulated diesel from petroleum to Shells proprietary catalyst system for producing FTD from natural gas, Shell Middle Distillate Synthesis (SMDS). The analysis considered all inputs and outputs from the two processes over the complete fuel cycle. The system boundaries included all products of each process. One important example is the electricity generated from fuel oil produced in the complex refinery. Even though SMDS is an exothermic process, additional generation is required to provide equivalent levels of electricity production in the SMDS system. The PwC analysis found that under ideal conditions, such as substitution of high efficiency combined cycle gas turbine electricity and exportation of electricity and water produced during FTDs exothermic production process, FTD can provide significant environmental benefits. Figure 6 displays the results of PwCs analysis, comparing the ideal conditions for SMDS with reformulated diesel production and use over the short and long term. The results demonstrate significant reductions of CO2, methane and NOX emissions and huge reductions of SOX and total waste over the fuels production and use. Increased long-term benefits primarily represent the optimization of diesel engines for FTD and the future ability of FTD in diesel engines to compete as an alternative to gasoline vehicles (PwC, 2001). In order to make reformulated diesel for stricter upcoming regulations, refineries will need to invest in additional technology, particularly hydrosulfurization, which will increase energy requirements and reduce the carbon efficiency of the fuel cycle. Some analysis suggests that refineries will not be able to meet new fuel requirements, especially for low aromatic content, without use of FTD as a blendstock (Mcnutt and Hadder, 1998). Two scenarios were considered in the assessment, use of combined cycle gas turbines and use of coal to generate electricity as substitutes for the combustion of fuel oil produced in the complex refinery process. For most emissions of concern combined cycle gas turbines are strongly preferred. CO2 and SOX emissions are Chart 3. % Benefit of FTD over RFD Production and Use increased substantially Total Primary under the coal scenario. CO2 Methane NOx SOx Waste Energy While SMDS does not Base case generate less desirable and Natural gas 21% 33% 38% 85% 77% -5% hazardous byproducts, such Coal 5% 42% 39% 75% -12% -7% as heavy residual oil and Worst case coke that are produced in Natural gas 13% 26% 34% 84% 76% -18% the complex refinery Coal -12% 37% 38% 71% -40% -22% 7

process, more total waste is generated when coal-fired electricity is substituted for fuel oil electricity, turning what was a strong advantage into a liability for FTD. If the electricity is produced in a coal-fired power plant with a typical efficiency rather than the super critical efficiency that is assumed, CO2 emissions, total waste and primary energy use far exceed the petroleum refining process, outweighing any remaining benefits for NOX and methane emissions (PwC, 2001). Chart 3 demonstrates the difference in the best and worst case short term benefits associated with FTD production if natural gas or coal are used as a substitute for electricity generation from refinery produced fuel oil. Coal as a substitute for refinery fuel oil negates many of the benefits of FTD even in the best case, but especially with a lower efficiency power plant and no export of electricity or water from the FTD plant. Argonne National Laboratory performed an analysis of the energy and emissions impacts of transportation fuels produced from natural gas using their fuel-cycle model, GREET 1.5a (Greenhouse gases, Regulated Emissions, and Energy use in Transportation). The analysis includes all aspects of fuel production, transportation and use, from natural gas extraction to vehicle operations. Within this context of full life cycle assessment, Argonne looked at the long range benefits of various fuels in combination with emerging or expected vehicle technologies. Argonnes study predicted fuel economy gains over a baseline average of current gasoline and diesel vehicles for a number of near-term and future technologies. In figure 7, lower gains represent incremental increases in fuel economy and higher gains represent the longer-term potential. Diesel, which here includes reformulated diesel (RFD), DME, and FTD, achieves immediate benefits and has a substantial additional advantage with hybrid technology, closely approaching the fuel economy of a methanol fuel cell (with on-board reformer) and better than use of gasoline in fuel cells (Wang and Huang, 1999). Baseline technologies are assumed to improve, even under a business-as-usual scenario, to keep pace with stricter regulations regarding fuel economy and emissions. Recent studies (including those cited above by CARB and NREL) have demonstrated substantial emissions benefits from use of FTD over RFD fuel. But due to a lack of study results at that time, Argonne assumed no additional emissions benefits except for a future 50 percent reduction in PM. Similarly, DME is assumed to achieve a 30 percent reduction in volatile organic compound (VOC) emissions and a 100 percent increase in methane emissions, but to produce otherwise equal emissions to use of RFD. The Argonne fuel-cycle analysis quantified emissions changes relative to a baseline gasoline vehicle fueled by reformulated gas over the total fuel cycle and for fuel use, represented by urban emissions. Urban emissions reductions and increases (particularly for NOX) are shown in figure 8. VOCs are significantly reduced with FTD and DME but otherwise there appears to be less advantage to GTL fuels, even when used with hybrid technologies,

when looking at emissions resulting from fuel and vehicle use. While these results are cautionary, there appear to be additional factors that were not considered. In addition to expecting only minor adjustments to emissions levels from those of RFD, emissions benefits from advanced emissions control technologies, such as those currently being tested by NREL and discussed briefly above, may not have been included by Argonnes fuel-cycle analysis. Results also suggest that the GREET model does not recognize any emissions benefits for hybrid vehicles over improved traditional diesel engines. Figure 9 offers the results of Argonnes full fuel-cycle analysis for selected available alternative fuels with near-team and longer-term technologies. All results are for light duty vehicles and are averaged between the expected incremental gains and potential future gains. Traditional engines include gasoline vehicles using reformulated gas (RFG) and a methanol mix with 90 percent methanol and ten percent gasoline (M90). Traditional diesel engines are assessed using RFD, FTD and DME. Hybrid electric vehicles are assessed with all fuels and fuel cell vehicles with on-board reformers are assessed using gasoline and methanol. In the Argonne fuel-cycle analysis, most emissions improvements measured for FTD and DME are a result of benefits of the FTD production process over RFD refining. FTD and DME both achieve substantial emissions reductions for total NOX, VOC and SOX, as well as reductions in greenhouse gases and PM, when used in improved diesel engines. These fuel-cycle benefits increase substantially when the fuels are used in hybrid vehicles. FTD and DME achieve roughly equivalent total emissions in hybrid vehicles to the emissions levels of fuel cell vehicles using methanol. The Argonne study does not provide any energy credit for water generation and assumes about half the FTD plants will co-produce steam or electricity for export. This results in lower efficiencies and higher emissions than in the best case of the PricewaterhouseCoopers study. The Argonne analysis included use of flared gas for production of FTD and DME. Use of flared gas was a tremendous advantage in practically every total emissions category because it was considered to be recycling of a waste product rather than exploitation of an energy source. Use of flared gas for production of GTL fuels presents a tremendous opportunity for reducing greenhouse gas emissions but because it is not likely to be the immediate general application of FTD technology its benefits are not documented in this discussion.

Conclusion
Gas to liquids technology offers alternatives to petroleum that can achieve multiple national policy goals of protecting human health, the environment and national security. Natural gas is a clean, abundant and economically viable alternative to petroleum. GTL technology presents a way to use natural gas to achieve substantial emissions reductions of greenhouse gases and conventional pollutants, without requiring extensive and costly infrastructure improvements. Of the three GTL fuels that show promise, FTD is the only fuel that is proven to be reliable with existing vehicle, refueling and production technology. DME appears to be very promising and may prove to be particularly well-adapted for developing countries, but work with DME is relatively recent and its production and use in vehicles is not widespread or well-tested. Methanols toxicity and

performance problems in fleet vehicles pose questions regarding its viable use with existing infrastructure and fuel cell applications appear to be still very much a future goal. GTL fuels have the potential to be integrated into the current transportation infrastructure relatively seamlessly. Initial use of GTL fuels would not require huge expenditures or much conscious effort on the part of consumers, although it would require some reeducation, especially in the U.S., regarding diesels reliability and potential to pollute. GTL fuels could be used with the same refueling structure and the existing diesel fleet. The major capital investment would be to scale up production capacity for GTL fuels. The best-case scenario for FTD or DME is use in a diesel hybrid electric vehicle with strict (e.g. CA LEV-2) standards. This scenario would come very close to a methanol fuel cell car in efficiency and cleanliness, but would not require the technological developments for the fuel cell, nor the methanol delivery infrastructure. This scenario could dramatically reduce emissions of all sorts on a relatively short timescale. But in order to achieve these benefits, the following criteria must be met: 1. Strong conventional pollution standards must be set and kept for diesel engines. Exemptions for diesel vehicles and fuels must be eliminated. 2. Hybrid platforms must be developed. Hybrids provide a vast range of benefits for all fuel types and all engines and, as this analysis shows, critically increase the public benefits of GTL fuel use. 3. GTL technology must be accompanied by a shift towards cleaner sources of electricity production. Coal-generated electricity as a substitute for fuel oil would negate much of the benefit of GTL fuel production and use. Strict standards, although often opposed by the automobile and energy industries, have provided the incentive to achieve innovative improvements in fuel and engine design and use. If combined with near-zero emissions standards, GTL fuels can help achieve tremendous reductions in conventional pollutants. Increased fuel efficiency and/or greenhouse gas standards are also required now to drive hybrid development. Fuel economy could be easily doubled through use of gasoline hybrids with current technologies, and these benefits would increase significantly with GTL fuels and engines. And if combined with a general shift away from coal in electricity production, GTL fuels can achieve critical reductions in greenhouse gases. In order to achieve these benefits, along with the substantial benefit of fuel diversity and reduced reliance on foreign oil, GTL fuel producers and automobile manufacturers must develop GTL-based technologies in concert with a push toward more stringent tailpipe standards, GHG reductions, and a shift away from coal and towards cleaner electricity generation. The current trends in regulation demonstrate that emissions standards are already approaching zero. By promoting the continuing tightening of emissions and fuel economy standards, GTL technology can become a viable alternative to petroleum-based fuels.

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