From Chairman, House Committee on Oversight and Government Reform, to Secretary,1

Department of Defense, January 30, 2008.

Congressional Research Service Washington, D.C. 20540-7000

Memorandum April 30, 2008

TO: Permission to share this memorandum has been granted by theoriginal requesting member

FROM: Anthony AndrewsSpecialist in Energy and Energy Infrastructure PolicyResources, Science, and Industry Division

SUBJECT: Analysis of Section 526 of the 2007 Energy Policy Act

This memorandum responds to your request for an analysis of Section 526 of the EnergyIndependence and Security Act of 2007 — P.L. 110-140 and a discussion of its possibleimplications. The section is repeated below with several terms italicized that are discussedthis analysis.

Section 526 — Procurement and Acquisition of Alternative Fuels — provides that:

“No Federal agency shall enter into a contract for procurement of an alternativeor synthetic fuel, including a fuel produced from nonconventional petroleumsources, for any mobility-related use, other than for research or testing, unless thecontract specifies that the lifecycle greenhouse gas emissions associated with theproduction and combustion of the fuel supplied under the contract must, on anongoing basis, be less than or equal to such emissions from the equivalentconventional fuel produced from conventional petroleum sources.”

House Committee Explanation of the Provision

In January 2008, the House Committee on Oversight and Government Reform requestedthe Defense Department to explain how it intended to comply with Section 526. The request1

noted that, with respect to coal-to-liquids fuels, the promise that a future means of avoidinggreenhouse gas (GHG) emissions would not be sufficient to meet the requirement of theSection, and that actual fuel supplied to the government must not have greater GHGemissions than equivalent conventional fuel. To help the Committee evaluate the Section’simplementation, specific information was requested on active or potential projects topurchase coal-to-liquids, tar sand, and alternative or synthetic fuels; coordinating efforts with

CRS-2

From Chairman, House Committee on Oversight and Government Reform ,to Chairman, Senate2

Committee on Energy and Natural Resources, March 17, 2008.

On January 18, 2007, the House passed the CLEAN Energy Act (H.R.6). The bill, crafted as part3

of the House Leadership’s “Hundred Hours Legislation,” was designed only to establish a reserveto collect funds from repealed oil and gas subsidies that could be used to support new incentives forenergy efficiency and renewable energy. On June 21, 2007, the Senate adopted an amendment in thenature of a substitute to H.R. 6 (S.Amdt. 1502) which transformed H.R. 6 into an omnibus energypolicy bill — Renewable Fuels, Consumer Protection, and Energy Efficiency Act of 2007. TheSenate substitute was derived primarily from S. 1419 (of the same title), which, in turn, wascomposed from four major bills: the Energy Savings Act (S. 1321), the Public Buildings CostReduction Act (S. 992), the Ten-in-Ten Fuel Economy Act (S. 357), and the Energy Diplomacy andSecurity Act (S.193). On August 4, 2007, the House passed an omnibus energy policy bill, H.R.3221, which had two divisions and 13 titles. Because the House omnibus bill (H.R. 3221) and theSenate omnibus bill (H.R.6) had different bill numbers, the bills could not be taken directly toconference committee. However, after the House completed action on H.R. 3221, informal bipartisannegotiations over the omnibus energy bills began between the House and Senate. On December 13,2007, the Senate approved (86-8) a substitute amendment to the House-passed version of H.R. 6. Theresultant bill was subsequently approved by the House (314-100) and signed into law as P.L. 110-140. For further information refer to CRS Report RL34294 Energy Independence and Security Actof 2007: A Summary of Major Provisions.

the Environmental Protection Agency (EPA) and other federal agencies; efforts to developa methodology for calculating life-cycle GHG emissions; whether carbon capture andsequestration will play a part in the project; and how fuel purchase contracts will be draftedto exclude fuels derived from tar sands or other unconventional sources.

As later explained in another letter by the Chairman of the House Committee onOversight and Government Reform, the provision “ensures that federal agencies are not2

spending taxpayer dollars on new fuel sources that will exacerbate global warming. It wasincluded in the legislation in response to proposals under consideration by the Air Force todevelop coal-to-liquid fuels. . . . The provision is also applicable to fuels derived from tarsands, which produce significantly higher greenhouse gas emissions than are produced bycomparable fuel from conventional petroleum sources.” As further explained, “Section 526applies specifically to contracts to purchase fuels, and it must be interpreted in a manner thatmakes sense in light of federal contracting practices. . . . It was not intended to bar federalagencies from entering into contracts to purchase fuels that are generally available in themarket, such as diesel or jet fuel, that may contain incidental amounts of fuel produced fromnonconventional petroleum sources.” Finally, according to the letter, the determination onlyneed be made that the specific GHG emission profile for a fuel type exceeds a comparableconventional fuel; a precise estimate is not necessary. Thus, “there is no barrier to theimmediate implementation of Section 526 with respect to these fuels.”

Challenges for Implementation

The terms conventional fuel, alternative fuel, synthetic fuel, conventional petroleumsources, and nonconventional petroleum sources are not defined by the Act and the Section.No explanatory statement referenced the provision nor did a Committee report accompanyH.R. 6. When the meaning of specific statutory language is at issue and the word or phrase3

is defined in the statute (federal statutes frequently collect definitions in a “definitions”section), or elsewhere in the United States Code, then that definition governs if applicablein the context used. Even if the word or phrase is not defined by statute, it may have an

CRS-3

ASTM International — Standards Worldwide. [ http://69.7.224.88/viewnews.aspx?newsID=1037]4

accepted meaning in the area of law addressed by the statute, it may have been borrowedfrom another statute under which it had an accepted meaning, or it may have had an acceptedand specialized meaning at common law. In each of these situations the accepted meaninggoverns and the word or phrase is considered a technical term or “term of art.” (For furtherinformation on this subject refer to CRS Report 97-589, Statutory Interpretations: GeneralPrinciples and Recent Trends.)

Background on Fuel and Petroleum

In this case, the terms in various contexts and to varying degree have been defined bythe petroleum industry, federal agencies, and previous legislation (as discussed below).Consequently, the section’s language could conceivably be interpreted to either expand orfurther restrict federal acquisition of fuel. Conventional fuels are already, to a large degree,synthesized by modern refining processes. Due to declining production, many petroleumreservoirs in the United States and abroad employ energy intensive enhanced oil recoverytechnologies (EOR — also termed secondary and tertiary recovery) which may be associatedwith increased greenhouse gases that may not be fully accounted for in a life-cycle analysis.

2Conversely, other EOR technologies inject carbon-dioxide (CO ), and thus might be creditedwith reducing GHG emissions.

Conventional Fuel. Crude oil is a complex blend of molecular weight hydrocarbonmolecules, the light end ranging from methane and butane, to heavier gasoline, naphtha, andkerosene, and even heavier asphaltenes. Late 19 and early 20 Century refining processesth th

employed simple atmospheric distillation to separate the natural gasoline and kerosenefractions from crude oil by their boiling ranges. The introduction of catalytic andhydrocracking process led to improved gasoline with higher octane rating. Modern refineriesemploy a complex series of processing steps that break down heavier weight hydrocarbons,add hydrogen, strip away sulfur, and reform the molecules into the ideal shapes (isomers).Overall, modern refining is a complex synthesis process employed to meet evolvingregulatory requirements for modern fuels.

The American Society for Testing and Materials (ASTM) has developed generallyrecognized standards for motor and aviation fuels, as well as standards that guide research,testing, and production of alternative energy sources. ASTM Committee D02 on Petroleum4

Products and Lubricants, a committee of over 1,500 members from 52 countries, hasdeveloped over 650 fuel-related standards, including several specifications that addressalternative fuels such as biodiesel and ethanol, and coal-based Fischer-Tropsch fuel.

To support the production of biodiesel, Committee D02 developed ASTM D 6751,Standard Specification for Biodiesel Fuel Blend Stock (B100) for Middle Distillate Fuels,a quality standard for pure biodiesel before it is blended with diesel fuel. D 6751 providesan industry consensus standard that assists suppliers in registering their products with theEPA, and is intended to ensure proper performance for users.

In the area of ethanol, ASTM D 5798, Standard Specification for Fuel Ethanol (Ed75-Ed85) for Automotive Spark-Ignition Engines, is the key specification used in the productionof E85 fuel for flexible fuel ground vehicles with automotive spark-ignition engines. ASTMD4814, Standard Specification for Automotive Spark-Ignition Engine Fuel, is the

CRS-4

Space Daily, Sasol Synthetic Fuel Wins Approval for Commercial Aviation Use. April 10, 2008.5

specification for automotive gasoline and its blends with up to 10% ethanol. ASTM D 4806,Standard Specification for Denatured Fuel Ethanol for Blending with Gasolines for Use asAutomotive Spark-Ignition Engine Fuel, is the specification for the ethanol intended to beblended with gasoline at 1-10 % by volume.

ASTM Committee D02.E0.02 on Diesel Fuel Oils is developing a new specification(WK14609 Low Temperature Fischer-Tropsch Derived Diesel Fuel Oils) for synthetic dieselfuel oils derived from the Low Temperature Fischer-Tropsch process. This specification isintended to ensure that purchasers are obtaining a synthetic diesel fuel of high quality. ASTMInternational Aviation Fuels Subcommittee D02.J, part of ASTM International CommitteeD02 on Petroleum Products and Lubricants, will meet in June 2008 on recent proposals foraviation fuels from Fischer-Tropsch methods and biomass conversion methods.

ASTM International has been working closely with the United Kingdom’s Ministry ofDefence and is expected to include Sasol CTL synthetic jet fuel in its ASTM D1655specification following the publication of the UK’s DEFSTAN 91-91. Jet A-1 according tothe DEF STAN 91-91 specification is very similar to Jet A-1 defined by ASTM D1655except for a small number of areas where DEF STAN 91-91 is more stringent. 5

The Air Force recently certified jet fuel produced by the Fischer-Tropsch for use inseveral aircraft. However, the primary federal agency responsible for procuring defense andfederal fuels — the Defense Energy Support Center (DESC) — has not adopted standardsfor this fuel. Consequently, DESC is not prepared to procure such fuels in the near term.

Any fuel, whether derived from petroleum, coal, or oil shale must meet the generallyaccepted standards (hence convention) adopted for its use, and future legislation may beintroduced to enforce the convention by regulation. Thus, even “alternative fuels” mighteventually be defined as conventional fuel.

Alternative Fuel. The Energy Policy Act of 1992 (P.L. 102-486) establishedNational Energy Policy Goals Towards Energy Security with provisions on EnergyConservation, Environmental Preservation, Petroleum Fuel Consumption, and AlternativeFuel Usage. The act established statutory requirements for the acquisition of alternative fuelvehicles (AFVs) by federal agencies. After FY2000, 75% of light-duty vehicle (LDV —vehicles weighing less than 8,500 lb gross vehicle weight) acquired in covered fleets mustbe AFVs.

As defined by the Energy Policy Act of 2005 (P.L.109-58) under Subtitles C and D, theterm “alternative fuel” means: (a) liquefied natural gas, compressed natural gas, liquefiedpetroleum gas, hydrogen, or propane; (b) methanol or ethanol at no less than 85 percent byvolume; or (c) biodiesel conforming with standards published by the American Society forTesting and Materials as of the date of enactment of the Act.

Renewable Fuels Mandate . The Renewable Fuel Standard was established by theEnergy Policy Act of 2005 with a national mandate for using more than 7.5 billion gallonsof ethanol and biodiesel by 2012. Later, President Bush issued an executive order directingthat at least half of the statutorily required renewable energy consumed by each federal

CRS-5

The White House, President George W. Bush, Executive order: Strengthening Federal6

Environmental, Energy, and Transportation Management, January 24, 2007.

Defense Energy Support Center, Fact Book, FY 2007.7

[http://www.desc.dla.mil/DCM/DCMPage.asp?PageID=721]

agency in a fiscal year come from new renewable sources. Under Section 201 (Renewable6

Fuel Standard) of the 2007 Energy Independence Act, gasoline sold in the United States mustcontain an increasing volume of renewable fuel — the applicable volume for 2008 is set at9.0 billion gallons, and under Sec. 246 the head of each federal agency is directed to installat least one renewable fuel pump at each federal fleet refueling center by January 1, 2010.The Defense Energy Support Center reported sales of 2.142 million gallons of gasohol tofederal clients in FY2007.7

Synthetic Fuel. During World War II, Congress’s concern for conserving andincreasing the nation’s oil resources prompted passage of the Synthetic Liquid Fuels Act of1944 (30 U.S.C. Secs. 321 to 325), which authorized funds for the Interior Department’sBureau of Mines to construct and operate demonstration plants to produce synthetic liquidfuel from oil shales, among other substances. The Interior Department Appropriations Actof 1980 (P.L. 96-126) and the Supplemental Appropriations Act of 1980 (P.L. 96-304)appropriated $17.522 billion to the Energy Security Reserve fund in the Treasury for theEnergy Department’s synthetic fuels projects. The United States Synthetic Fuels CorporationAct of 1980 (P.L. 96-294) established the United States Synthetic Fuels Corporation (SFC)with the authority to provide financial assistance to qualified projects that produced syntheticfuel from coal, oil shale, tar sands, and heavy oils. Congress terminated the SFC under theConsolidated Omnibus Reconciliation Act of 1985 (P.L. 99-272).

The coal liquefaction technology investigated under the Synfuels program differedsubstantially from the coal-to-liquids technology utilizing Fischer-Tropsch technology. Coalliquefaction is ideally suited to making gasoline, whereas oil shale retorting and Fischer-Tropsch are ideally suited to making middle distillate fuels. Though considered a syntheticfuel process, coal liquefaction employs processes similar to those used in refining petroleum.Modern refining, in turn, makes extensive use of catalytic processes, which are the core ofFischer-Tropsch technology.

It might be argued then, that all “conventional fuels” produced today are “synthetic” tovarying degrees. For information on synthetic fuels refer to CRS report RL33359, Oil Shale:History and Policy. For further information on Fischer-Tropsch technology refer to CRSreport RL34133, Fischer-Tropsch Fuels from Coal, Natural Gas and Biomass; Backgroundand Policy.

Conventional Petroleum Sources. The terminology used in the classification ofpetroleum reserves and resources has been the subject of study and ongoing revision. TheSociety of Petroleum Engineers (SPE) and the World Petroleum Council (WPC, formerlyWorld Petroleum Congresses) developed a set of petroleum reserves definitions which werepresented to the industry in March 1997. The U.S. Geological Survey has adopted its ownterminology for describing petroleum resources.

CRS-6

Society of Petroleum Engineers, “Glossary of Terms Used in Petroleum Reserves/Resources8

Definitions.” [http://www.spe.org/spe-app/spe/industry/reserves/index.htm].

U.S. Geological Survey, Chapter GL Glossary in U.S. Geological Survey Digital Data Series 60.9

[http://energy.cr.usgs.gov/WEcont/chaps/GL.pdf]

The average lifting cost for the U.S. was $6.83/barrel in 2006 (an increase of 23% over the10

$5.56/barrel cost in 2005). EIA, Crude Oil Production [http://www.eia.doe.gov/neic/infosheets/crudeproduction.html]

Electric Power Research Institute, Enhanced Oil Recovery Scoping Study (TR-113836) October11

1999.

EIA, Crude Oil Production. [http://www.eia.doe.gov/neic/infosheets/crudeproduction.html]12

The term “conventional petroleum source” is not defined in the SPE glossary.8

However, the term “conventional crude oil” is defined as: Petroleum found in liquid form,flowing naturally or capable of being pumped and without further processing or dilution.And “crude oil” is defined as the portion of petroleum that exists in the liquid phase innatural underground reservoirs and remains liquid at atmospheric conditions of pressureand temperature. Crude Oil may include small amounts of non-hydrocarbons produced withthe liquids. Crude Oil has a viscosity of less than or equal to 10,000 centipoises at originalreservoir temperature and atmospheric pressure, on a gas free basis.

Furthermore, SPE defines a “conventional deposit” as a discrete accumulation relatedto a localized geological structural feature and/or stratigraphic condition, typically witheach accumulation bounded by a down-dip contact with an aquifer, and which issignificantly affected by hydrodynamic influences, such as the buoyancy of petroleum inwater. Primary recovery of petroleum from reservoirs, from SPE’s perspective, utilizes onlythe natural energy (gas and water pressure) available in the reservoirs to move fluids throughthe reservoir rock or other points of recovery.

The U.S. Geological Survey (USGS) uses a similar definition: A discrete accumulation,commonly bounded by a downdip water contact, which is significantly affected by thebuoyancy of petroleum in water. This geologic definition does not involve factors such aswater depth, regulatory status, or engineering techniques. 9

Enhanced Oil Recovery. After a petroleum reservoir loses its natural drive, fromexhausting either its water drive or gas pressure, EOR is often employed to extend thereservoir’s production life. Typical applications include waterflooding, steam injection

2(thermal), and gas injection (CO , nitrogen, and natural gas) in addition to artificial lift(pump jack) . Many depleted reservoirs in the United States remain marginally productive10

through artificial lift — these are often referred to as stripper wells (producing between 5 and15 barrels of oil per day). A decade ago, over 700,000 barrels per day was produced byEOR, accounting then for 12% of the national crude oil production. Primary production11

methods now account for less than 40% of the oil produced on a daily basis, secondarymethods account for about half, and tertiary recovery the remaining 10%, according to theEnergy Information Administration. 12

The Alaska North Slope, driven by Prudhoe Bay and Kuparuk oil fields, has comprisedup to 25% of U.S. domestic crude oil production and currently accounts for about 17% of

CRS-7

U.S. DOE, Al ask a N or th Slope Oil and Gas A Promising Future or an Area in Decline?13

(DOE/NETL-2007/1280), August 2007.

EIA, Crude Oil and Total Petroleum Imports Top 15 Countries. [http://www.eia.doe.gov/14

pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html]

U.S. DOE , Practical Experience Gained During the First Twenty Years of Operation of the Great15

Plains Gasification Plant and Implications for Future Projects, April 2006.

U.S. DOE, Coal Gasification Plant Returns $79 Million to DOE in Revenue-Sharing Gas Sales,16

M a y 1 2 , 2 0 0 6 . [ h t t p : / / w w w . f e . d o e . g o v / n e w s / t e c h l i n e s / 2 0 0 6 / 0 6 0 2 5 -Dakota_Gasification_Revenue_Sharin.html]

USGS, Unconventional (Continuous) Petroleum Sources.17

[http://energy.cr.usgs.gov/oilgas/addoilgas/unconventional.html]

U.S. domestic production. The current production rate is less than 900,000 barrels of oil per13

day (BOPD) or about 45% of the peak production levels of the late 1980s. Natural gasinjection and waterflooding is seen as a means of enhancing recovery from what aredescribed as huge viscous, heavy oil resource overlying the Prudhoe Bay and Kuparuk Riverfields.

By comparison, Saudi Arabia’s Ghawar Field, which produces more than 5 millionbarrels per day (nearly 6% of world production), depends upon extensive waterflooding tomaintain output. Overall, Saudi Arabia supplied an average 1.4 million barrels per day to theUnited States, second only to Canada’s 1.85 million.14

2While petroleum producers have been separating associated gas and CO for EORreinjection, the Dakota Gasification Company’s Great Plains Synfuels Plant (GPSP) in

2Beulah, North Dakota, is the first energy facility to capture CO from a coal process and sellit for EOR. The plant has operated successfully for 20 years as the only commercial coal-to-15

natural gas facility in the United States. It consumes 18,000 tons per day of lignite coal and

2delivers captured CO through a 205-mile pipeline to a mature oil field in Saskatchewan,

2Canada. More than 5 million tons of CO have been sequestered to date, while doubling theoil recovery rate of the oil field. The plant was purchased from DOE in 1988 following adefault on $1.5 billion in DOE-guaranteed loans. The current owners paid $79 million toDOE in 2006 as part of a revenue sharing agreement. As the third such payment from16

Dakota, the revenue share to DOE from gas sales totals more than $241 million to date.

Under a broad interpretation of Section 526, some might argue for restricting the federalacquisition of petroleum products derived by EOR when the energy intensive recoverymethods exceed the life-cycle GHG emissions of petroleum produced by natural drive.

Non-Conventional Petroleum Sources. The term “non-conventional petroleumsources” is not defined by API or USGS. However, the API glossary defines “non-conventional gas” as natural gas found in a natural reservoir that does not contain crude oil.USGS refers to the increasing importance of “unconventional” resources; which are17

described as:

! the oil and natural gas resources that exist in geographically extensiveaccumulations.

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USGS, National Assessment of Oil and Gas Fact Sheet, Assessment of Undiscovered Oil18

Resources in the Devonian-Mississippian Bakken Formation, Williston Basin Province, Montanaand North Dakota, 2008.

EIA, Office of Oil and gas, Reserves Production Division, Technology-based Oil and Natural Gas19

Plays: Shale Shock! Could There Be Billions in the Bakken? November 2006.

BLM, Draft Oil Shale and Tar Sands Resource Management Plan Amendments to Address Land20

Use Allocations in Colorado, Utah, and Wyoming and Programmatic Environmental ImpactStatement, December 2007.

Michael Wilson, Embassy of Canada, to Robert Gates, Department of Defense, Letter of February21

22, 2008.

! the deposits generally lack well-defined oil/water and gas/water contacts andinclude coalbed methane, some tight sandstone reservoirs, chalks, and auto-sourced oil and gas in shale accumulations.

General categories of unconventional petroleum include: deep gas, shallow biogenic gas,heavy oil/natural bitumen, shale gas and oil, gas hydrates, and coalbed methane. Presumably,Canada’s extensive oil sand resources fall under the USGS unconventional category. Forfurther information on tar sands refer to CRS Report RL34258, North American Oil Sands:History of Development, Prospects for the Future.

The Bakken Formation of the Williston Basin, covering Montana and North Dakota, isestimated to contain 3.65 billion barrels of oil. Discovered in 2000 and now grown to 52918

square miles, the Elm Coulee Field of the Bakken produced 15 million barrels of oil in 2005and accounted for almost 50,000 barrels of oil per day, about half of Montana’s crude oilproduction at the time. By comparison, the U.S. Geological Survey estimated the Arctic19

National Wildlife Refuge Coastal Plain could contain up to 17 billion barrels of oil.However, the Bakken resources are defined by the USGS as unconventional “continuous-type” oil resources. This means the hydrocarbons within the Bakken have not accumulatedinto discrete reservoirs of limited areal extent.

Oil shale is prevalent in the western states of Colorado, Utah, and Wyomingrepresenting a resource potential of 1.8 trillion barrels of oil in place. In the early 20thcentury, three oil shale reserves were set aside on federal lands out of concern for the Navy’spetroleum supply. Naval Oil Shale Reserves (NOSRs) Nos. 1 (36,406 acres) and 3 (20,171acres) are located 8 miles west of Rifle, Colorado, in Garfield County. Reserve No. 2(88,890 acres) in Carbon and Uintah Counties, Utah, has been transferred to the Ute IndianTribe. The most promising oil shale resources occur in the Green River formation thatunderlies 16,000 square miles of northwestern Colorado, northeastern Utah, andsouthwestern Wyoming. Approximately 72% of the land overlying the Green RiverFormation is federally held. Though no commercial production currently takes place, theBureau of Land Management (BLM) has completed a draft programmatic environmentalimpact statement which examines alternatives for making BLM-administered lands availablefor applications for future commercial leasing .20

In 2006, Canada supplied the United States with nearly 1 million barrels per day ofcrude oil derived from oil sands, representing roughly 5% of the U.S. supply. With planned21

investments, Canada’s oil sands production is expected to grow from its current 1.4 million

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U.S. EPA, Greenhouse Gas Impacts of Expanded Renewable and Alternative Fuels Use (EPA420-22

F-035), April 2007.

Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-23

Use Change, Timothy Searchinger (Woodrow Wilson School, Princeton), et al. Science 319, 1238(February 29, 2008).

barrels per day to 3 million barrels per day by 2015. Most of the new production is destinedfor the United States.

Some could argue that as a “non-conventional source,” fuels derived from Bakkenformation should be excluded from federal procurement under Section 526, as should oilshale derived fuels (which would generate federal revenues from commercial consumption).

Life-Cycle Greenhouse Gas Emissions. Section 526 restricts federalprocurement of alternative or synthetic fuels that exceed the life-cycle greenhouse gasemissions generated by refining and consuming of conventional petroleum-based fuels(primarily gasoline). In general, life-cycle analysis is an approach for qualifying andquantifying the environmental impacts of all processes used in the conversion of rawmaterials into a final product. It may also be referred to as “well-to-wheel” analysis whenexamining fuel production and utilization. To fully evaluate energy and emission impacts ofadvanced vehicle technologies and new transportation fuels, the fuel cycle from wells towheels, and the vehicle cycle through material recovery and vehicle disposal need to beconsidered, Argonne National Laboratory developed the GREET model (Greenhouse gases,Regulated Emissions, and Energy use in Transportation). In particular, the GREET modelprovides a commonly used life-cycle analysis of GHG emissions from the different stagesof biofuel and gasoline production. 22

Argonne’s studies of substituting biofuels for gasoline found reduced greenhouse gasesbecause biofuel feedstocks sequester carbon. Based on Argonne’s study of comparing fuelson an energy equivalent basis for every BTU of gasoline replaced by corn ethanol, the totallife-cycle GHG emissions that would have been produced from that BTU of gasoline would

2be reduced by 21.8%. These emissions account not only for CO , but also methane andnitrous oxide. Results of the GREET Model are shown in Figure 1.

The model assumes that corn ethanol represents current and future production primarilythrough the dry mill process using natural gas as the primary fuel source. By comparison,coal-to-liquids (Fischer-Tropsch) with carbon capture and sequestration would contributea 3.7% increase in GHG emissions, and 118.5% without capture and sequestration.

GREET assumes carbon sequestration credits for land devoted to growing biofuelfeedstock. By excluding emissions from land-use change, most previous accountings wereone-sided, critics charge. The carbon benefits of using land for biofuels were counted but23

not the carbon costs — the carbon storage and sequestration sacrificed by diverting land fromits existing uses. The net impact on the carbon benefit of land must be properly accountedfor, not merely counting the gross benefit of using land for biofuels. The carbon generatedon land to displace fossil fuels (the carbon uptake credit) must exceed the carbon storage andsequestration given up directly or indirectly by changing land uses (the emissions from land-use change) to generate greenhouse benefits.

CRS-10

Mark Schipper, U.S. DOE EIA, Energy-Related Carbon Dioxide Emissions in U.S.24

Manufacturing (DOE/EIA-0573), 2005.

Figure 1. Argonne National Laboratory GREET Model

Criticism of GREET. Authors of the study critical of GREET found that “Over a 30-year period, counting land use change, GHG emissions from corn ethanol nearly double thosefrom gasoline for each km driven. . . even if corn ethanol caused no emissions except thosefrom land use change, overall GHGs would still increase over a 30-year period.” Anallocation of total emissions for all converted land by emissions per megajoule of fuelfactored into the GREET model is presented in Table 2. As shown in the table, land usechange factored into corn ethanol production has been estimated to result in a 93% net gainin GHG emissions over gasoline production.

In light of the authors findings on the life-cycle GHG emission attributed to increasedproduction of renewable fuels, some may argue that a broad interpretation of Section 526would restrict federal procurement of such fuel.

CO2 Emissions from Petroleum Production and Refining. In 2005, U.S.

2refineries emitted 306.11 million U.S. tons of CO to produce 5,686 million barrels of

2petroleum products — or approximately 0.05 tons CO per barrel refined. However, from24

2 a life-cycle perspective, these emissions do not account for the CO emitted by expending

This chart represents best available information about current or projected productionpractices and the impact of those practices on lifecycle greenhouse gas emissions. Thenumbers presented for renewable fuels were used in the analysis of the Agency’sRenewable Fuel Standard rulemaking. EPA along with other Federal agencies andstakeholders are committed to continuing to improve lifecycle analysis techniques.

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Yeld, John, Cape Argus (Cape Town), South Africa: Sasol Plant Named as Top Culprit25

in Emissions [http://allafrica.com/stories/200708080651.html]

fossil energy for drilling, lifting (production), and transporting crude oil by tanker ship andpipeline. In the past, poor reservoir management practices contributed to early decline inreservoir production when the associated natural gas was vented and flared (burned) to theatmosphere. This was a common practice when the natural gas had little market value.

2 The largest single global source of CO is considered to be the Sasol CTL plant, whichemits approximately 0.48 U.S. tons per barrel of product (1 metric ton product = 7 barrels).25

This would not include mining related emissions.

Table 2. Total Emissions for All Converted Land Factored into the Greet Model(Grams CO2 per Megajoule* energy in Fuel)

Source ofFuel

Makingfeedstock

Refining

FuelVehicle

Operation

Net land-use effects

TotalGHGs

%Changein

net GHGSversus

gasoline

Feedstock carbon uptake from

atmosphere

(GREET)

Land-use

changeGasoline +4 +15 +72 0 — +92 —

+74 -20% Corn ethanol (Greet)

+24 +40 +71 -62 —

+135without

feedstockcredit

+47%without

feedstockcredit

Corn ethanol plus land usechange +24 +40 +71 -62 +104 +177 +93% Biomass ethanol (GREET) +10 +9 +71 -62 — +27 -70% Biomass ethanol plus land usechange +10 +9 +71 -62 +111 +138 +50%Comparison of corn ethanol and gasoline greenhouse gases with and without land-use change bystage of production and use (grams of GHGs CO2 equivalents per MJ of energy in fuel). Figuresin total column may not sum perfectly because of rounding in each row. Land-use change wasamortized over 30 years. Dash entries indicate “not included.”

*1 megajoule = 948 British Thermal Units (BTU) Source: Searchinger, et al. Science 219, 1238 (2008)

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Reuters, Table-U.S. refinery expansion plans (ConocoPhillips), March 12, 2008.26

[http://uk.reuters.com/articlePrint?articleId=UKN1258015020080312]

In Conclusion

In addition to an analysis and discussion of possible implications, you had also askedabout potential Congressional response to issues that might be associated with Section 526.

The provision’s intent as described in the Oversight Committee letter is to forestall theAir Force’s initiative to attract private sector development of a coal-based Fisher-Tropschplant for supplying jet fuel. A comprehensive analysis of the economic viability of Fischer-Tropsch technology is outside the scope of this memorandum. There are arguments thatfederal tax incentives and loan subsidies are needed to stimulate Fischer-Tropsch coal basedfuel production. The only successful venture to date, Sasol, was chartered by South Africa’sgovernment and then benefitted from price subsidies and import tariffs until crude oilreached a floor price of about $45 per barrel. With crude oil now hovering near $120 perbarrel, and refined diesel exceeding $4 per gallon, others may argue, there is incentiveenough to stimulate private sector investment in such an enterprise. Furthermore U.S.middle distillate supply is currently supplemented by up to 400,000 barrels per day inimported products (the Defense Department’s approximate daily consumption). The recentdiesel price spike and the import demand has not gone unnoticed by the refining industry,and several refiners are planning to increase diesel refining capacity. As diesel fuel26

specifications are less demanding than jet fuel (especially military specification), refinersmay be more inclined to shift to diesel production over jet fuel. With the imposition of newregulations for ultra-low sulfur diesel (ULSD), Fischer-Tropsch coal-to-liquids offers theinherent advantage of producing zero-sulfur fuel. The downside to this is that refiners alreadyappear less responsive to DESC solicitations for jet fuel contracts.

As discussed above, undefined terms of reference can have the unintended consequenceof diluting legislative intent. Apart from explicit definitions, Congress may opt to considerdefining a set GHG emission limit that any federally procured fuel must not exceed. Theunderlying issues, however, are the availability of sources, natural resources, and theincreasing cost of meeting defense energy needs and therefore national security needs. Thus,Congress may be called upon to review Section 369 of EPAct 2005 directing the Secretaryof Defense to develop a strategy to use fuel produced, in whole or in part, from coal, oilshale, and tar sands to assist in meeting the fuel requirements of the Defense Departmentwhile not exceeding set GHG emissions..

If you have any questions, or require further assistance on this issue, please contact meat 7-6843.