Synfuels in metropolis – part II: government incentives

Ewald Breunesse is energy transition manager with Shell Netherlands. He discusses (partial) transition to synthetic fuels, or synfuels, with his with his former colleague, Wolfgang Lüke, still active as consultant to Shell in synthetic fuels technology, based in Hamburg. In the first of this series they explained why urban agglomerations, like the German Rhine-Ruhr area or Dutch Randstad, are particularly interesting for large-scale synfuel use.

Money
The two go on to discuss the London congestion charge. “Emissions went down,” Wolfgang says, “but at a cost. Similar emission reductions could be expected if diesel were to be replaced by GTL (gas-to-liquid – ed.), with transport costs most likely deminishing. You see, everything can be translated into money.” “That would be a fine example of using alternative fuels to obtain a political goal,” says Ewald. For as we have seen in last episode, both Shell men are convinced air quality is for a large part a question of political choices.

“But because at first GTL would be more expensive than regular fuel, political incentives would be necessary,” Ewald continues. Incentives should not be suffocating, though. “As it is now, authorities often prescribe the method, instead of setting emission standards and leaving it up to transport companies to choose how to comply with them.”

A govenment's setting of emission standards doesn't come near the total freedom granted within the United States synfuel tax credits system that lasted until the end of 2007. In the wake of the 1970s energy crises this system was instated to encourage promising transport initiatives. It failed miserably. When oil prices plummeted in the 1980s it became virtually impossible to produce synfuels at competitive prices. In 2003 Time Magazine reported a large-scale synfuel scam: the federal income-tax credits were for a large part abused by plants merely altering coal to a minimal extent (or not at all), in compliance with the only IRS requirement: to “modify the chemical composition of coal.”

Incentives must be chosen and evaluated more carefully than that. A similar tax credit scheme in Canada worked well, by the way. Policy measures in European countries are of a different kind.

Wolfgang Lüke: “In North-Rhine Westphalia incentives to stimulate the application of GTL are being considered. The expected market price for neat synthetic diesel will be higher than for conventional diesel simply because of additional distribution costs. But also the investment costs for GTL plants are still high, although the size of GTL plants offers economy of scale benefits in the long run.”

To the max
Is that why Shell bets on liquid fuels and has reduced further investment in solar or wind energy, because synfuels pay off only when produced in large quantities? “No, that's not it” replies Ewald. “There will be a long transition period in which liquid fuels will continue to play a major role, next to hybridisation and, in part, electrification.”

Wolfgang adds: “GTL will only be able to become one element of the future fuel mix together with other alternatives. But we say: 'Focus on what you know best', also because of the large investments needed for every option you try.” Ewald: “It is wise to choose one option to develop to its full extent.”

Well, we've seen how Shell is good at that – let's see them develop synfuels to the max.